Halliburton CEO sees ‘multi-year energy cycle’ even as economy slows

According to Jeff Miller, CEO of Halliburton Co., a potential economic collapse would be insufficient to correct the acute imbalance between supply and demand currently facing the oil and natural gas markets.

Miller discussed the market outlook during the oil services giant’s (OFS) second-quarter earnings call on Tuesday morning.

The CEO noted that actions taken by central banks during the second quarter to rein in inflation “raise concerns about a potential economic slowdown. Despite this short-term volatility, I think oil market fundamentals and still strongly support a multi-year energy bull cycle.

He added: “From a demand perspective, oil and gas remains a critical component of long-term economic growth. Post-pandemic economic expansion, energy security requirements and population growth will continue to drive demand.

Miller noted that oil and gas supplies remain tight despite China’s new Covid-19 lockdown measures and jet fuel demand below historical norms.

He pointed out that spare OPEC-plus production capacity and U.S. oil storage levels are at historic lows, and he said continued releases from the U.S. Strategic Petroleum Reserve would be “unsustainable.”

While North American carrier spending and production are both up, that may not be enough to loosen the market significantly, Miller said. He cited headwinds to growth on multiple fronts, including environmental, social and governance (ESG) concerns.

In recent months, “despite high commodity prices, operators have remained disciplined due to investor return demands, public ESG engagements and regulatory pressure,” he said. “In response, service companies invested in returns and did not overbuild.”

Because of these trends, “any economic slowdown will not solve the structural problem of oil undersupply.”

“All but impossible” to add capacity

Halliburton is the largest OFS supplier in North America, a market that “remains strong, growing steadily and near exhaustion” in terms of equipment, Miller said. This is expected to remain the case through the second half of 2022, due to “discipline from service companies, long lead times for new fleets and supply chain bottlenecks for consumables.”

These constraints, even for diesel hydraulic fracturing fleets, “make it nearly impossible to add additional capacity this year,” Miller said.

Miller explained that Halliburton’s goal is “to maximize value in North America by focusing on cash flow and returns, not market share.”

Miller said Halliburton expects North American operator spending growth to exceed 35% in 2022, driven by listed and private producers.

Much of this increase, however, is due to inflation, which means it will not translate into a corresponding increase in natural gas production, said Patrick Rau, director of strategy and research at NGI. .

“U.S. dry gas production was up just 4% year-over-year through July 18, and that includes the impact of Winter Storm Uri in February 2021, making the 2022 figure even higher,” Rau said. “Inflation is a big part of the surge in investment spending, and in fact perhaps the majority of it.

“Operators haven’t reported 2Q22 earnings yet, but some noted inflation was up to 20% higher for 2022 on 1Q22 calls, and I imagine inflation has only gotten worse in recent months.”

Growth in all regions

Halliburton reported total revenue growth of $5.1 billion in 2Q2022, up 19% year-on-year and 18% sequentially, “as activity increased simultaneously in North America and international markets “said Miller.

In North America, “price gains across all product service lines supported significant sequential margin expansion in the second quarter.”

North America revenue increased 26% sequentially to $2.4 billion. “This increase is primarily due to increased pressure pumping services and artificial lift activity in North America land, increased fluid services, wireline activity, well intervention and increased sales of completion tools in the region, and increased cementing activity in the Gulf of Mexico,” said management. “These increases were partially offset by the seasonal decline in software sales in the region and lower stimulation activity in the Gulf of Mexico.”

International revenue increased 12% sequentially to $2.6 billion, with growth led by Latin America and the Middle East/Asia region.

Halliburton attributed the growth to increased activity across multiple product service lines in the Middle East, Argentina, Colombia, Australia, Eastern Mediterranean, UK and Brunei.

“I expect international markets to see several years of growth, and I’m confident that Halliburton is well positioned to benefit more than ever from this multi-year bull cycle,” Miller said.

[Decision Maker: A real-time news service focused on the North American natural gas and LNG markets, NGI’s All News Access is the industry’s go-to resource for need-to-know information. Learn more.]

Improvement was also seen in wireline and cementing business in Europe, Africa and the Commonwealth of Independent States, as well as pressure pumping services in Mexico and increased fluid services in the Caribbean.

“These increases were partially offset by the seasonal decline in software sales in international regions, as well as the impact of the closure of our Russian operations,” the company said.

Halliburton took a pretax impairment charge of $342 million related to his decision to leave Russia amid the war in Ukraine.

Halliburton recorded revenue growth in each of its two main operating segments.

Completion and production revenue totaled $2.9 billion for the quarter, compared to $2.05 billion in 2Q2021, while segment operating profit fell to $499 million from $296 million. millions of dollars.

Drilling and appraisal revenue, meanwhile, rose to $2.2 billion from $1.7 billion a year ago, with operating profit down slightly to $286 million. versus $294 million in 2Q2021.

Halliburton reported net income of $109 million (12 cents/share) for the second quarter, compared with profit of $263 million (29 cents) a year earlier.

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