Service crew

Oil Services Stocks Set to Post Explosive Earnings

For much of the ongoing oil recovery that has now lasted nearly two years, oil service companies have lagged. This has been the case because most of every new dollar earned from drilling has gone to producers. Fortunately, the balance now seems to be changing, with the E&P economy favoring oil service companies. You can tell from the performance of the sector, both on the basis of shareholder returns and financials.

A popular industry benchmark, the VanEck Vectors Oil Services ETF (NYSEARCA:OIH), is up 57.2% year-to-date, eclipsing the SPDR Energy Select Sector Fundof (NYSEARCA:XLE) gain of 41.7%.

The first OFS company to render this year’s results dashboard didn’t disappoint either: Halliburton Company (NYSE:HAL) beat first-quarter earnings estimatewith a turnover of 4.28 billion dollars (+24.1% over one year) beating $80 million while non-GAAP EPS of $0.35 was beating $0.01.

“We are seeing significant stress across the North American oil and gas value chain. Supporting commodity prices and strengthening customer demand in the face of a nearly depleted equipment market should drive the expansion of the margins of the Completion and Production division..”

The company expects strong international business to grow throughout the rest of the year and expects to deliver profitable growth, strong free cash flow and industry-leading returns. Related: OPEC+ missed its March production quota by 1.45 million barrels per day

Other big names in the industry set to report earnings later in the week include Schlumberger AG (NYSE: SLB) and hugue baker (NASDAQ:BKR), while Patterson-UTI Energy (NASDAQ:PTEN), Nextier Oilfield Solutions (NYSE:NEX), Liberty Oilfield Services (NYSE: LBRT) and Helmerich and Payne (NYSE:HP) are expected to report within the next two weeks.

Pricing power

With energy prices rebounding, many producers are looking to expand and are having to pay to find the right crews and equipment. City analyst Scott Gruber told Barrons that “Pricing power for oil services not only appears to be in place, but is gaining momentum as E&P want to avoid losing efficient crew and avoid the risk that comes with a replacement crew.”

The OFS shift has been most evident in the job market, with OFS companies hiring again.

OFS companies have reported that drilling and well completions activity as well as prices have increased slightly, while thugs also say they are seeing an increase in job vacancies. Oilfield workers were among the demographics hardest hit by the Covid-19 pandemic in 2020. Nationally, the oil and gas industry is estimated to have lost 107,000 jobs according to global consultancy Deloitte, with around 200,000 thugs losing their jobs at the height of the global lockdowns.

According to the trade group Energy Workforce & Technology Council (Council), jobs in America’s oilfields have increased over the past year.

Pricing should follow shortly. Pricing power is returning to niches such as high-spec land-based drilling rigs, with daily rates for these US rigs having already seen an increase of $1,000 per day with more to come.

Halliburton, Schlumberger and Baker Hughes became the first OFS victims of the Ukraine crisis due to their size and brand recognition. However, Rystad Energy’s head of energy services research, Audun Martinsen, told the Financial Times that their smaller counterparts could continue to operate under the radar as they do not directly exploit or export oil and resources. natural.

Goldman Sachs recently selected for companies with pricing power ahead of first quarter results and flagged Haliburton, Baker and Schlumberger as well positioned.

“Pricing power will become increasingly important in the face of continued inflation and cost pressures. In order to assess the sustainability of margins, we will monitor the ability of companies to pass on increased costs to consumers,” David Kostin, chief US equity strategist and team, said in a note.

Morgan Stanley notes that year-to-date earnings revisions have favored onshore US companies, with Helmerich, NexTier, Patterson and Tenaris S.A. (NYSE:TS) are all seeing higher double-digit revisions so far in 2022. Schlumberger and NOV inc.. (NYSE:NOV) saw their estimates fall, partly on exposure to Russia. However, Morgan Stanley believes that these dynamics are well understood and favors:

  • Schlumberger, given the company’s exposure to a recovery in international spending
  • Tenaris as capacity restarts in North America, coupled with peak pricing data points to higher profits
  • Liberty should show progress on new fracking fleets.

By Alex Kimani for Oilprice.com

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