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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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Oilfield Service Majors See Bright Future Ahead

The first second-quarter results from the oilfield service sector are in, and despite some missed expectations, the future looks bright for two of the top three global oilfield service providers. Schlumberger and Baker Hughes both reported Q2 results on Friday, and they both demonstrated an upbeat outlook for the immediate future despite a divergence in priorities.

The oil price recovery from the last year certainly made a difference. Both companies said they were seeing an improvement in offshore activity, and even though most of this is in development rather than much-needed new exploration, the latter is picking up, too.

Schlumberger’s chief executive Paal Kibsgaard said at the presentation of the company’s second-quarter results that he expected spending on offshore exploration this year to be 12 percent higher than in 2017, and that this will rise further in 2019.

Baker Hughes’ Lorenzo Simonelli was also optimistic, and not just for offshore exploration. Simonelli said he saw both onshore and offshore exploration pick up this year and next, with 2019 being particularly active in terms of exploration spending, noting that "as more large projects are sanctioned and offshore spend returns to more normalized levels, we expect these orders to start generating revenues in 2020."

Where the two diverge is in the focus on U.S. and international operations. Schlumberger is doubling down on U.S. operations in direct competition with the world’s number-two Halliburton, fighting for every bit of market share that it can get after the 2014 bust cleared the playing field from many smaller players. Bloomberg reports that Schlumberger has grown it U.S. sales faster than any other region where it is active, taking advantage of the price rebound that has pushed U.S. oil production to a record high.

Baker Hughes, on the other hand, is looking abroad for expansion rather than focusing on domestic operations, after it delivered an 8-percent increase in international orders, beating the 7-percent improvement in U.S. operations. Related: Guyana’s Oil Reserves Are Larger Than Expected

No wonder Baker Hughes is looking abroad: Evercore ISI analyst James West recently told Bloomberg that international spending on oilfield services is improving faster than analysts had forecast at the beginning of the year.

The improvement, he said, was “more rigorous and stronger than we thought. Because it’s so much bigger than North America, it will be the biggest driver of earnings for the next couple quarters.”

Meanwhile, the star play of the U.S. shale patch is suffering from clogged pipelines, which may be why Baker Hughes has not mentioned it among its short-term priorities. Schlumberger, although dedicated to its home market, is also not relying exclusively on U.S. growth. As Kibsgaard noted at the Q2 presentation of the company, although the pipeline capacity shortage has not yet made a palpable impact on production in the Permian, in the future it may well affect it negatively.

All in all, things are looking up for the oilfield service industry, which bore the brunt of the oil price crash. There are still challenges ahead, but the sector leaders have proven their resiliency, emerging from the crisis by becoming just as leaner and meaner as their clients, in some cases even more.

By Irina Slav for Oilprice.com

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