Rarity sometimes gives rise to more rarity.
The latest shortage is due to the oilfield services industry, which has few facilities and employees after many years of austerity. Meanwhile, oil and gas prices are approaching their first highs in years. All three major servicers — Halliburton,
Schlumberger SLB -1.09%
And Baker Hughes BKR 1.24%
— In this week’s earnings announcement, he said he was in talks with customers to raise prices as a result. Rising labor costs, expanding supply chains and inflation have also contributed to these rising prices.
This isn’t too bad for the three companies that had to overcome last year’s price cuts. But for many companies, it’s not free from short-term obstacles. Hurricane Aida, which cut production in the Gulf of Mexico, hit all third-quarter earnings, and all three missed top-line expectations for the quarter. Baker Hughes in particular had a tough time. Its digital solutions division was affected by a shortage of electrical components around semiconductors, boards and displays. Halliburton and Baker Hughes shares have fallen 1.7% and 8.4%, respectively, since Tuesday when the first of the three oilfield service giants reported earnings. Schlumberger’s share price fell 0.6%.
The supply of equipment is tight enough and the prices of oil and natural gas are high enough that some customers are starting to bid for services sooner than usual. It is difficult to determine how much scrambling affects energy prices. However, in the direction, it is unlikely that the equipment shortage will soon improve. Service companies fastened their belts faster than their customers, and now everything plans to continue spending discipline. Halliburton’s capital investment budget today is about a quarter of what it was seven years ago, when the price of Brent crude finally reached $ 85. We plan to limit capital investment to 5% to 6% of earnings. Given that global producers are pumping 5 million barrels of oil per day less than 2019 and the service market is tight today, the situation is good next year when oil production is expected to exceed pre-pandemic levels. It will never be.
Despite short-term issues, the tight market with rising demand is a sweet spot for service companies. Both OPEC and the International Energy Agency expect oil demand to increase at least until the 2030s. Even if US drillers maintain discipline, their oil must be extracted somewhere in the world. Prices are likely to be above pre-pandemic levels, except for sudden discrepancies between OPEC + members and sudden drilling activity by major US producers.
International service companies are in a strong bargaining position and are already slimmer and more profitable than they were before the pandemic. The impact of 2020 forced them to learn new features such as remote monitoring for drilling. Schlumberger squeezed more net income in the third quarter on a 30% lower revenue basis than in the second quarter of 2019.
Halliburton is already shuffling some equipment for more profitable work abroad. In addition, the company states that the new field is smaller and requires more work to produce more barrels, which translates into more dollars. Servicers also believe that selling low-emission equipment, which is likely to be in high demand over the next few years, can provide a significant amount of money (as Halliburton calls “pricing traction”). .. Baker Hughes’ Digital Solutions division appears to be in a position to benefit from helping companies monitor and manage emissions.
Despite the rosy outlook, service company stocks look cheap. On average, the price-earnings ratio is 28% below the 10-year average. Their stock price has risen through a deep hole, but this is still a good opportunity to enter the ground floor.
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Service is another obstacle to oil and gas
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