Things are looking up for the big three OFS companies after reporting collective fourth-quarter revenue of $16 billion

While recording their fourth quarter earnings, the CEOs of Baker Hughes, Halliburton and Schlumberger pointed to a price rebound as a sign that we are in the midst of an energy super cycle. Much of the macro posts they shared echoed past statements that predicted a major recovery was due following a prolonged period of underinvestment in the oil and gas sector.

“There is no doubt that the long-awaited multi-year bull cycle is now underway,” Halliburton CEO Jeff Miller said in an earnings call Jan. 24. He added that “simultaneous” growth will occur in North American and international markets with “momentum I haven’t seen in a long time.”

Halliburton saw fourth-quarter revenue hit $4.28 billion with net income of $824 million, up sharply from $264 million in the third quarter of 2021.

Last week, Baker Hughes reported fourth-quarter revenue of $5.5 billion, up 8% from the prior period. The company’s adjusted operating profit for the last quarter was $571 million, up 42% from the previous quarter and 23% on a year-on-year basis.

Also last week, Paris-based Schlumberger posted its highest fourth-quarter total revenue of $6.22 billion, up 6% from the previous quarter and 13% year-on-year.

Schlumberger CEO Olivier Le Peuch said growing tight oil supply along with demand growth that is expected to exceed pre-pandemic levels “should drive a substantial increase in capital spending in a capacity environment. declining reserve, declining inventory balance and favorable oil prices.

The three leaders were optimistic about increased activity in North America, largely the result of operations in the United States, as well as in the broader international market.

Le Peuch shared that Schlumberger’s international business units posted fourth-quarter gains that topped 75% and that full-year margins for those units exceeded 2019 levels. , he pointed out that “a strong multi-year bull cycle” is underway as capital expenditure commitments are expected to increase by 20% in North America and in the “low to mid” range in the international market as a whole.

To a lesser extent, Halliburton also saw international admissions increase throughout last year and recorded an 11% increase in the fourth quarter. Miller said Halliburton expects this growth to continue as international customers increase their annual spending by a percentage in their mid-teens.

“Asset owners are eager to reverse declines in base production caused by several years of underinvestment,” he said of the international market.

Baker Hughes also expects similar overall gains in its international business. This growth is expected to be driven by developments in Latin America which are poised to post a second consecutive year of double-digit growth, while “the Middle East is in the very early stages of what we expect to be a cycle of multi-year growth,” said the CEO of Baker Hughes. Lawrence Simonelli.

Price improvements

Le Peuch noted on his earnings call that he expects “more widespread improvements in service pricing” due to increased demand for oil and gas, technology adoption and the tightening of service availability.

Halliburton’s Miller posted a similar outlook while noting that the US pressure pumping market has reached 90% utilization. As the demand for frac fleets grows, it has also resulted in tight trucking, water and sand supplies.

However, he also said some of that demand was driven by activity around drilled but uncompleted (DUC) wells. As DUC counts decline, Miller expects some relief to come to the pressure pumping market as more completion crews take on their usual role of tracking flat counts. -active forms. Since the start of 2021, the total number of DUCs has fallen nearly 40% to a December total of just over 4,600, according to data from the US Energy Information Agency.

Miller also drew attention to an 8% increase in finishing tool sales, marking the largest quarter-over-quarter increase Halliburton has seen in this segment in 15 years. “Equally importantly, our current completion tools backlog more than doubled from a year ago, again signaling strong growth and profitability in 2022,” he said.

With positive cash flow on the rise, Halliburton announced plans to repay $600 million of $1 billion in debt that matures in 2025. The repayment is expected to be completed by February, bringing the total of Halliburton’s $1.6 billion debt repayment since the start of 2020.

Simonelli also attributed improved profit margins at Baker Hughes to higher prices for certain product lines. However, he noted how higher prices cut in both directions.

Simonelli said he was pleased with the 10% operating margin achieved by Baker Hughes’ oil services division, but suggested it fell short of internal targets due to inflation in raw material prices and supply chain disruptions. “That being said, our OFS team is working extremely hard to offset these headwinds,” in part through further price increases, he explained.

Technology Adoption and LNG Leading the Numbers

When Le Peuch took over as head of Schlumberger in 2019, he touted a shift in the company’s priorities towards more digital products. The gamble appears to be paying off after Schlumberger announced its digital integration business unit was the top source of growth in the fourth quarter, generating $889 million in revenue. This represents a 10% increase in quarter-over-quarter revenue for the digital unit, which also posted a record margin of over 37%.

Figures shared by Le Peuch include the more than 240 commercial customers of the company’s cloud-based exploration and production platform, which has seen a 160% increase in users from 2020. .

Halliburton is also banking on new technologies after launching more than 50 new products last year, according to Miller. They included a new formation evaluation platform and a new tool for tough drilling conditions. But what the Halliburton chief has been talking about most with investors is the company’s latest electric fracturing fleets that are able to adjust pumping rates four times faster than traditional diesel units.

Driven by demand for low-emission developments, Miller said these new electric fleets are also fully automated “which ensures more consistent fracture placement at every stage, improved cluster uniformity, and manages staggered fracture hits.”

Halliburton’s move towards digitization was also covered on the recent call. Miller said 100% of its drilling operations are performed using a cloud-based system and nearly 60% of jobs using its latest-generation rotary steerable system are fully automated, resulting in a almost 70% reduction in staff on each platform. it was rolled out.

The most successful technology push at Baker Hughes came from its liquefied natural gas (LNG) business unit which won nearly $7.7 billion in orders last year. This figure represents approximately 22 mtpa of LNG capacity and is just short of the company’s record LNG revenue achieved in 2019.

“Perhaps more importantly, we believe the increase in LNG order activity provides a strong indication that a new LNG cycle is beginning to take shape,” Simonelli said. He added that over the next 2-3 years, Baker Hughes sees the potential for 100-150 mtpy in rewards with “a general bias towards the upper end of that range”.

LNG optimism is based on net-zero political decisions, particularly in Europe, which increasingly accepts natural gas as a key enabler of the energy transition. Simonelli also noted how the sharp rise in gas and LNG prices in Europe and Asia has “highlighted the fragility of the global energy system” as more countries adopt policies to drive the energy transition. .

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