Halliburton Co., which completes more onshore oil and gas wells in North America than any other operator, saw demand for its drilling services climb during the first three months of the year. 

The Houston oilfield services (OFS) giant reported its quarterly results on Wednesday, with CEO Jeff Miller presiding over the conference call with analysts. 

“The world is reopening, and even though some regions still experience lockdowns, overall economic and demand recovery continues to build,” Miller told analysts. “Oil demand is increasing globally, all inventories are down near their five-year averages,” and actions by the Organization of the Petroleum Exporting Countries and its allies “continue to support commodity prices.

“The first quarter strengthened our confidence about how this transition year will play out.”
Halliburton anticipates international activity “to accelerate, and the early positive momentum in North America gives me confidence in the activity cadence for the rest of the year.”

Halliburton reported first quarter results on the same day as rival Baker Hughes Co. Schlumberger Ltd., the No. 1 OFS operator, is scheduled to report on Friday.

Halliburton’s North America revenue was up 13% sequentially in the first quarter at $1.4 billion, boosted by drilling-related services, stimulation and artificial lift activity on land. 

“Today, North America is staging a healthy recovery in the current oil price environment,” Miller said. “Shale operators have a larger portfolio of economically viable projects. As a result, the average U.S. land rig count grew 27% sequentially in the first quarter, outpacing the growth in completed stages.

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“We still expect the majority of our customers do remain committed to a disciplined capital program this year, but what we are seeing today solidifies our confidence and a steady activity cadence for the rest of the year as operators work to maintain their productive capacity.”

The improving market dynamics and “supportive commodity prices should allow our customers to spend their announced budgets and meet their cash flow objectives.” 

Privates In Charge

As the year unfolds, Halliburton expects the private exploration and production (E&P) operators to “lead the recovery” through mid-year, followed by some public E&Ps boosting activity in the back half of 2021.

“Demand for our equipment is increasing and our calendar is filling up for the rest of the year,” Miller noted. “Given our scale, the operating leverage impact from utilization increases alone should improve our cash flow generation in North America.”

The “short-cycle barrel producers” are more likely to increase investments to meet future oil demand growth, he said.

“Halliburton has the established footprint and the customer relationships to capitalize on this growth because smaller and more complex operators work harder to produce more barrels,” the CEO noted. “Their pursuit of incremental production to meet future oil demand growth should require higher service intensity.”

The “next step” is to ensure Halliburton can provide the “technological differentiation and digital innovation” to provide low emission solutions that customers are demanding.

The growth in electric pumps and fracture stimulation equipment is commanding a premium price in the Permian Basin, Miller noted. Halliburton has an all-electric fracture site in the Permian that includes a 5,000 hp pumping unit and blending system, wireline and command center.

“Built using our flagship Q10 pumps, this delivers performance levels up to 40% higher than conventional pumps and substantially reduces emissions limited only by the grid power source,” Miller said.

‘Limited’ Fracture Capacity

Some cost inflation in the market has led Halliburton to work with customers on increasing their share of costs.

“Service pricing improvement is the final step. We are not there yet, but we see positive signs of market rebalancing that should drive future pricing improvements.”

However, Miller warned that “total fracturing equipment capacity has limited room to grow in the current pricing environment. Continued attrition from rising service intensity and insufficient returns for many service companies is altering the industry dynamics. Because we are an integrated provider, Halliburton participates in all key businesses in North America today and will benefit more than others when pricing moves up.”

As the world begins to reopen and energy activity rebounds, “we expect our ongoing investment in technology innovations to benefit us as the market recovers,” Miller said. 

Among the technology highlights in 1Q2021, Halliburton delivered real-time control of fracture placement in the Permian while pumping on a multi-well pad using the SmartFleet intelligent fracturing system. The company also introduced the Ovidius isolation system, a packer that it said can transform from an engineered metal alloy into a rock-like material when it reacts with downhole fluids, creating a seal for improved well integrity.

Net income was $170 million (19 cents/share) in 1Q2021, versus a year-ago net loss of $1.02 billion (minus $1.16). Operating income was $370 million, reversing from losses of $571 million in 1Q2020. Revenue declined year/year to $3.45 billion from $5.04 billion. 

Total revenue jumped 7% sequentially to $3.5 billion, with operating income rising 6% to $370 million.

In the Completion and Production segment, revenue rose 3% sequentially to $1.9 billion, while operating income was $252 million, down 11%. Drilling and Evaluation revenue was up 11% from 4Q2020 to $1.6 billion, with operating income rising 46% to $171 million.