The “Big Three” international oilfield services groups last year registered their most profitable 12 months since the heyday of the US shale boom as high energy prices caused by Russia’s invasion of Ukraine dampened global drilling activity.
Halliburton, Baker Hughes and SLB reported aggregate net income of $4.4bn in 2022, the highest combined figure since 2014, as the war in Ukraine heightened fears of fuel shortages and led to a rush to increase oil and gas production.
Olivier Le Peuch, chief executive of SLB – previously known as Schlumberger – described 2022 as a “crucial” year for the energy industry, which he said had entered the “early phase of the structural cycle”. “Resilience is here to stay – and we’re talking about years,” he said.
The oilfield services group – which provides personnel and equipment to carry out the work of the oil and gas industry, drilling wells and pumping oil – has been one of the biggest beneficiaries of the market upheaval that has followed the war in Ukraine. The biggest players in the sector today announced strong fourth quarter results, with Halliburton reporting on Tuesday, closing the 2022 banner.
Rising energy prices over the past year have pushed drilling and production activity and led to a rush to secure equipment and personnel provided by service groups. Tight supply has allowed them to raise prices. Meanwhile, the intensive cost-cutting regime implemented during the Covid-19 pandemic has increased margins.
“Rising profitability paired with limited capital expenditures allowed the company to generate strong free cash flow,” said Jim Rollyson, head of oilfield services equity research at Raymond James.
Shares in energy companies jumped last year. That caused the sector’s weighting in the S&P 500 to return more than 5 percent, as it fell just over 1 percent in 2020 during the pandemic. The oilfield services group extends beyond the wider energy sector. The stock, as tracked by the OSX index, rose 59 percent, outpacing growth in carriers and giving its best performance since 2009.
SLB – the world’s largest player – is expected to make $3.4bn in revenue by 2022, with almost a third coming in the last quarter. Halliburton also made a huge profit of $1.6bn at the end of the year. Baker Hughes was the worst performer, posting a full-year loss of $601 million after struggling with parts shortages, inflation and declining Russian operations. But it ended the year on an optimistic note, with quarterly orders of more than $8bn.
The companies have a positive outlook for the year ahead, expecting rising oil demand, tight supplies and a new focus on energy security to increase hydrocarbon production worldwide.
“With a year of low-investment now amplified by new geopolitical factors, the global spare capacity for oil and gas has been damaged and it is likely that it will require a year of investment growth to meet future demand forecasts,” said Lorenzo Simonelli, executive director of Baker. “For this reason, we continue to believe that we are in the early stages of a multi-year increase in global activity.”
The bright outlook comes even before growth in the US shale patch stutters, with a new model of capital discipline among operators and falling yields casting doubt on future expansion. However, executives are looking to international markets – particularly in the Middle East – to drive growth.
“The oil and gas industry has entered a new phase in the upward cycle marked by the inflection in the Middle East and the strengthening of offshore activities. Taken together, this marks the beginning of a new pattern of growth internationally,” said Le Peuch.