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Politics : Politics of Energy

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From: Brumar898/1/2022 8:28:33 AM
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High Oil Prices Spark A New Wave Of Exploration
By Alex Kimani - Jul 26, 2022, 7:00 PM CDT
Oil companies are reaping the benefits of high energy prices. Indebted American oil and gas companies, armed with improved balance sheets, are finally drilling again.Oilfield services companies are among the biggest winners as demand soars on a favorable mix of exploration and offshore activity.

When the energy crisis hit a nadir two years ago, highly indebted American oil and gas companies quickly changed their playbook, adopting stricter cost discipline, cutting back on expensive drilling programs, and vowing to return more cash to shareholders in the form of dividends and buybacks. Luckily for them, the good times are here again, with high oil and gas prices helping to massively improve their balance sheets.

However, many shale companies have so far been reluctant to go back to their trigger-happy drilling days, preferring instead to fall back on their dwindling stocks of drilled but uncompleted wells (DUCs) to keep going. Indeed, according to the U.S. Energy Information Administration's latest Drilling Productivity Report, the United States' DUC tally plunged to 4,245 in June 2022, a sharp drop from 8,900 at its peak in 2019.

The large decline in DUCs clearly shows that U.S. oil companies are drilling much less, which does not bode well for revenue-starved oilfield services companies. It also does not help that oilfield services and drilling companies had some of the most high-risk debt during the crisis.

But that could soon become a thing of the past if the latest announcement by OFS major Schlumberger Ltd (NYSE: SLB) is any indication.

On Friday, the Houston, Texas-based company raised its full-year revenue guidance following a strong Q2, at which time it announced that "growth was very broad across all dimensions."

Schlumberger says it now sees sales of "at least" $27B this year, good for an 18% increase from 2021, citing the biggest jump in demand for its services in more than a decade. Schlumberger says annual sales will rise the most in 11 years as energy security concerns outweigh recessionary fears among major oil explorers.

"Growth was broad-based, characterized by a favorable mix of exploration and offshore activity and the increasing impact of improved pricing, resulting in the largest sequential quarterly growth since 2010," CEO Olivier Le Peuch revealed during the company's earnings call.

Schlumberger posted Q2 revenue growth of +42% to $1.53B in its North American market, while its international market recorded a +15% Y/Y expansion to $5.19B. Total revenue of $6.77B (+20.2% Y/Y) beat by $490M while GAAP EPS of $0.67 increased 86% sequentially and 123% year-on-year.

Earlier, there were fears that OFS majors like Schlumberger, Halliburton (NYSE; HAL), and Baker Hughes (NASDAQ: BKR) would be among the first victims of the Ukraine crisis due to their sheer size and brand recognition. Indeed, Rystad Energy's head of energy services research Audun Martinsen told the Financial Times that their smaller peers were more likely to continue operating under the radar because they are not directly exploiting or exporting oil and natural resources. However, the latest set of results by SLB proves that these fears were unfounded.

SLB stock has surged 8% after the announcement, bringing its year-to-date gains to 11.3%.

Source: The Financial Post
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