Houston Chronicle

Caution ahead of oil industry’s latest earnings

- By Paul Takahashi STAFF WRITER

After a year marked by bankruptci­es and layoffs, Houston’s oil and gas industry is set to unveil fourth-quarter earnings amid optimism that the worst is behind and recovery is in sight.

Analysts expect the companies, beginning with Houston oilfield services firms, to show better financial results after massive losses in the second and third quarters. Baker Hughes, Halliburto­n and Schlumberg­er, which together lost $269 million in the third quarter and billions of dollars in 2020, report their quarterly earnings this week.

The rosier outlook for the October-December period comes as the price of U.S. crude prices this month climbed above $50 a barrel — a price allowing many oil producers to break even — as investors rallied around the rollout of coronaviru­s vaccines. Oil markets were further buoyed by Saudi Arabia’s plans to cut production by 1 million barrels a day next month to help balance supply with demand. Several analysts predict that crude prices could hit $60 a barrel by the end of the year, a price at which many oil companies can turn a profit.

“We’re definitely out of the woods now that we have the vaccine and prices are looking better,” said Tyler Hoge, senior research associate for Austin-based energy research firm Enverus. “Now, we don’t want to get ahead of ourselves. Ultimately the worst is behind us, but we should proceed with caution.”

Even with revenues rising, oil companies aren’t expected to dive back into growth mode. Instead, companies will likely maintain financial discipline, especially as coronaviru­s cases around the globe climb and bring renewed business and travel re

strictions. Demand and oil prices plunged amid similar restrictio­ns imposed early in 2020.

Prior to the pandemic and oil crash, exploratio­n and production companies reinvested revenue into new drilling projects to replace rapidly depleting wells. But after crude’s dramatic plunge, companies cut capital budgets and set a goal to save 20 to 30 percent of their revenue, Hoge said.

Exxon Mobil, the nation’s largest oil company, in December slashed its five-year capital spending plans to its lowest level in 15 years. The Irving-based oil giant, which employs about 12,000 in the Houston area, said capital spending won’t exceed $25 billion a year through 2025, down $10 billion from its pre-pandemic target.

Rival Chevron cut its long-term capital budget by more than a quarter to $14 billion to $16 billion annually through 2025. The California oil company, with about 10,000 Houston-area employees, said it will prioritize projects that deliver higher returns.

The two energy giants and others continue to focus on fiscal discipline to woo back Wall Street investors who have largely pulled out of the energy sector after years of poor to middling results. Last year, energy was the worstperfo­rming sector of the U.S. stock market.

“Capital markets have moved away from U.S. oil and gas investment­s for the most part,” said Lee Maginniss, managing director of Alvarez & Marsal’s corporate improvemen­t energy practice. “Without access to capital, it’s very hard to take advantage of any opportunit­ies.”

The belt-tightening has accelerate­d the adoption of new technolNat­ural ogy and automation that promises to make the industry more efficient. Engineers can now control oil wells remotely, and oil-field workers can use drones to detect pipeline leaks.

“Companies have had to take extraordin­ary measures to push costs downward,” said Karr Ingham, a petroleum economist with the Texas Alliance of Energy Producers. “Becoming more productive and efficient is one way they can decrease their costs. That phenomenon is not going away.”

There are signs that this fiscal discipline is paying off. Pioneer Resources on Thursday issued $1 billion of bonds due in 10 years at a 2.1 percent interest rate to refinance debt from its recent acquisitio­n of rival Parsley Energy. Some lenders seem more willing to extend favorable financing to energy companies exercising restraint, Hoge said.

“We’ve been surprised by certain refinances,” Hoge said. “Capital is coming back into the space, but right now, there are more weary investors and lenders out there.”

 ?? Steve Gonzales / Staff photograph­er ?? Halliburto­n is among Houston oil field services companies set to report fourth-quarter earnings this week.
Steve Gonzales / Staff photograph­er Halliburto­n is among Houston oil field services companies set to report fourth-quarter earnings this week.

Newspapers in English

Newspapers from USA