Oil’s Hired Hands See Spending Recovery Everywhere But Home
(Bloomberg) -- Spending by the global oil industry outside the U.S. is poised to rebound later this year, according to its largest hired hands, the latest sign of growing confidence in the outlook for crude prices.
Schlumberger, the biggest oil services company, posted better-than-expected earnings Friday and forecast an increase in overseas spending by customers in the next quarter. Earlier in the week, Halliburton Co. said markets outside North America may see double-digit growth in the second half of 2021, while Baker Hughes Co. predicted a modest recovery in Latin America, the North Sea and the Middle East.
The energy sector remains wary following a calamitous 2020 that saw capital expenditures slashed as energy prices plunged. The three largest oil services companies -- which help explorers map underground reservoirs and drill wells -- fired tens of thousands of workers and took multibillion-dollar writedowns. They’re lessening their exposure to the shrinking U.S. shale patch and turning their attention overseas, where they see a quicker recovery.
That strategy is looking like it’s paying off. Adding wind to their sails is the recovery in crude prices in the first few weeks of 2021 following OPEC+ production curbs and optimism about a post-Covid-19 recovery in energy demand.
“We believe this sets the stage for oil demand to recover to 2019 levels no later than 2023, or earlier,” Schlumberger Chief Executive Officer Olivier Le Peuch said in a statement. “Absent a setback in these macro assumptions, this will translate to meaningful activity increases both in North America and internationally.”
After selling some North American assets last year and cutting almost a quarter of the company’s workforce, Houston- and Paris-based Schlumberger now expects international markets to generate up to 80% of revenue. It posted its worst fourth-quarter sales in almost 15 years. Still, profit excluding one-time items was 22 cents a share, exceeding the average of analysts’ estimates in a Bloomberg survey. The stock fell 0.3% to $24.11 at 10:01 a.m. in New York.
The earnings beat is significant and the “outlook is constructive and consistent with what we have heard from HAL and BKR earlier this week,” Kurt Hallead, an analyst at RBC Capital Markets, wrote Friday in a note to investors.
Schlumberger has been asking investors for more patience. It warned three months ago that it could take until late 2021 to restore profits to 2019 levels. But the company ended up achieving that goal by the end of 2020, posting an adjusted margin of 20% for earnings before interest, taxes, depreciation and amortization, the same level as the fourth quarter of 2019.
The company now expects to boost ebitda by 250 to 300 basis points this year, Le Peuch said. With the company’s $1.5 billion cost-cutting plan now 90% complete, it’s looking to sell a variety of assets including drilling rigs in Australia and the Middle East, as well as a business in Canada that partners with explorers to boost well performance.
“Overseas drilling activity held up better than in North America in 2020, yet it’s taking longer to recover from Covid-19-related impacts,” Scott Levine and Justin Rothhaupt, analysts at Bloomberg Intelligence, said in a report. “International upstream spending could decrease almost 20% this year, a bit weaker than anticipated at around the start of the pandemic.”
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