Halliburton CEO paints bullish petroleum industry outlook for near- to mid-term

North America is virtually sold out for oilfield equipment capacity in 2022 and 2023 looks "tight," while international markets will likely see multiple years of growth, the top executive at big services/equipment provider Halliburton, the first large energy company to report second-quarter earnings, said July 19.

The quarter saw another step-up in US onshore rig activity and also hydraulic fracturing increased throughout the quarter, Halliburton CEO Jeff Miller said during the company's Q2 earnings conference call.

"As we look at the second half of 2022, Halliburton remains sold out [and] as for the overall market, I believe it will be all but sold out for the second half of the year due to service company discipline, long lead times for new fleets and supply chain bottlenecks for consumables," Miller said.

"We expect public companies will steadily execute on their drilling and completion programs [while] private E&Ps capitalized on available rigs and equipment in the first half of the year and will likely maintain a measured level of activity growth for the rest of the year," he added.

In addition, Halliburton, a company with more than 100 years of operating experience in the oil patch, believes North American operator spending growth will "eclipse 35%" this year, Miller said.

"Our customer conversations have already pivoted to 2023 plans well in advance of the typical time frame," he said. "These conversations make it clear that equipment capacity for 2023 is tight."

'Unrecognizable' market from prior cycles

"Today, we see a services market in North America that is almost unrecognizable from prior cycles or even a handful of years ago," Miller said.

The US rig count began Q2 with total active oil and gas-directed rigs of 791 and ended the period at 847, up nearly 9%, after growing 10% in Q1.

And internationally, customer spending is poised to increase by the mid-teens percentage-wise in 2022, with Latin America and the Middle East projected for the largest growth on a full-year basis, Miller said.

Moreover, this upcycle differs from all previous ones, given its vastly different fundamentals, he noted.

First, the activity mix is different, with operators focusing more on developing known resource and less on frontier and exploratory programs – which means they are drilling more wellbores.

In addition, announcements of new projects, notably in the Eastern Mediterranean, Australia and West Africa, lend support for continued activity momentum in 2023 and afterward.

"Longer-term, we believe the international markets will experience multiple years of growth," Miller said.

Moreover, despite high oil and gas prices, operators have continued their widespread focus put in place a few years ago on strict fiscal discipline owing to investor return expectations, ESG commitments and regulatory pressures, he added. Because of this, oilfield service companies invested for returns and didn't overbuild.

"In short, this cycle has been nothing like prior cycles," Miller said. "This means any economic slowdown will not solve the structural oil undersupply problem."

Oil and gas still 'critical' in energy mix

Miller noted that even though progress is being made to advance the energy transition, oil and gas remains a "critical" part of long-term economic growth. Economic expansion as recovery continues from the coronavirus pandemic, coupled with energy security requirements, and forecasted population growth, will press ahead and drive up demand.

Oil and gas supplies remain tight, despite ongoing China lockdowns and jet fuel demand that lingers below historic norms. "Meaningful" supply solutions won't be solved in the short term, with OPEC spare capacity at historic lows, releases from the Strategic Petroleum Reserves unsustainable and risk to Russian supply is high, said Miller.

Consequently, even with near-term price volatility owing in large part to uncertainties during Russia's war against Ukraine, oil and gas market fundamentals "still strongly support a multiyear energy upcycle," he said.

Halliburton's total company revenues grew 18% sequentially to $5.07 billion in Q2 as both North America and international activity "continued to improve in unison," Miller said. North American revenue grew 26% to $2.4 billion compared to three months earlier, while international revenue grew 12% sequentially to $2.65 billion.

By operating segment, the company's completions and production unit delivered a 17% operating margin in Q2, matching its 2014 level – considered an industry banner year – for the first time since then.

Halliburton's Q2 net income totaled $109 million or 12 cents/share, compared to net income of $263 million, or 29 cents/share, in Q1 2022. Adjusted Q2 2022 net income that excluded impairments and other charges was $442 million, or 49 cents/share, compared to $314 million or 35 cents/share.