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Service Companies Talk Growth, Outlook for 2021

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   |    Wednesday,May 05,2021

Below are the highlights from the Q1 reports and conference calls of several service companies including Schlumberger, Halliburton, Liberty, Nabors and Nextier.

They discuss their outlook for the Lower 48 and International markets, as well as E&P capital discipline, frac crews, rig count and more.

General themes include:
  • Stronger growth among private E&Ps vs. public / large E&Ps
  • Positive outlooks for growth in future quarters in the near-term
  • Maintenance levels will be focus
  • Growth in renewables and aligning investments accordingly

Schlumberger Sees Demand Growth to Pre-Pandemic Levels

Oil Demand

Schlumberger CEO says he expects oil demand return to pre-pandemic level by 2022.  Le Peuch said he was seeing indications that oil demand will recover to 2019 level by or before the end of 2022.  This is in contrast to what he said earlier in the year that he expected the recovery no earlier than 2023.

"I believe that we are seeing the beginning of this multiyear growth," Le Peuch said.

What to Expect from U.S. and International Markets

"With the gradual return of oil demand, we anticipate North America activity to level off at production maintenance levels, while international activity is poised to ramp up through year-end 2021 and beyond," Le Peuch says

We need to add some important context here, as one should remember, that Schlumberger sold it's US Frac Business to Liberty, so its safe to say that the company lacks visibility on the North American frac market.


Halliburton Bets on Moderation Fueled by Capital Discipline

Moderate Activity in Coming Quarters

"In North America, we expect both completions and drilling activity momentum to continue, but sequential activity growth should moderate. In the international markets, we expect a seasonal rebound and a broad based activity increase, the pace of which will vary across different regions."

Large E&Ps will remain capital descipline and service cost inflation coming in 2022

Question: "As we think about North America, obviously the big E&Ps are going to remain capital disciplined and probably show some really good cash flow this year given where the oil price is, but they’ll step up next year as it committed to spend a certain percentage of cash flow. So, are you starting to have conversations or started to think about 2022 as it reflects to North America and then kind of what the increase could be in spending as oil prices are 30% higher than they were going into this year?"

  • Jeff Miller commented: "Yes, James, I think we are going to see sort of the steady cadence of the increase as we move through this year and even into next year. I think, just the feedback and sense I get is that there is a lot of discipline around production and what they can do profitably and also think as we see improvement into 2022. They will face those service cost inflation just because of where everything is today, what needs to be replaced."
Price Increase

Service pricing improvement is the final step. We are not there yet but we see positive signs of market rebalancing that should drive future pricing improvements. Total fracturing equipment capacity has limited room to grow in the current pricing environment.

Continued attrition from the rising service intensity and insufficient returns for many service companies is altering the industry dynamics, because we are an integrated provider, Halliburton participates in all key businesses in North America today and we will benefit more than others when pricing moves up.


Liberty Oilfield Predicts Continued Market Improvements

CEO Chris Wright said: The ongoing attrition among frac fleets will likely further this discussion as we move through the year. The industry is healing. The market for next gen equipment has tightened, and the market for next gen equipment with industry-leading operations and technology innovation is even tighter.

Looking forward, we see a pathway to normalized margins for Liberty at some point in 2022. We've already achieved three sequential quarters of margin improvement as activity has built off history lows in the second quarter of last year. While the rate of growth is slowing sequentially, the trend still looks modestly upward as private E&P companies are reacting to strong commodity prices. Public E&Ps however are remaining steadfast in their commitment to capital discipline regardless of commodity prices.

Frac Improvement Driven by Private E&Ps

Over the last three quarters, North American frac activity has rapidly increased towards supporting maintenance production levels. Hence, public E&P are now at roughly making its run-rate frac activity. Private E&Ps on the other hand are more responsive to current oil and gas prices, which continue to support modestly increasing demand for frac services in line with their recent rise in rig activity. Importantly, E&P companies are maintaining capital discipline and moderating long-term growth, aiming to increase commodity price stability and enhance sector attractiveness.

Energy Shift

Today, natural gas displacing coal in the power sector has been the largest factor bringing U.S. per capita greenhouse gas emissions to their lower levels since the 1950s. Continued progress will require significant contributions from many areas across the energy space including continued contributions from our industry and likely large scale carbon capture utilization and storage. Liberty will both continue and expand our efforts in lowering greenhouse gas emissions. The oil and gas industry is not shrinking, but rather is maturing into a steadier, slower growth, and cleaner business.

Nabors Sees Demand Increase in Lower 48, International Markets

Lower 48 Rig Activity

"Comparing the first quarter and fourth quarter averages, the Baker Hughes Lower 48 land rig count increased by 28%. According to Inverness [ph], from the beginning of the first quarter through the end, the Lower 48 rig count increased by 116 or approximately 30%. The growth rate among smaller clients outpaced the growth of the larger operators at 39% versus 13%. Among the larger clients, approximately two thirds only modestly increased their operating rig counts or held them flat."

What to Expect for Rest of 2021

"Once again, we surveyed the largest Lower 48 clients. This group accounts for approximately 40% of the working rig count. Our review of these clients shows flattish activity plans for the balance of 2021. Smaller and medium sized operators are responding faster to the recent trends in commodity prices."

What to Expect from International Markets

"In our international markets, we saw the expected demand increase in selected geographies as measured by the number of active rigs. This trend extends across major markets in Latin America and in Saudi Arabia.

In summary, global oil supply and demand continues to approach equilibrium as inventories rationalized. Commodity prices seem to have stabilized at levels which generate acceptable operator economics. In response, drilling activity is increasing."


Nextier Plans to Grow Frac Fleets by Over 10% in Near-Term

Robert Drummond, President and Chief Executive Officer of NexTier, said: "NexTier's Completions activity during the first quarter played out as we expected, with the exception of the abnormal winter storm that disrupted operations in February. We were pleased to deploy Completion fleets for five new customers at the start of the year in January, and finished the quarter with strong efficiencies in March, which marked our most profitable month since April of 2020."

The Company had an average of 15 fully-utilized fracturing fleets in the first quarter of 2021, and exited the first quarter of 2021 with 15 fully-utilized and 18 deployed fleets.

For the second quarter of 2021, NexTier expects to deploy 20 fleets and operate the equivalent of 18 fully utilized fleets. The combination of this increased activity, some net pricing recovery, and the absence of additional abnormal winter weather impacts experienced in the first quarter of 2021, is expected to drive sequential revenue growth of at least 25% in the second quarter of 2021.


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