Halliburton sees bright outlook for next two years as North America, international poised for growth

Oilfield services provider Halliburton voiced a bright outlook for the oil and gas industry over the next couple of years for both North American and international markets July 20, as the company's top executive expects simultaneous growth in both international and North American markets for the first time in seven years.

Halliburton, the first large energy company to report second-quarter 2021 earnings, expects second-half 2021 activity to gain momentum as recovery from the coronavirus pandemic unevenly continues. The market should be able to comfortably accommodate both increasing levels of OPEC+ crude output returning to the market as well as new US shale barrels, Halliburton CEO Jeff Miller said during the company's Q2 earnings conference call.

Internationally, Miller anticipates a double-digit increase in spending for H2 2021 compared to H2 2020, even though various countries are facing disruptions from new outbreaks of the coronavirus Delta variant while North American spending is poised to march forward.

"We believe activity in North America inches higher [in H2 2021] with drilling outpacing completions as operators build up well inventory for 2022," he said. "We expect drilling and completion spending in North America will also grow double digits annually over the next two years, although activity will not return to pre-pandemic levels."

Private operators will "opportunistically" lead the activity comeback as oil prices and supportive conditions permit, while public E&Ps balance growth and returns, Miller said.

'Early innings' of an upcycle

Longer-term, "we believe that we are in the early innings of a multiyear upcycle," he said. "For the first time in seven years, we anticipate simultaneous growth in international and North America markets."

"With both demand resurgence in many economies and increased vaccine availability, we anticipate that global demand will continue to exceed supply, particularly to the extent OPEC-plus manages supply additions over the near term," Miller said.

As OPEC+ spare capacity returns to normalized levels over the coming year, pent-up global oil demand should support a call on both international and US oil production, he said, adding growth will be led by national oil companies and focused on shorter-cycle barrels.

Also, mature fields both onshore and offshore, will attract the most investment, with greenfield exploration limited to "a few markets" in Africa and Latin America – the latter likely referring to Guyana and Suriname, where multiple discoveries are being developed in the former and planned for the latter.

As a result, double-digit international spending growth is foreseen over the next couple of years, Miller said.

Normalized spare OPEC+ capacity, high shale output decline rates and oil prices at or near $70/b also give confidence to North American operators to loosen their pocketbooks a bit after two years of bare-bones capital budgets.

Crude prices dipped below $70/b July 19 in response to OPEC+'s decision to deliver 400,000 b/d per month to the market for the rest of 2021 starting in August, although prices rose slightly in morning trading July 20 to just over $67/b.

Equipment availability to tighten fast

Moreover, equipment availability in the field will tighten "much faster than most people think," he said.

Currently, drilling and completions equipment are "nearing" tightness in North America – which is expected for international markets over the next few quarters.

Due to capital scarcity and granting of lower services and equipment prices to E&P customers for years, many North American oil service companies don't generate enough cash to invest in new equipment, maintenance or innovation. As a result, equipment availability should be tight going forward, Miller said.

Halliburton's total company revenue in Q2 increased 7% sequentially and 16% year over year to $3.7 billion, as both North America and international markets continued to improve.

Net income in Q2 was $227 million or 26 cents/share, compared to $170 million or 19 cents/share in Q1 and a net loss of $1.68 billion or $1.91/share in Q2 2020.

Geographically, in Q2 2021 North American revenues grew 12% sequentially and 50% year on year, while Latin America was flat sequentially but up 54% year over year.

In Europe/Africa/CIS Halliburton posted a 7% sequential revenues increase but was down 1.7% year on year, and Middle East/Asia was up 5% sequentially but down 17% year on year.