Energy Services Companies Roar Back To Life - But Only In U.S.

Source: Houston Chronicle

The world's top oil field services giants are seeing their North American shale revenues surge by 10 percent or more as the U.S. energy sector returns to life after a painful two-year bust that bankrupted hundreds of companies and left hundreds of thousands of people out of work.

The so-called Big 3 services companies - Schlumberger, Halliburton and Baker Hughes - all lost money in the fourth quarter of 2016, but they're also all seeing their revenues grow in the U.S. shale basins as drilling and hydraulic fracturing activity pick back up, especially in West Texas' suddenly booming Permian Basin. The rest of the world and offshore are lagging behind.

"Everything starts and stops with North America," Baker Hughes Chairman and CEO Martin Craighead said Thursday. "We're on the cusp of a sustained recovery, and the question is timing and intensity."

The nation's active rig count has surged by nearly 75 percent since bottoming out in May. More than half of the rigs drilling for oil are in the Permian. Last week, the rig count saw its biggest weekly surge in five years as 35 more rigs were added to oil and gas fields.

After crude prices peaked near $107 a barrel in June 2014, they started to slide, plunging to a low of about $26 a barrel in February. More than 215,000 U.S. energy workers, including about 100,000 in Texas, lost their jobs, and many of those workers may never return to the industry.

Oil prices have since rebounded, and the U.S. benchmark for oil settled Thursday at $53.78 a barrel, up $1.03 on the day. Much of the Permian, for instance, is profitable with oil above $50.

The Big 3 services companies combined to cut 114,000 jobs worldwide through terminations and attrition. They still employ a combined 183,000. Schlumberger and Halliburton stopped workforce reductions in mid-2016, but Houston-based Baker Hughes cut another 1,000 jobs in the fourth quarter.

While the oil bust may not last as long as it did in the 1980s, this one was arguably deeper and more costly, said Bill Herbert, a senior energy analyst at Piper Jaffray & Co.

"It's going to be a year of significant recovery in employment in the energy sector. You want to be in Midland, Texas," Herbert said of where workers are needed the most. "Every single narrative across the board points to growing optimism for the Lower 48."

If anything, the onshore U.S. energy sector could soon see some labor shortages and wage inflation, he added.

The Big 3 services companies all reported net losses overall of at least $140 million, including Baker's $417 million loss reported Thursday. Still, industry analysts see promise of a more prosperous if not necessarily robust 2017.

After all, Baker Hughes' North America revenue of $775 million for the quarter increased 15 percent from the third quarter. Baker Hughes' losses mostly came from international markets, the deep-water sector, higher tax rate exchanges and severance charges.

Halliburton Chairman and CEO Dave Lesar this week called it a "tale of two cycles," with only North America surging.

The offshore and international energy sectors should slowly start to bounce back in the latter half of 2017 as global oil supply and demand starts to come back into balance, said Byron Pope, an energy analyst with Tudor, Pickering, Holt & Co. in Houston.