Home Commodities Oilfield services groups cheer for ‘structural upturn’ after highly profitable year.

Oilfield services groups cheer for ‘structural upturn’ after highly profitable year.

by SuperiorInvest

The “Big Three” international oilfield services groups last year recorded their most profitable 12 months since the height of the US shale boom, as high energy prices in the wake of Russia’s invasion of Ukraine spurred global drilling activity.

Halliburton, Baker Hughes and SLB reported total net income of $4.4 billion in 2022, the highest combined figure since 2014, as the war in Ukraine deepened fears of fuel shortages and sparked a rush to recover. oil and gas production.

Olivier Le Peuch, chief executive of SLB – formerly known as Schlumberger – described 2022 as a “pivotal” year for the energy industry, which he said had entered an “early phase of the structural cycle”. “Permanence is here to stay – and we’re talking years,” he said.

Oilfield services groups – which provide personnel and equipment to work in the oil and gas industry, drilling wells and pumping oil – have been among the biggest beneficiaries of the market turmoil that has followed the outbreak war in Ukraine. The sector’s biggest players have reported strong fourth-quarter results with Halliburton in recent days reporting on Tuesday2022 banner completion.

Soaring energy prices over the past year have increased drilling and production activity and prompted a rush to secure equipment and personnel provided by service groups. Tight supply allowed them to raise prices. Meanwhile, intensive cost-cutting regimes introduced during the Covid-19 pandemic have boosted margins.

“Growing profitability combined with limited capital expenditures allows these companies to generate strong free cash flow,” said Jim Rollyson, head of oilfield equities research at Raymond James.

Energy stocks soared last year. That pushed the sector’s weight in the S&P 500 back above 5 percent, after falling to just over 1 percent in 2020 when the pandemic hit. Oilfield services groups outperformed the broader energy sector. Their shares, according to the OSX index, rose 59 percent, outpacing the carriers’ growth and posting their best performance since 2009.

SLB – the world’s largest player – has posted $3.4 billion in revenue in 2022, nearly a third of which came in the last quarter. Halliburton also brought in most of its $1.6 billion in profit in the second half of the year. Baker Hughes was the worst performer, posting a full-year loss of $601 million after struggling with parts shortages, inflation and the shutdown of its Russian operations. However, it ended the year on a positive note, with record quarterly orders of more than $8 billion.

Net Income ($B) Bar Chart Showing Oilfield Services Companies Making Big Profits Again

Companies painted a positive outlook for next year, expecting rising oil demand, tight supplies and a renewed focus on energy security to force a global increase in hydrocarbon production.

“With years of underinvestment now exacerbated by recent geopolitical factors, global oil and gas spare capacity has deteriorated and will likely require years of increased investment to meet projected future demand,” said Baker CEO Lorenzo Simonelli. “For this reason, we continue to believe that we are in the early stages of a multi-year upturn in global activity.”

The bright outlook comes even as previously rampant growth in U.S. shale patches has stalled, with a new model of capital discipline among operators and falling yields casting doubt on future expansion. Instead, managers are looking to international markets—especially the Middle East—to fuel growth.

“The oil and gas industry is entering a new phase of an upward cycle marked by a bend in the Middle East and strengthening offshore activity. Together, this signals the onset of a new growth model on an international scale,” said Le Peuch.

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