A softening outlook for natural gas activity and an elevated recession risk may lead to some hiccups this year, but the overall forecast for North American hydrocarbons is the healthiest in years, according to Liberty Energy Inc. CEO Chris Wright.

The Denver-based hydraulic fracturing (fracking) and completions expert recently issued its fourth quarter and year-end results. Wright led a conference call with investors. 

Natural gas prices may be down, he said, but “to date, there has not been any significant reduction in activity in the natural gas regions.

“We do expect to see some industry pullback in response to gas prices…If necessary, Liberty would move any spare capacity to oilier areas, where demand for our services significantly outstrips our current supply.”

The markets, Wright said, “are preparing for the most widely anticipated recession in nearly 50 years.” However, “tumult in global oil supply, coupled with today’s rather low spare global production capacity, imply a strong need for North American barrels in the coming years.”

The reopening of China and more global travel should drive incremental oil demand, “even if balanced against slowing economic activity,” he said. 

In addition, the “fundamental outlook for North American hydrocarbons is the healthiest Liberty has seen in our 12-year history. Against this strong backdrop, we expect many possible bumps in the road, like softening natural gas activity and an elevated recession risk.”

Still, the outlook for North American activity for the next few years “is robust. Currently our customers and competitors are investing with discipline, keeping capacity flat to only very modest growth.”

‘Attractive Drilling Returns’

Liberty’s exploration and production (E&P) customers are receiving “attractive drilling returns, particularly in oil, even as breakeven prices have increased from the pandemic lows. The majors are redirecting capital spending to North America.”

The U.S. E&Ps are looking for returns, which “infer a continuation of resource development to at least offset natural production declines,” Wright said. “As North American oil and gas production reaches new heights, there is a rising level of frac activity required to simply keep our customers’ production flat.”

Today’s existing frack market is fully utilized, the CEO said. There also is “strong demand for gas-powered fleets that significantly reduce fuel costs. Natural gas is much cheaper than diesel, while driving down frack fleet emissions.”

Still, the transition to gas-powered fleets is coming at a “measured pace,” Wright said, “roughly aligned with the attrition of the industry’s older generation diesel frack capacity.”

Before closing out the conference call, Wright called out “the politically driven attacks” on the U.S. energy system.

“New England and an increasing number of states, like California and New York, continue to impose both higher energy costs and lower electrical grid reliability on their citizens simply because the political and energy regulatory arenas no longer engage in honest sober dialogue about energy, the environment, climate and human well-being,” Wright said.

“These attacks on our energy system must stop or we will drive down American standards of living and deindustrialize our country, just like Europe. That path is not looking too rosy right now.”

Net profits rose to $153 million (84 cents/share) in 4Q2022, compared with a year-ago loss of $56 million (minus 31 cents).  For 2022, net income totaled $400 million ($2.17/), compared with  a 2021 loss of $178  million (minus $1.03).