Daily Blog

Man in the Mirror - Oilfield Service Results, Projections Reflect E&P Spending Patterns

Punxsutawney Phil presaged six more weeks of winter when he saw his shadow on February 2, the famous groundhog’s annual attempt to predict the arrival of spring that garners national headlines, despite his dismal 39% success rate over the last 150 years. Although we haven’t turned to rotund rodents, we spend a lot of time exploring ways to predict energy industry trends. A far more reliable way to gain early insights into E&P spending and production patterns is by analyzing the year-end results and forecasts issued by the major oilfield services firms, which release their year-end reports well before E&Ps typically do. In today’s RBN blog, we review the data and insights from the reports and conference calls of the major firms that are in constant communication with the major oil and gas producers.

As we most recently reviewed in Cruisin’, our blog on Q3 2022 E&P results, the combination of disciplined spending and soaring commodity prices have resulted in record profits that surpassed levels in 2014, when oil prices topped $100/bbl. But the recovery for oilfield services firms, whose revenue depends on the level of E&P capital spending rather than commodity prices, has been far slower and rockier. As shown by the blue line and right axis in Figure 1 below, revenue for Halliburton (NYSE: HAL), SLB Inc. (formerly Schlumberger; NYSE: SLB), and NOV Inc. (formerly National Oilwell Varco; NYSE: NOV) — three major services firms with significant exposure to U.S. E&P exploration and development — plummeted as capital expenditures by the E&Ps we monitor fell from $133 billion in 2014 to $39 billion in 2016, recovered with rising investment through 2018, then plunged again with the onset of the pandemic in 2020. The impact on the equity valuations of oilfield equipment and services companies was dramatic, as the S&P index for these stocks cratered from approximately 4,900 at the peak in 2014 to just over 200 in March 2020, an astonishing 96% decline. That’s steeper than the 85% drop in the S&P E&P index. A tidal wave of red ink engulfed the oilfield services industry, bankrupting dozens of providers and stressing the balance sheets of the stronger companies that weathered the storm. For example, Halliburton, SLB and NOV reported net losses totaling more than $30 billion in 2019-20 as they rationalized operations and slashed overhead to become leaner and more responsive to the needs of the oil and gas producers they serve.

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