Things Are Looking Up for the Big Three OFS Firms After Reporting a Collective $16 Billion in Q4 Revenue
The leading oilfield services firms say a multiyear upcycle is driving improved pricing and technology uptake.
While turning in their fourth-quarter earnings, the CEOs of Baker Hughes, Halliburton, and Schlumberger highlighted a rebound in pricing as one sign that we are in the midst of an energy supercycle. Much of the macro messaging they shared echoed past statements which predicted a major upswing was due following a prolonged period of underinvestment in the oil and gas sector.
“There is no doubt, the much-anticipated multiyear upcycle is now underway,” said Halliburton CEO Jeff Miller during an earnings call on 24 January. He added that “simultaneous” growth will occur in both the North American and international markets with a “momentum that I have not seen in a long time.”
Halliburton saw fourth-quarter revenue reach $4.28 billion with a net income of $824 million, up sharply from $264 million in the third quarter of 2021.
Last week, Baker Hughes reported $5.5 billion in fourth-quarter revenue, up 8% from the previous period. The firm’s adjusted operating income for the final quarter was $571 million, up 42% from the prior quarter and 23% on a year-over-year basis.
Also last week, Paris-based Schlumberger turned in the largest fourth-quarter revenue total of $6.22 billion, up 6% from the prior quarter and 13% year-over year.
Schlumberger CEO Olivier Le Peuch said the increasing supply of tight oil along with growth on the demand side set to breach pre-pandemic levels “are projected to result in a substantial step-up in capital spending amid shrinking spare capacity, declining inventory balance, and supportive oil prices.”
The three chiefs were bullish on increased activity in North America, largely the result of US operations, as well as in the broader international market.
Le Peuch shared that Schlumberger’s international business units saw fourth-quarter gains that exceeded 75% and that full-year margins for these units topped 2019 levels. Speaking to Schlumberger investors on 21 January, he emphasized that “a strong multiyear upcycle” is underway as capital spending commitments are set to increase by 20% in North America and in the “low to mid-teens” across the broader international market.
To a lesser degree, Halliburton also saw international inflows grow throughout last year and recorded an 11% increase in the fourth quarter. Miller said Halliburton expects this growth to continue as international clients increase their annual spending by a percentage in the mid-teens.
“Asset owners are eager to reverse base production declines caused by multiple years of underinvestment,” he said of the international market.
Baker Hughes is also expecting similar overall gains in its international business. That growth should be led by Latin American developments which are poised to post a second straight year of double-digit growth while "the Middle East is in the very early stages of what we expect to be a multiyear growth cycle," said Baker Hughes CEO Lorenzo Simonelli.
Le Peuch noted during his earnings call that he expects “more pervasive service pricing improvements” as a result of stronger oil and gas demand, technology uptake, and as availability of services tightens.
Halliburton’s Miller issued a similar outlook while noting that the US pressure pumping market has reached a 90% utilization rate. As demand for fracturing fleets rises, it has also resulted in a tighter supply of trucking, water, and sand.
However, he also said some of this demand is driven by activity around drilled-but-uncompleted (DUC) wells. As the DUC count drops, Miller expects some relief will come to the pressure pumping market as more completion crews assume their usual role of following the active rig count. Since the start of 2021, the total number of DUCs dropped by almost 40% to a December total just above 4,600, according to data from the US Energy Information Agency.
Miller also called attention to an 8% rise in completion tool sales, marking the biggest quarter-to-quarter increase that Halliburton has seen in that segment in 15 years. “Equally important, our current completion tool orderbook has more than doubled from a year ago, signaling strong growth and profitability again in 2022,” he said.
With positive cash flow on the rise, Halliburton announced plans to pay down $600 million of a $1-billion debt note that matures in 2025. The repayment should be completed by February, which will bring Halliburton’s debt retirement total to $1.6 billion since the start of 2020.
Simonelli also credited Baker Hughes' improving profit margins to higher pricing of certain product lines. However, he noted how higher prices are cutting both ways.
Simonelli said he was pleased by the 10% operating margin realized from Baker Hughes’ oilfield services division but suggested it fell short of internal goals due to commodity price inflation and supply chain disruptions. “That being said, our OFS team is working extremely hard to offset these headwinds,” partially through more pricing increases, he explained.
Technology Uptake and LNG Driving the Numbers
When Le Peuch took the helm of Schlumberger in 2019, he touted a shift in the company’s priorities toward more digital products. The bet appears to be paying off after Schlumberger reported that its digital integration business unit was the leading source of growth in the fourth quarter, earning a revenue of $889 million. This represents a 10% increase in quarter-to-quarter revenue for the digital unit which also saw a record-high margin of more than 37%.
Figures shared by Le Peuch included the more than 240 commercial customers of the firm’s cloud-based exploration and production platform which saw a 160% increase in users from 2020.
Halliburton is also riding high on new technologies after debuting more than 50 new products last year, according to Miller. They included a new formation evaluation platform and a new tool for harsh drilling conditions. But what the Halliburton chief spoke to most with investors was the firm’s latest electric fracturing fleets that are able to adjust pump rates four times faster than traditional diesel units.
Driven by demand for lower-emissions developments, Miller said these new electric fleets are also fully automated “which ensures more consistent fracture placement on every stage, improved cluster uniformity, and manages offset frac hits.”
Halliburton’s drive toward digitization was also covered during the recent call. Miller said 100% of its drilling operations are run using a cloud-based system and that nearly 60% of the jobs using its latest-generation rotary steerable system are fully automated, which has resulted in an almost 70% reduction in personnel on each rig it has been deployed on.
The most successful technology push at Baker Hughes came from its liquefied natural gas (LNG) business unit which took home nearly $7.7 billion in orders last year. The figure represents about 22 mtpa of LNG capacity and fell just short of the company’s record LNG revenue achieved in 2019.
“Perhaps more importantly, we believe that the step-up in LNG order activity provides a solid indication that a new LNG cycle is beginning to take shape,” Simonelli said. He added that over the next 2 or 3 years, Baker Hughes sees the potential for 100 to 150 mtpa in awards with “a general bias toward the upper end of this range.”
Driving the optimism for LNG are “net-zero” policy decisions, especially in Europe, that are increasingly accepting of natural gas as a key enabler for the energy transition. Simonelli also noted how sharply rising prices for gas and LNG in Europe and Asia have “highlighted the fragility of the global energy system” as more countries enact policies to drive the energy transition.