Shale Inflation Grows as Halliburton Flags Drilling-Budget Jumps

(Bloomberg) -- The shale industry is running red hot, with fracking gear sold out, oil explorers reeling from “sticker shock” and drilling budgets ballooning more than 35%, said the biggest U.S. oilfield contractor.

Halliburton Co. boosted its forecast for North American oil-sector spending on Tuesday from a 25% prediction before Russia invaded Ukraine. The company’s entire U.S. and Canadian fracking fleet is spoken for and demand for the special type of sand used to penetrate shale wells is so brisk that Texas drillers are importing it from 1,300 miles (2,100 kilometers) away in Wisconsin.

The rush to drill shale is only expected to accelerate as much of the global oil market looks for alternatives to riskier, costlier and more time consuming traditional projects like deepwater wells, Chief Executive Officer Jeff Miller said during a conference call with analysts.

As a result, the world’s biggest provider of fracking increased margin forecasts on the back of price increases passed on to oil and natural gas explorers.

Inflationary Shock

“It is a bit of sticker shock because you see inflation across the entire sector,” Miller said. “The key here is we can’t and won’t subsidize operators in this process. So we’ve been very transparent in terms of the cost to acquire things, the timing to acquire things.”

The hired hands of the oil patch are staging a return to growth after a calamitous two years that included cratering energy prices and the pandemic-driven slump in worldwide economic activity. 

READ: Halliburton Writes Off All Ukrainian Assets Amid Russian War

After thousands of layoffs, price cuts and doubts about the long-term outlook for the mercurial shale business, the world’s biggest oilfield companies -- Halliburton, Schlumberger and Baker Hughes Co. -- are on track to post their largest annual sales since pre-pandemic days, according to analysts.

Private Drillers

Halliburton expects sales in its largest division, which houses the fracking business, to rise in the mid-teens percent during the current quarter, with margins expanding by as much as 4 percentage points. 

The exuberance in shale fields is most pronounced among closely held drillers that currently control more than 60% of U.S. onshore rigs, Miller said. Publicly traded explorers are exercising more restraint, he noted.

Halliburton stock, the third-best performer in the S&P 500 Index this year, was little changed at $41.52 at 11:09 a.m. in New York after earlier climbing as much as 2.3%.

While the major oilfield-service outfits have announced plans to end future investment in Russia, only Halliburton has said it will also halt current work in one of the world’s biggest oil-producing nations. 

Ukrainian Writeoff

The Houston-based company wrote off the entirety of its Ukrainian assets seven weeks into Russia’s war on that nation. Halliburton took a pre-tax charge of $22 million, the equivalent of about 8% of first-quarter net income, which included $16 million in receivables.

“Russia accounts for about 2% of our business,” Miller said. “Sanctions and export compliance impact everyone in the oilfield and operations and supply chains in Russia are at best challenged.” 

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