Big OFS Firms See Sustained Recovery, but No Signs yet of a Full Rebound

Halliburton and Baker Hughes both forecast moderate growth in their latest quarterly earnings reports.

Source: Getty Images.

Two of the biggest oilfield service companies in the world reported earnings this week and reiterated that while things are getting better, a total recovery from the pandemic-driven downturn is not on the agenda in the short term.

Halliburton is coming off a relatively hot quarter and reported $227 million in profits, a 33% increase over the previous period. After reporting a total revenue of more than $3.71 billion, the company’s earnings amounted to 26 cents per share which beat most analysts’ expectations of 22 cents.

The needle moved the opposite direction for Baker Hughes which reported an adjusted quarterly net income of $83 million, a 9% drop from the first 3 months of the year. Baker Hughes finished the quarter with earnings per share of 10 cents which missed the market estimate of 16 cents. On the plus side, total revenue for the quarter reached $5.14 billion, up 8.6% from the last quarter.

While describing 2021 as a “transition year,” Halliburton’s CEO Jeff Miller issued an upbeat outlook for what lays beyond this year. “We believe that we’re in the early innings of a multiyear upcycle. For the first time in 7 years, we anticipate simultaneous growth in international and North American markets,” he told investors on an earnings call.

After missing Wall Street expectations, Baker Hughes CEO Lorenzo Simonelli said the prospects of a global economic recovery and higher energy demand remain intact. “Although we recognize the risks presented by the variant strains of the COVID-19 virus, we believe that the oil price environment looks constructive with demand recovering and operators largely maintaining spending discipline,” he said.

Higher Prices Spur the Comeback

Both Halliburton and Baker Hughes are benefiting from higher oil prices this year, largely the result of the coordinated efforts by OPEC+ to moderate global supply. Since about mid-June, West Texas Intermediate and Brent crude futures have closed most trading sessions above the $70/bbl price handle. This represents a major turnaround from 2020’s average price of about $40/bbl for the world’s two major benchmarks.

In response to wider margins, US operators have put more than 130 rigs to work since January. However, the 484 rigs that were turning to the right as of 16 July represent a figure that is almost 40% below the US rig count in February 2020, the month before the COVID-19 outbreak was declared a pandemic by the World Health Organization.

Against the backdrop of US constraint, Miller said Halliburton expects the biggest growth in its margins over the next 2 years will come from its international business as some countries remain mired in pandemic-related disruptions. Halliburton expects that as business picks back up, most of its national oil company clients will focus their investments on mature assets “while large-scale greenfield exploration will be limited to a few markets in Africa and Latin America,” added Miller.

The Halliburton CEO also said he believes North American activity “inches higher with drilling outpacing completions as operators build up well inventory for 2022.” The US market remains Halliburton's biggest single source of revenue and as publicly traded operators in the US hold the line on moderating their growth, Miller explained that private operators are most likely to lead the anticipated boost in new well activity. And though North American spend on drilling and completions could grow by double digits during this period, Miller does not expect a full recovery back to pre-pandemic levels.

The rebound is significant enough, though, for Halliburton to issue warnings of a supply crunch in the oilfield equipment market. Miller said prices are already rising in North America as a result and that pricing for international services will soon follow suit.

Baker Hughes is in the midst of a reorganization that is focused on building a business around the energy transition and last quarter said it remained on track to close around 100 of its field service facilities by year’s end. The company is also trimming its product lines and said in its most recently earnings report that revenue from oilfield equipment has dropped by about 8% year-over-year.

Simonelli added that the company remains in the process of “rightsizing” its offshore-focused equipment business and that while it sees awards for its subsea trees increasing, the offshore market remains depressed. “We continue to believe that it will be difficult to achieve and sustain 2019 order levels in the coming years as the deepwater market becomes increasingly concentrated into low-cost basins and upstream spending budgets for many larger operators are re-allocated to other areas,” Simonelli said on the earnings call.

Technology Outlook

On the technology front, Halliburton highlighted that it is pushing ahead on digitization and automation of key services. During the second quarter, Halliburton said it performed a remote logging operation in Europe with a wellsite specialist who operated the downhole tools from a location in Norway. It also reported a project in Russia that reduced personnel needs at the rig site by 40%. Additionally, Halliburton reports that 75% of deployments of its latest rotary steerable tool have been fully automated and that it expects all of its runs with the tool will involve some level of autonomy by year’s end.

Baker Hughes, meanwhile, is betting its future on rising demand for liquefied natural gas (LNG) and the expansion of low-carbon technologies. Simonelli noted that LNG imports to China were up nearly 30% for the first half of this year and that as demand rises globally, “we are growing increasingly confident that a multiyear growth opportunity will begin to emerge in 2022” for the company’s turbomachinery and process business.

Simonelli also listed several recent collaboration agreements and investments that are aimed at solidifying Baker Hughes’ position as a leading provider of technologies and services for hydrogen production and carbon capture, utilization, and sequestration (CCUS).

One of the partnerships struck during the quarter was with Samsung Engineering to develop both hydrogen and CCUS projects. Baker Hughes also announced another tentative agreement to co-develop CCUS projects in Norway with a company called Borg CO2.

Baker Hughes also secured a 15% equity stake in a company called Electrochaea which has developed a bio-methanation technology which the service company plans to combine with its own technologies to transform CO2 into synthetic natural gas.

Schlumberger is next to release its second-quarter earnings on Friday, 23 July.