North American exploration and production (E&P) companies are set to increase their capital spending by 25% or more from 2021 as they ramp up activity to keep pace with rising global oil and gas demand, Halliburton Co. CEO Jeff Miller said Monday.
The management team shared a microphone to discuss the macro environment, and discuss the fourth quarter and full-year 2021 results. Miller is seeing positive signs for more work across the board, he told analysts.
“This is momentum that I have not seen in a long time,” he said of the activity levels by its E&P customers. Increased activity is underway in North America and the international markets, auguring well for oilfield services (OFS).
As the market for equipment and fleets has tightened, “pricing discussions” are ongoing with E&P customers, Miller said. Halliburton now has “pricing traction on new work and contract renewals, including integrated contracts. Additionally, we have introduced pay-for-performance models, negotiated favorable terms and conditions, and applied price escalation clauses.”
In the final three months of last year, the U.S. land rig count increased 84% year/year, with drilling activity outpacing completions as operators prepared their well inventory for 2022.
“We expect a busy 2022 in North America,” Miller said. “Given a strong commodity price environment, we anticipate North America customer spending to grow more than 25% year/year.”
The biggest capital expenditures (capex) are likely to be by the private E&Ps in 2022, with the public independents and majors continuing “to prioritize returns while delivering production into a supportive market,” he said.
That said, the “North America completions market is approaching 90% utilization, and Halliburton is sold out…Pricing for our fracturing fleets is moving higher across the board, both for our…low emissions equipment and our gear for diesel fleets…Anticipated demand growth for equipment provides a runway for us to increase pricing throughout the year.”
Last year the publicly held North American E&Ps showed restraint on raising capex or activity levels to maintain financial discipline. Instead, they worked to reduce the backlogs of drilled but uncompleted wells, aka DUCs. That’s likely to reverse this year, Miller said.
“This will further increase the call on equipment as operators add rigs throughout the year. The market is seeing tightness related to trucking, labor, sand and other inputs while we pass these increased costs on to operators.”
Is The Upcycle Underway?
Said Miller, “There is no doubt the much anticipated multi-year upcycle is now underway. North America production growth remains capped by operators’ capital discipline, while meaningful international production growth is challenged by years of underinvestment.
“Energy demand has proven its resilience, fueled by pent-up economic growth and the global desire to return to normalcy.” That puts Haliburton in the sweet spot, he said
“In a strong commodity price environment with limited production growth options, operators turn to short-cycle barrels and increased spend around the wellbore.”
Some of the optimistic comments mirrored those by top executives at the No. 1 OFS operator, Schlumberger Ltd., and at No. 2 global operator Baker Hughes Co., which issued their quarterly results last week
Houston-based Halliburton is No. 3 among global OFS operators, but it is the acknowledged No. 1 operator in the Lower 48. The company also is keeping pace with the competition by directing substantial capex to technology, which is an OFS operator’s lifeblood. For Halliburton, investments are continuing for both digital and hardware offerings, with more than 50 taken to market last year, Miller noted.
E&Ps also are “willing to pay a premium for differentiated, more environmentally friendly solutions,” he said, including for electric fracturing technology. Halliburton performs more hydraulic fracturing in the Lower 48 than any competitor.
“Expect fully electric locations to become a larger share of the market,” Miller told analysts. In addition, “100% of Halliburton’s drilling jobs run on a cloud-based, real-time system to deliver data and visualization to our customers around the world.”
Rising Count Of Automated Rigs
Nearly 60% of the rig crews are “fully automated, allowing for up to a 70% reduction in headcount per rig.
Automation alleviates health and safety concerns by removing personnel from rigs, and it accelerates service delivery improvements and reduces the environmental footprint of oil and gas operations.”
Hallburton also continues to advance operations for a “sustainable energy future,” Miller said. Halliburton Labs’ Clean Energy Accelerator is helping “early stage companies achieve important scaling milestones and significantly increase their enterprise value…We’re actively participating in the clean energy space without committing shareholder capital. However, it will evolve as energy evolves, and we will add to our already expanding opportunities to participate as clean energy value chains mature.”
For now, the company directs most of its capex to its two divisions: Completion and Production (C&P) and Drilling and Evaluation. The C&P division finished 2021 with 15% operating margin, “driven by activity improvement, despite inflationary pressures,” Miller said. The current completion tool order book “has more than doubled from a year ago, signaling strong growth and profitability again in 2022.”
Revenue increased in North America to $1.78 billion in 4Q2021 from $1.24 billion in 4Q2020. For the year, North American revenue climbed to $6.37 billion from 2020’s $5.73 billion.
Net profits in 4Q2021 were $824 million (92 cents/share), compared with a year-ago loss of $235 million (minus 27 cents). Quarterly revenue improved to $4.28 billion from $3.24 billion.
For 2021, Halliburton earned $1.5 billion ($1.63/share), versus a net loss in 2020 of $2.9 billion (minus $3.34). Total revenue in 2021 reached nearly $15.3 billion, versus $14.4 billion in 2020.
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