Schlumberger sees 2022 capex rising 20% or more in North America: CEO

Recovery from the coronavirus pandemic continues to improve the energy landscape, as both oil prices and demand around the world gain momentum after two quiet years of spending and drilling austerity, oilfield services giant Schlumberger said Jan. 21.

Schlumberger expects "a period of stronger short-cycle activity resurgence" in 2022, driven by improved visibility in demand recovery and greater confidence in the oil price environment, company CEO Olivier Le Peuch said during a fourth-quarter earnings call.

"We expect an increase in capital spending of at least 20% in North America, impacting both the onshore and offshore markets," which will be felt in the first half of the year, Le Peuch said. "Internationally, capital spending is projected to increase in the low to mid-teens, building momentum from a very strong exit in the second half of 2021."

"All area and operating environment, short and long cycle, including deepwater, are expected to post strong growth with upside potential as [coronavirus omicron variant] disruptions dissipate as [2022] advances," he said.

While Schlumberger is still experiencing pandemic-related disruptions, first-quarter 2022 will likely have typical weather-related seasonality, he said. That could translate to a roughly 4% revenue decrease in Q1, Cowen analyst Marc Bianchi said in a Jan. 21 investor note.

However, a "strong seasonal uptick" will follow in Q2 that is likely to affect all the company's divisions which include Well Construction, Reservoir Performance, Production Systems and Digital & Integration. Growth should further strengthen in the back half of the year, Le Peuch said.

Not 'if' but 'when'

"So it's not about if, it's about when," he added.

Increased offshore activity has already begun, as evidenced by a number of final investment decisions taken on projects in the global arena in second half of 2021, and this is pegged to accelerate as this year unfolds and even further into 2023, the CEO said.

Offshore hub and spoke development "clearly lifted [E&P] spending on reservoir analysis during Q4 and augurs well for more a active 2022 and 2023," Wells Fargo analyst Roger Read said in an investor note issued shortly after the call.

Longer-term, economic growth is projected to drive demand in oil markets beyond the previous peak by year-end 2022 and through 2023 – and even a few years beyond, Le Peuch added.

The supply-demand imbalance in oil markets that is diminishing but still exists has not only lifted oil prices but also expanded investment broadly, although although North America is and will remain "structurally smaller than previous cycles" from under-investment but also due to the "crunch of supply," including on the oilfield services side, he said.

Schlumberger's net income for Q4 2021 totaled $601 million, up 9% sequentially and up 61% year over year.

Fourth-quarter revenue of $6.22 billion increased 6% sequentially and 13% year on year. That included $4.9 billion from international operations, up 5% sequentially and up 13% year over year, and $1.3 billion from North America, up 13% sequentially and up 10% year over year.

Revenues grow from offshore, data licensing

Sequential growth from North America was powered by strong offshore and land drilling, and increased exploration data licensing in the US Gulf of Mexico and the Permian Basin in West Texas/New Mexico, Schlumberger said in a statement. International improvements came primarily from stronger activity, increased digital sales and early benefits of pricing improvements.

The Middle East/Asia segment yielded the most regional revenue in Q4, with $2.1 billion. Europe/CIS/Africa generated $1.6 billion, and Latin America took in $1.2 billion. Sequentially those areas' revenues were up 4%, 7% and 5%, respectively.

During Q4, Schlumberger's custom basin and energy transition technology continued to improve and those refinements should boost company revenues over 2022 as well, since they command a premium price.

For example, a Schlumberger fit-for-basin technology package enabled ExxonMobil to reduce drilling days 34% or a total of 26 drilling days for five Permian Basin wells, the company said.