Oilfield Service Providers to Get Lift from International, Offshore Demand

Credit: Kim/AdobeStock
Credit: Kim/AdobeStock

The Big three oilfield services (OFS) companies will likely report higher profits for the second quarter as resurgent demand in international markets and strong offshore drilling helped counter tepid activity in North America.

Baker Hughes, Halliburton, and SLB are set to post a combined second-quarter adjusted profit of $2.04 billion, according to Refinitiv data, compared with $1.27 billion in the year-ago quarter.

Oil and gas majors, who rely on the service providers for drilling and formation evaluation, well construction, and completion services, are reinvesting record profits generated after Russia's invasion of Ukraine disrupted the oil market to intensify the hunt for new offshore and international sources.

The global offshore drilling sector is set for the highest growth in a decade in the next two years, Oslo-based consultancy Rystad Energy said in a March report.

"International strength is led by the Middle East and Latin America and is powered by a multi-year push to grow oil and gas production capacity, near-term OPEC+ cuts notwithstanding," BofA analysts said this month.

ExxonMobil, TotalEnergies SE, and APA Corp. are already drilling in oil-rich South American countries such as Guyana and Suriname, with some benefits of these exploration activities likely accruing to the service companies.

"(OFS) Companies with International/equipment exposure have strong visibility to multi-year volume growth and orders," TD Cowen analysts said earlier this month.

U.S. shale, led by the largest oil patch, the Permian, has been a source of massive output growth in recent years, but analysts have warned of a production plateau within five years.

This, coupled with lower operating costs of some offshore projects, has made international exploration more lucrative. 

Meanwhile, North American rig count, an indicator of future production, stood at 833 at the end of the April-June quarter, down 5.6% from a year earlier while international rigs rose 17.3% to 967, according to Baker Hughes data.

International and offshore activity remains robust with OFS companies likely to reiterate the mid- to high-teens growth for 2023, Jefferies analysts said.

SLB said last month that offshore oil and gas exploration spending will increase more than 20% globally this year, and the growth will continue into the next.

Contract pricing remained intact in North America for the large-cap oilfield service players, while international pricing was progressing per expectations, said Jefferies analysts.

Baker Hughes and Halliburton are scheduled to kick off the earnings season for OFS on Wednesday, while market leader SLB will report on Friday.


Company

Refinitiv Q2 EPS estimate

Refinitiv Q2 revenue estimate

Halliburton

75 cents

$5.86 billion

Baker Hughes

33 cents

$6.27 billion

SLB

71 cents 

$8.22 billion


Company

Recommendation

Median Price Target 

Halliburton

27 of 29 analysts rate the stock "buy" or higher and two "hold"

$47

Baker Hughes

21 of 27 analysts rate the stock "buy", five "hold and one "sell"

$38

SLB

29 of 31 analysts rate the stock "buy" and one "hold"

$65



North America oil and gas drilling activity declines https://tmsnrt.rs/3QeEyZ5

Latin America and Middle East lead international oil & gas drilling activity https://tmsnrt.rs/43xizzx

(Reuters - Reporting by Arunima Kumar in Bengaluru; Editing by Sriraj Kalluvila)

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