Schlumberger raises outlook as war in Ukraine pushes oil prices higher

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Oilfield providers group Schlumberger reported a bumper quarterly revenue and sharply raised its outlook for the yr as the trade advantages from higher oil prices triggered by Russia’s invasion of Ukraine.

Chief govt Olivier Le Peuch mentioned on Friday the world’s greatest supplier of providers to the oil and gasoline trade anticipated to spice up income this yr to “at least” $27bn, in contrast with $23bn in 2021.

An increase in upstream exercise as crude prices surged above $100 a barrel this yr has bolstered demand for oilfield providers, together with drilling wells, and buoyed prospects for a sector battered throughout the coronavirus pandemic-induced oil crash of 2020.

Le Peuch mentioned the trade was in the center of a “multiyear upcycle [that] continues to gain momentum with upstream activity and service pricing steadily increasing both internationally and in North America”.

Schlumberger’s bumper second quarter included web revenue of $959mn, greater than double the extent in the identical interval final yr. Revenues of $6.7bn have been up by a fifth. The shares rose 4.3 per cent in New York on Friday.

Crude prices have leapt in the previous yr, thanks largely to surging oil demand. That ascent has been additional bolstered by mounting fears of provide shortages as a consequence of years of under-investment and western governments’ efforts to chop vitality exports from Russia following its invasion of Ukraine.

Oilfield providers teams globally have benefited from producers — their predominant purchasers — boosting exploration and manufacturing exercise, tightening the market for providers.

The chief govt of rival Halliburton, which reported an virtually 40 per cent soar in revenues this week, mentioned on Tuesday that the North American oilfield providers market was “all but sold out” and would tighten additional subsequent yr as upstream exercise elevated.

The newest spherical of outcomes total mark a reversal in fortunes for the trade. The oil worth crash throughout the pandemic shattered demand for oilfield exercise and upstream spending, prompting the service firms to sack tens of 1000’s of staff and idle gear.

While Russia’s invasion of Ukraine has accelerated the trade’s restoration, it has additionally harm the massive oilfield providers teams, which have all now pulled again from a rustic that was a vital driver of exercise in current years.

Baker Hughes on Wednesday took a $365mn impairment cost on its Russian operations, which it mentioned it was making an attempt to dump by way of a administration buyout or outright sale.

It was additionally hit by element shortages and provide chain inflation, resulting in a 2 per cent drop in quarterly income in contrast with a yr earlier.

Baker’s chief monetary officer Brian Worrell mentioned delays on deliveries of elements it wanted had doubled from 11 days to 25. “We’re sitting at 60 per cent on-time delivery from our suppliers of electronics and chips to us,” he mentioned.

But rising demand from drillers coupled with widespread shortages — in every thing from the sand used in fracking American shale wells to rig palms and drivers — have additionally improved margins for providers suppliers.

“What we see in our business is activity [and] demand moving up. We see a tighter [20]23 than we see in [20]22,” Halliburton chief govt Jeff Miller mentioned. “All of these signals in our business are extremely positive.” 

Months of crude prices above $100 have introduced a gradual restoration in US oil output, which is now about 12mn barrels per day. That continues to be nicely beneath the document excessive of round 13mn b/d struck in 2019 earlier than the pandemic.

While shale manufacturing is rising, operators stay beneath strain from Wall Street to carry again spending and repay capital.

The chance of financial recession and a drop in world oil demand additionally now looms over the sector, executives have acknowledged.

Le Peuch struck an upbeat tone, although. “The combination of energy security, favourable break-even prices, and the urgency to grow oil and gas production capacity is expected to continue to support strong upstream [exploration and production] spending growth,” he mentioned.

But Baker Hughes chief govt Lorenzo Simonelli mentioned on Wednesday the trade confronted an “unusual set of circumstances and challenges” over the subsequent two years.

“The demand outlook for the next 12 to 18 months is deteriorating, as inflation erodes consumer purchasing power and central banks aggressively raise interest rates to combat inflation,” he mentioned.

Oilfield providers firms are “healing from their near-death experience in 2020”, mentioned Raoul LeBlanc, an analyst at S&P Global. But he cautioned that lingering capital restraint from producers, and issues about future oil demand, might stay a longer-term headwind for the sector.

“Their results look good, but it is unclear whether they will enjoy the upcycle as would normally happen . . . We need new equipment to take it to the next level and grow quickly. But everyone is afraid of making those long term commitments in a business that may not be here.”



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