Source: Platts RADAR, December 6, 2018
Trey Cowan, Senior Analyst, S&P Global Platts
Patrick Schorn, Schlumberger’s Executive Vice President of Wells presented the company’s outlook on the current market environment and specifically its impact on the oilfield services segment at Cowen & Company’s Energy and Natural Resources Conference this week. The full transcript of the Schlumberger Presentation is available on the company’s website.
At the time of this writing, there were quite a few newsworthy events occurring both before and after Schlumberger’s comments this week. Most notably related to oil prices, no official announcement on the level of OPEC cuts had been made public.
But between a Chinese CFO being detained in connection with trade sanctions, Qatar withdrawing from OPEC, and unofficial talk that the crude production cuts coming out of
OPEC would be smaller than anticipated, the confluence of these factors is having an adverse effect on both the broader markets and energy trading. Interestingly, the scuttlebutt emanating from the Vienna meeting is that non-OPEC producer, Russia (and how much they are willing to curb production too), will then play into how much OPEC will agree to cut.
But relative to these global factors, the news out of Schlumberger (SLB), and their expectations domestically, is just as chilling. Notable quotes by Schlumberger’s Patrick Schorn:
FREE TRIAL OFFER
Receive a free one month trial of Platts Rigs and Drilling Analytical Report (RADAR). Each week you'll receive the latest analysis of unconventional activities and trends in the upstream market. Operators are categorized by major shale plays and unconventional formations. Plus, you'll have analysis of the drilling contractors involved by play with details on utilization, footage and market share. Available in both pdf and Excel format.
Call 800-371-0083 or email CustomerService.RigData@spglobal.com.
Mention code 7HHONRPT
• “Looking closer at the supply situation, US production has surprised to the upside, partly in the Gulf of Mexico and partly from the US shale basins. There was a surge in hydraulic fracturing in the second quarter, especially in the Permian. This activity surge levelled off in the third quarter and is dropping in the fourth quarter, which will show up in the first half production numbers for 2019.”
• “First, shale oil production in North America has added or removed production in the global mix with a quicker response to investment than conventional oil.”
• “In North America, revenue from our offshore business and our land drilling operations is trending flat sequentially. For hydraulic fracturing, we are seeing a significantly larger drop in activity than we expected, which is leading to a larger drop in pricing than we anticipated. This is resulting in a sequential reduction in our total North America revenue in the range of 15%. We continue to see the weakening of the hydraulic fracturing market as temporary, with the expectation of a gradual recovery taking place of the first half of 2019.”
• “Looking forward to next year, the recent volatility in oil prices has introduced more uncertainty to the outlook for 2019 E&P spend. Faced with this, our customers will likely respond by taking a more conservative approach to the start of 2019, as they await the current market dynamics to play out and subsequently provide better forward visibility.”
Our take from these comments by SLB mirrors recent comments we highlighted from the Dallas Federal Reserve’s Survey of energy producers. Essentially, these volatile crude prices are dampening the enthusiasm for drilling by E&P producers. What we see here is SLB is quantifying the impact by suggesting the slowdown they are seeing in their completions business will cause their NAm revenues to likely fall by 15% versus the prior quarter’s level. This is definitely bad news for the industry over the short run.
This is an excerpt from Platts RADAR, December 6, 2018 issue.
Call 800-371-0083 to request a sample copy.
Upstream Activity Data for North America
For more information on North American upstream activity including permitting, drilling activity, production and completion data please contact S&P Global Platts via email CustomerService.RigData@spglobal.com or call 800-371-0083.