Oilfield services face crisis as shale decline is exacerbated
The first and third largest oilfield service companies in the world saw their revenues hit in the third quarter due to the slowdown in US shale drilling.
Schlumberger incurred a $ 12.7 billion impairment charge related to the North American business, a rather dramatic impairment. This resulted in a loss of $ 11.4 billion for the quarter, the largest in the company's history. "There is a significant write-down from the pressure pump business. That just tells you that the North American onshore market is pretty bad," said Anish Kapadia, founder of oil and gas consultancy firm AKap Energy.
Halliburton also saw its revenues hit by the decline in shale drilling and the oilfield services giant shifted its focus to international markets as the signs of a shale opening do not appear to be imminent.
The rig numbers have fallen sharply in the past year, down more than 20 per cent from the end of 201[ads1]8. The number of wells drilled has also fallen and production growth has slowed dramatically. Halliburton said third-quarter North American revenue fell 11 percent from the previous three-month period as a cut in E & P's activity.
"US and international markets continue to diverge," Halliburton CEO Jeff Miller said of an earnings call on Monday. "International activity growth is gaining momentum across several regions. Meanwhile, operators' capital discipline is weighing on North American activity levels."
Miller said he was "excited" after visiting Halliburton customers in the "Eastern Hemisphere," and that the company is seeing strong growth in Europe, Asia and Australia.
But the mood around American slate was completely different. Miller noted that the US land rig figure fell 11 percent between the second and third quarters, the strongest contraction for the time of year in a decade. "While historically the third quarter used to be the busiest in terms of hydraulic fracturing activity in the United States, the stage number fell every month this quarter," Miller said.
He added that because oil producers themselves are under fire from investors. , they bargain with service companies (like Halliburton and Schlumberger) for lower prices. Related: The pipeline that could track China's LNG Boom
Halliburton piled more equipment in the third quarter than it did in the first and second quarters combined. "Although this affects our revenue, we would rather err on the side of stacking rather than work for insufficient margins and wear out our equipment," Miller said.
Schlumberger repeated Halliburton's description of the difference between US and international markets.
The prospects look no better. WTI is in the low $ 50, with little sign of life. Worse, most analysts see an offer expiration in 2020, which appears to pose more downside risk to oil prices than the upside.
In the fourth quarter, "we expect customer activity to sink across all pools in North America and affect both of our drilling and completion companies," Miller warned. Low natural gas prices are also increasing industry suffering.
Schlumberger's outlook was similar. " We expect a decline at the turn of the year in North America that is similar to last year due to limitations in the operator's budget, "Schlumberger CEO Olivier Le Peuch told investors on revenue. But the 2019 slowdown" started earlier "and will be "More pronounced" compared to last year, he said.
Le Peuch said US oil production growth has slowed down over the last eight months and will slow down further in 2020. "It's a kind of recession," Le Peuch said, but "The outlook for international activity growth is still in place." However, he cautioned that activity could decline in Ecuador and Argentina, both facing political and economic challenges in which can affect the oil industry.
Miller said Halliburton will make "additional cost reductions," which could save $ 300 million. Less than two weeks ago, the company said it laid off 650 workers across Colorado, New Mexico, North Dakota and Wyoming.
Halliburton's stock price jumped about 7 percent after the Monday release of earnings, most likely related to the pledge for more "cost cuts," which could prove to be a euphemism for multiple layoffs. The company refused to offer more details about this plan when pressed by analysts on the earnings call.
Evercore ISI analyst James West, who was on the call, said that Halliburton “showed leadership by moving away from unprofitable or low-return work. " Related: There is huge room for growth in offshore oil and gas
The oilfield company is one of the largest in the sector, and the CEO claimed that it could essentially crack down out the storm. Smaller competitors will be dragged down, and the fatigue will and will continue to take hold. Halliburton's size allows it to "bend down with the market," Miller said.
Ultimately, the problems affecting Halliburton and Schlumberger are illustrative of the wider decline in the slate sector, burdened by debt, lack of profits and increased investor scrutiny. This has already resulted in slower growth in oil production. "The record growth in 2018 will not be replicated in 2019," Miller said. "In fact, the current estimate for 2020 suggests a further decline in output from this year's estimates."
Miller saw the upside in this. Slower oil production from the United States may mean that activity must pick up internationally to fill the gap, which will end up providing opportunities for multinational oilfield service companies.
By Nick Cunningham of Oilprice.com
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