US oilfield firms offer dour views as shale budgets dwindle

ProPetro Holding

10/11/2023 14:02

By Arathy Somasekhar
       HOUSTON, Nov 10 (Reuters) - Oilfield service companies
that cater to U.S. shale oil and gas producers are turning sour
on fourth quarter demand, with clients keeping a tight grip on
their wallets after largely exhausting their 2023 budgets.
    Many U.S. oil producers are pumping only enough oil to keep
production flat and turning over more profit to investors. Shale
gas producers have struggled all year and have not been able to
reduce drilling fast enough to counter weak prices.   
    That makes for a dour outlook for service firms that have
been battling higher costs for materials and labor for nearly
two years. The outlook is better for firms with sizeable
international operations. But U.S. oil and gas producers are not
looking to spend more, executives said.
    "Recovery hasn't been quite what we or our customers had
hoped for North America," Clay Williams, chief executive of the
fourth-largest U.S. oil equipment and services supplier NOV Inc
 NOV.N , told investors two weeks ago.
    Wall Street analysts have been cutting profit views for
North American-focused oilfield providers. NOV's average
earnings estimate for the fourth quarter was slashed by 7%,
while pressure pumping provider Liberty Energy  LBRT.N 's was
trimmed by 3%. 
    "You are going to see a little bit of budget maintenance as
they've completed (wells) a little bit quicker than they would
have expected," said Michael Stock, finance chief at Liberty
Energy last month.
    Liberty's rival ProPetro Holding  PUMP.N  could cut as many
as 2 frac fleets in the final quarter, citing customers burning
through their budgets. 
    Consultancy Rystad Energy expects about 225 frac fleets to
be active in the U.S., excluding Alaska and Hawaii, in the
fourth quarter, down from 230 in the third quarter. 
    "At this point, we still are counting on the fourth quarter
to be worse," said Rystad analyst Justin Mayorga.

    INTERNATIONAL OUTLOOK IMPROVE  
    While many firms expect demand to pick up early next year
once new budgets kick in, drilling and completion service may
remain lower due to flat production and recent mergers. 
    In the United States, "the upstream E&P (exploration and
production) industry is in a slow to no-growth environment,"
said Samuel Sledge, chief executive at pressure pumper ProPetro.
    Recent acquisitions of producers by Exxon Mobil  XOM.N  and
Chevron  CVX.N  will dampen demand in the near future,
executives said. 
    "Everyone knows that 3 plus 2 equals 4, not 5," said Kevin
Neveu, CEO of drilling firm Precision Drilling.  PD.TO  "There's
going to be a slight rig count reduction with those
transactions."  
    Driller Helmerich and Payne  HP.N  also said that while it
expects demand next year for its highest performing rigs will
increase, it will remain below recent highs. 
    Outside North America service demand is expanding. Precision
Drilling last quarter activated its fourth rig in Kuwait and
will install a fifth this quarter, Neveu said. 
    The largest service companies have brighter outlooks in
their international operations. 
    SLB  SLB.N  and Halliburton  HAL.N  forecast stronger global
drilling activity as North America lags. Baker Hughes'  BKR.O 
weak North American oilfield business has been offset by higher
demand for its liquefied natural gas equipment. 

 (Reporting by Arathy Somasekhar in Houston
Editing by Tomasz Janowski)
 ((arathy.s@thomsonreuters.com; +1 832 610 7346; Twitter:
@ArathySom;))