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U.S. Oilfield Firms Offer Dour Views as Shale Budgets Dwindle


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Oilfield service companies that cater to U.S. shale oil and gas producers are turning sour on fourth quarter demand, with clients keeping a tight grip on their wallets after largely exhausting their 2023 budgets.

Many U.S. oil producers are pumping only enough oil to keep production flat and turning over more profit to investors. Shale gas producers have struggled all year and have not been able to reduce drilling fast enough to counter weak prices.

That makes for a dour outlook for service firms that have been battling higher costs for materials and labor for nearly two years. The outlook is better for firms with sizeable international operations. But U.S. oil and gas producers are not looking to spend more, executives said.29dk2902l

“Recovery hasn’t been quite what we or our customers had hoped for North America,” Clay Williams, chief executive of the fourth-largest U.S. oil equipment and services supplier NOV Inc, told investors two weeks ago.

Wall Street analysts have been cutting profit views for North American-focused oilfield providers. NOV’s average earnings estimate for the fourth quarter was slashed by 7%, while pressure pumping provider Liberty Energy ‘s was trimmed by 3%.

“You are going to see a little bit of budget maintenance as they’ve completed (wells) a little bit quicker than they would have expected,” said Michael Stock, finance chief at Liberty Energy last month.

Liberty’s rival ProPetro Holding could cut as many as 2 frac fleets in the final quarter, citing customers burning through their budgets.

Consultancy Rystad Energy expects about 225 frac fleets to be active in the U.S., excluding Alaska and Hawaii, in the fourth quarter, down from 230 in the third quarter.

“At this point, we still are counting on the fourth quarter to be worse,” said Rystad analyst Justin Mayorga.

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While many firms expect demand to pick up early next year once new budgets kick in, drilling and completion service may remain lower due to flat production and recent mergers.

In the United States, “the upstream E&P (exploration and production) industry is in a slow to no-growth environment,” said Samuel Sledge, chief executive at pressure pumper ProPetro.

Recent acquisitions of producers by Exxon Mobil and Chevron will dampen demand in the near future, executives said.

“Everyone knows that 3 plus 2 equals 4, not 5,” said Kevin Neveu, CEO of drilling firm Precision Drilling. “There’s going to be a slight rig count reduction with those transactions.”

Driller Helmerich and Payne also said that while it expects demand next year for its highest performing rigs will increase, it will remain below recent highs.

Outside North America service demand is expanding. Precision Drilling last quarter activated its fourth rig in Kuwait and will install a fifth this quarter, Neveu said.

The largest service companies have brighter outlooks in their international operations.

SLB and Halliburton forecast stronger global drilling activity as North America lags. Baker Hughes’ weak North American oilfield business has been offset by higher demand for its liquefied natural gas equipment.

(Reporting by Arathy Somasekhar in Houston Editing by Tomasz Janowski)

 

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