Ready for a rebound
Unexpected slowdown in Permian Basin lures heavy hitters to international rigs
Slowdown in Permian Basian has oil field services firms looking to international markets.
The biggest providers of oil field services are surfing a wave of international spending on the back of higher prices, but the good news is tempered by an activity slowdown in their own back yard.
While Schlumberger, the world’s biggest oil field service company, and its Houston competitors, Halliburton and Baker Hughes, are projected to report third-quarter earnings that are higher year-onyear, analysts have been cutting their estimates in recent weeks, as it becomes clear the U.S. shale market will cool off.
America’s busiest oil field is slowing down because of maxed-out pipelines, budget exhaustion and greater investor scrutiny of explorer spending. That has a knockon effect on the oil servicers working there. Both Schlumberger and Halliburton expressed surprise last month at how quickly activity was being dialed back in the Permian Basin of West Texas and New Mexico. Halliburton, the world’s biggest provider of fracking work, said its thirdquarter
America’s busiest oil field is slowing down because of maxed-out pipelines and greater investor scrutiny of explorer spending.
earnings would be hurt by a range of 8 to 10 cents per share partly as a result.
Halliburton reports earnings Monday. Investors are waiting to see just how much the slowdown will hurt the outlook for profit in the fourth quarter and into 2019.
“An earnings reset this quarter should get us closer to the ‘all clear’ signal,” J. David Anderson, an analyst at Barclays PLC. wrote Oct. 10 in an note to clients.
Global recovery
The good news for the biggest oil servicers is that they finally have foreign markets to count on for more growth in the quarters ahead. The third quarter was the biggest threemonth period of growth for international drilling rigs since the middle of 2013, according to Baker Hughes.
Schlumberger, which generates most of its sales outside the U.S. and Canada, said in July the oil-market recovery is so broad-based that it expects to be sold out of the services and gear it supplies internationally by the year-end. Schlumberger, which has headquarters in Paris and Houston, reported Friday that its third quarter revenues rose 8 percent and profits 18 percent over a year early.
For the first time since 2014, international revenue growth from the previous quarter outpaced that of North Amercia, Schlumberger CEO Paal Kibsgaard said.
In recent months, Halliburton and Baker Hughes have each called out the Middle East and the North Sea in particular as areas of key growth. Schlumberger said in September it expects to generate double-digit sales growth next year in international markets including Brazil, Angola, China and Australia.
Schlumberger, the lead-off hitter in the oil-services earnings season, will give largely positive comments on the international cycle, be cautious on North America and optimistic about pockets of service-pricing gains next year, Sean Meakim, an analyst at JPMorgan Chase & Co., said in an Oct. 3 note.
Exploration spending
Explorers are expected to hike spending around the world by 3 percent next year to $458 billion, followed by a 10 percent boost in 2020, according to Morgan Stanley. Offshore spending is forecast to grow next year for the first time since the downturn began in 2014.
Schlumberger has said that higher spending from customers is needed just to keep global supplies of oil in check with overall demand. Halliburton has said the tightening global market is driving more oil field activity its way, particularly in older fields.
“Oil prices troughed in 2016, but the upstream recovery has been relatively isolated to North America and select international markets,” Morgan Stanley analysts including Connor Lynagh wrote last month in a note. “Rather than the zigging and zagging of the past several years, we see a coordinated global capex response likely in 2020.”