Slowdown in US shale patch extends to oil services industry

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Oilfield service groups are feeling pressure from a slowdown in activity in US shale patches as companies cut back on oil and gas drilling.

The world’s largest oilfield services provider, which is responsible for much of the industry’s tough work from drilling wells to building roads, reported a drop in North American revenue this week amid declining demand.

“During the second quarter, we saw a decrease in frac activity, which resulted in increased white space in our calendar,” said Chris Wright, Liberty Energy’s chief executive, on a call with analysts.

Wright said Denver-based Liberty, one of the nation’s largest providers of hydraulic fracturing equipment used to blast open shale rock, may cut the number of its fracking fleet in the second half of the year “if our customers’ scheduled work cuts become larger.”

A slump in business for oilfield service providers – seen as a wake-up call for the health of the oil and gas industry – is the latest sign of a slowdown in activity in US energy sectors stretching from West Texas to North Dakota.

There has been a steady decline in the number of rigs and frac crews in the field since late last year. Instruments have been sold at fire-sale prices and a recent survey by the Dallas Federal Reserve reported the weakest sentiment since the depths of the coronavirus pandemic.

Each of the big three international oilfield services groups – SLB, Baker Hughes and Halliburton – this week reported decelerations in their North American business during the second quarter.

Halliburton, the most exposed of the three to the US onshore market, saw North American revenue decline 2 percent due to decreased fracking activity, despite a strong offshore market in the Gulf of Mexico.

“The environment in North America has turned sour and we are hearing some clients requesting waivers, especially in more commodity markets such as pressure pumping,” said Lorenzo Simonelli, Baker Hughes chief executive.

The slowdown has come as many enthusiastic private operators who ramped up drilling in the last two years have either been swallowed up by larger rivals or have run out of inventory. The publicly traded conglomerate was already on hold as Wall Street imposed a tighter regime of capital discipline and sought to return excess cash to shareholders.

The problem has been compounded by weak commodity prices. Brent crude closed at less than $80 a barrel on Friday, down more than a third from last year. Meanwhile, US gas prices have fallen to less than $3 per million British thermal unit from $6 a year ago.

“You had the double whammy of slower growth for private operators as well as weaker gas markets, which ultimately drove down rig numbers,” said Jim Rollison, an analyst at Raymond James.

Services groups are counting on rising international and offshore demand to offset declines in shale patches. SLB, which has about 20 percent of its business in North America after selling the bulk of its US fracking business in 2020, said international momentum is picking up.

“SLB’s global reach insulates us from regional volatility, as we’ve seen recently in North America,” the company’s chief executive, Oliver Le Puech, formerly known as Schlumberger, told analysts this week. “We believe there is a lack of exposure to large-scale pressure pumping. , , allowed us to continue making progress or prevent declines in some other activities.”

Halliburton boss Jeff Miller said he expected demand to remain weak in the second half of the year, but expected increases in gas prices should improve matters in 2024.

While US oil production is still rising, the increase over the next 12 months is expected to be only 200,000 bpd, well below the 2 million bpd expansion between 2018 and 2019.

With producers vowing to stick to their newfound discipline even as prices rise, there is little hope that the country will return to the growth trajectory that was built during the peak of the shale revolution.

“If you still believe that the global demand picture for oil in the coming years is high and the US is not growing like before. , , Everywhere that void has to be filled,” said Raymond James’ Rollison.