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U.S. shale pioneer Chesapeake Energy Corp. (NASDAQ:CHK) has predicted a 5% to 7% deflation in oilfield service costs in 2024 as weaker drilling and completions activity hurts demand despite oilfield services companies vowing to maintain prices. Chesapeake, among the top U.S. natural gas producers, says it expects prices for sand, pressure pumping and rigs to soften in the coming years. CHK shares are down 3% on Wednesday’s intraday session after the company reported a 68% drop in Q2 2023 profits mainly due to weak natural gas prices.
U.S. shale Production costs fell 1% year-on-year in the second quarter, marking the first time they have shrunk in three years. Drill pipe prices have halved this year, daily rig rates are down by more than 10% and the costs of steel and diesel are also trending lower. According to Goldman Sachs via Bloomberg, Drill pipe prices have fallen by 50% this year; daily rig rates are down by more than 10% while the costs of diesel and steel have been gradually declining. Only labor has been defying this trend as wages continue rising.
And, Chesapeake’s prediction is bad news for OFS companies, currently enjoying bumper profits.
The Big 3 oilfield services (OFS) companies Baker Hughes (NASDAQ:BKR), Halliburton (NYSE:HAL) and Schlumberger (NYSE:SLB) are set to post a combined second-quarter adjusted profit of $2.04 billion, compared with $1.27 billion in the year-ago quarter, thanks to robust demand for their services as well as a surge in offshore oil and gas drilling.
"International strength is led by the Middle-East and Latin America and is powered by a multi-year push to grow oil and gas production capacity, near-term OPEC+ cuts notwithstanding," BofA analysts said this month.
"(OFS) Companies with International/equipment exposure have strong visibility to multi-year volume growth and orders," TD Cowen analysts said earlier this month.
Norwegian energy intelligence firm, Rystad Energy, has predicted that offshore oil production will surge 35% in the current decade.
According to Rystad, offshore production will jump to 3.3 billion barrels per year by the turn of the decade from 2.5 billion in 2021. Surging offshore production in Brazil has significantly improved the utilization of shuttle tankers, with activity soaring by 55% from 695 million barrels for 2013 to 1.07 billion in 2021. A further increase of 72% is forecast by the end of 2030 when total volumes handled by shuttle tankers in the country will hit 1.84 billion barrels.
By Alex Kimani for Oilprice.com
Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com.