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   Gold/Mining/EnergySchlumberger - The biggest/baddest oil service company


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From: Jon Koplik7/26/2022 1:29:29 AM
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WSJ -- Oil Doesn’t Have to Boom for These Companies to Thrive .............................................

MARKETS
HEARD ON THE STREET

July 22, 2022

Oil Doesn’t Have to Boom for These Companies to Thrive

Oilfield-service-company stocks are in the hole after demand concerns started pummeling oil prices. The reaction seems overdone.

By Jinjoo Lee

Oil-and-gas companies aren’t anywhere close to drilling as much as they did in 2014, but some oil-field service companies are squeezing out profit as if they were.

Schlumberger said on Friday that its revenue grew 20% compared with a year earlier and raised its full-year guidance. Halliburton, which has heavier exposure to North America, saw its top line grow 37% over the same period thanks to heady growth (55%) in the region.

Notably, Halliburton’s operating margins -- excluding charges related to its Russia exit -- reached 14.2% in the second quarter, a milestone not seen since the peak of the fracking frenzy of 2014. Schlumberger’s latest quarterly operating margin of 17.1% was its highest since 2015.

Drilling activity still isn’t what it used to be. Baker Hughes data shows that there are 23% fewer oil rigs in North America today than there were three years ago and 58% fewer compared with 2014. While oil-field service revenues are nowhere near their peak eight years ago, many years of belt-tightening and efficiency-finding has meant the businesses are able to eke out more profit on less drilling activity.

That, and continued supply chain bottlenecks, are adding up to a lot of pricing power. Halliburton Chief Executive Jeff Miller repeatedly said on the company’s earnings call on Tuesday that the company’s equipment is “all but sold out” in the North American market for this year. The company has started talking to customers about purchases in 2023, which already looks like a tight year for equipment, according to Mr. Miller.

Olivier Le Peuch, CEO of Schlumberger, said on a Friday call with analysts that tightness in equipment supply is “very visible” in North America and also broadening in international markets.

Baker Hughes CEO Lorenzo Simonelli said on the company’s earnings call on Wednesday that the demand outlook for the next 12-18 months is “deteriorating” as inflation diminishes consumer purchasing power and interest rates rise. But industry executives are signaling that there will continue to be strong demand for their equipment and services even if there is a slowdown in demand for hydrocarbons.

Mr. Simonelli noted that “years of under-investment” and the potential need to replace Russian barrels means there will need to be higher spending. While the two U.S. major oil companies -- Exxon Mobil and Chevron -- have reduced their combined capital expenditures by 64% since the drilling frenzy of 2014, service giants Halliburton and Schlumberger have cut their spending by an even steeper 73%.

There has been under-investment in drilling, but an even bigger one for equipment, which means it will take quite a drastic oil demand cut before oil-field service companies take a hit.

Markets appear to be baking in a full-fledged slowdown, though, for both. While Brent crude prices have slid 19% since the most recent peak on June 8, the S&P Oil & Gas Equipment Select Industry Index is down 32%, steeper than the 26% decline that an index of oil and gas producers has seen.

As a multiple of expected earnings before interest, taxes, depreciation and amortization, Halliburton, Schlumberger and Baker Hughes’ enterprise values are each at least 18% below their respective eight-year averages.

The risk that demand for oil-field services will decline appears lower than the possibility that oil demand will fall. Their services are getting costlier, but their stock prices look like a good deal.

Write to Jinjoo Lee at jinjoo.lee@wsj.com

Copyright © 2022 Dow Jones & Company, Inc.

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From: Jon Koplik1/30/2024 10:36:48 AM
   of 215
 
Reuters -- US oilfield firms slip as Aramco's lowered capacity target sparks concerns ..........................

Reuters

January 30, 2024

US oilfield firms slip as Aramco's lowered capacity target sparks spending cut concerns

Jan 30 (Reuters) -- Shares of top oilfield services provider SLB tumbled about 7% and those of its U.S. rivals fell after oil giant Saudi Aramco said it would lower its maximum capacity target.

Aramco, the largest oil company in the world, will cut its planned maximum sustainable oil production capacity to 12 million barrels a day (bpd) after being ordered by Saudi Arabia's government. The new target is one million bpd below a target announced in 2020.

Analysts said the move could reflect a change in Saudi Arabia's outlook for global oil demand and may be followed by Aramco curbing capital investment.

Shares of Halliburton and Baker Hughes were down more than 4% each. Shares of other energy services companies like Transocean and Seadrill were down about 2.6% each pre-market.

Oilfield firms have been riding rising international and offshore oil exploration and production, primarily from the Middle East and Africa, as U.S. shale firms keep a tight leash on drilling activity.

"The move seems a bit bizarre and I’m sure will hammer the stocks today. But a lot of the equipment / services are already locked up under term contracts, unless some have easy outs. Also still a lot of gas-related activity going on over there," said Raymond James analyst Jim Rollyson.

SLB, formerly Schlumberger, said in a securities filing last week that it was anticipating record investment levels in the Middle East, citing the significant expansion in Saudi Arabia and nearby oil states.

SLB and Halliburton did not immediately reply to requests for comment.

Reporting by Mrinalika Roy in Bengaluru; Editing by Sriraj Kalluvila

© 2024 Reuters.

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