The outlook for oil and gas exploration and production (E&P) in Latin America is improving as demand and prices strengthen, according to the first quarter earnings reports by the top three oilfield services (OFS) titans.

LatAm rig count

Schlumberger Ltd, Halliburton Co. and Baker Hughes Co. each reported sequential revenue increases from the region, with management teams forecasting a continued uptick in activity this year.

The upbeat projections by the OFS operators are sure to be welcome news for the region’s national oil companies (NOC), as governments seek to balance their budgets and provide needed economic stimulus in response to the still-raging coronavirus pandemic.

Schlumberger Up

Schlumberger posted a 7% sequential increase in Latin America revenue to $1 billion during the quarter, contrasting with a 3% decline in international revenue overall amid the usual seasonal slump in Northern Hemisphere activity.

Management attributed the improvement in Latin America to “higher sales of production systems in Brazil, increased intervention and stimulation activity in Argentina, and higher well construction drilling activity in Ecuador.

“Mexico revenue was modestly higher sequentially, as stronger drilling activity was offset by reduced sales of multiclient seismic data licenses,”the company said.

The decline in worldwide revenue “was less pronounced than in prior years due to strong growth in Latin America and in several key countries in the Middle East and Africa,” management said. 

“The first quarter revenue sequential decline was the shallowest since 2008, while [the] international rig count experienced the strongest first quarter sequential growth since 2011, affirming the international recovery.”

Well construction revenue rose 4% sequentially from higher drilling activity in North America and Latin America, the company said. 

Production systems revenue fell 4% sequentially, with declines across North America offshore, Europe/Commonwealth of Independent States (CIS)/Africa, and Asia “partially offset by strong activity in Latin America — mainly in Brazil and Argentina – and the Middle East, mostly in Saudi Arabia and Qatar,” Schlumberger management said. 

Revenue from midstream production systems also grew sequentially in the Latin America, North America land and Middle East segments. 

“Activity growth will broaden in the second quarter with the seasonal recovery in Russia and China augmenting continued growth in Africa and the Middle East, while Latin America should remain resilient,” CEO Olivier Le Peuch said during the quarterly conference call. “In addition, the offshore recovery will continue in the second quarter, including the gradual return of exploration and appraisal in key international markets.”

Schlumberger reported net income of $299 million (21 cents/share) for the quarter, versus year-ago losses of $7.4 billion (minus $5.32). Revenue fell 30% year/year to $5.2 billion.

Halliburton Stimulations Improve

Halliburton cited “improved stimulation activity in Argentina and Mexico, and higher completion tools sales in Latin America,” among the factors driving a 3% sequential increase in first-quarter completions and production revenue to $1.9 billion.

International revenue rose 2% quarter/quarter (q/q), driven by “higher activity across multiple product service lines in Latin America and the North Sea, coupled with increased software sales and project management activity internationally,” management said. 

Latin America revenue during the quarter totaled $535 million, up 26% from 4Q2020, “resulting primarily from increased activity in multiple product service lines in Argentina and Mexico, as well as higher fluid services in the Caribbean,” the company said. “Partially offsetting these improvements was reduced activity across multiple product service lines in Colombia.”

Halliburton CEO Jeff Miller told analysts during the earnings call that the quarter marked “an activity inflection in the international markets…Strong recovery in Latin America more than offset declines in other regions, while margins remained resilient.”

“We are encouraged by the inflection in international activity we saw during the first quarter and anticipate that recovery will gain momentum across all regions in the second quarter and beyond,” Miller said. 

“Today, we see early indicators of activity growth internationally…Our completion tool orders, a leading indicator of upcoming work, grew throughout the first quarter.

“The volume of tendered work has significantly increased. We’re on pace to nearly double the value of submitted bids compared to last year with the most work coming from the NOCs in the Middle East, followed by Latin America.”

Miller added, “These signs give us greater conviction that the second half of this year will see a low double-digit increase in international activity year-on-year.”

Miller said Halliburton expects international markets to experience multiple years of growth. “However, this upcycle is expected to be structurally different from others,” he said. “We expect the NOCs and other short-cycle barrel producers will increase investments and gain share to meet future oil demand growth.”

Halliburton reported net income of $170 million (19 cents/share) for 1Q2021, versus a 1Q2020 net loss of $1.02 billion (minus $1.16). Revenue declined year/year to $3.45 billion from $5.04 billion.

Baker Hughes Gains

Baker Hughes Co. said its international revenue declined 5% sequentially to $1.575 billion, but that lower revenues in Russia/CIS, the Middle East, and Europe were partially offset by gains in Latin America.

The Turbomachinery and Process Solutions (TPS) segment was awarded several contracts in the floating production, storage and offloading (FPSO) and liquefied natural gas topside contracts in Latin America and Asia. 

“In Latin America, TPS was awarded a contract for multiple FPSOs, including one of the world’s largest units, to provide power generation systems, compression trains for gas reinjection,” as well as carbon dioxide compression services and water injection centrifugal pumps.

“The strong commodity price performance has resulted in positive signs for further improvement across multiple regions over the course of 2021,” said Baker Hughes CEO Lorenzo Simonelli during the firm’s earnings call.

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“In the international market, we have greater confidence in our outlook for the second half as customer conversations and project opportunities are firming up in key markets such as the Middle East, Latin America and Russia.

“Based on discussions with our customers, we still expect the recovery in international activity to be second half-weighted, which should provide strong momentum for growth in 2022.”

Latin America’s drilling rig count stood at 125 units as of March, flat versus February and down from 169 rigs in March 2020, according to Baker Hughes. Mexico’s rig count stood at 44 as of March, up from 42 in the year-ago month.

Baker Hughes also said Brazil’s count stood at nine, down from 17 in March 2020, while Colombia’s fell to 14 from 25. Argentina tallied 39 rigs, up from 38 in the year-ago month.

Baker Hughes reported net losses of $452 million (minus 61 cents/share) for 1Q2021, versus year-ago losses of $10 billion (minus $15.66). Revenue fell 13% sequentially to $4.78 billion.

With additional reporting by Carolyn Davis