Private oil, gas drillers fuel Halliburton's Q1 growth as public E&Ps stand pat

Drillers backed by private companies are driving production growth in the U.S. oil and gas patch, the head of oilfield services giant Halliburton Co. said.

"Over 60% of the U.S. land rig count sits with private companies and they keep growing, while public [exploration and production companies, or E&Ps,] remain committed to their activity plans" that call for only enough drilling — and spending — to keep growth to a minimum, Halliburton Chairman, President and CEO Jeffrey Miller said April 19 on an earnings conference call.

Miller said public E&Ps have permanently shifted from producing large volumes of oil and gas to generating free cash flow and shareholder returns. Their slackened pace will keep oil and gas prices high, he said.

Private drillers are keeping the oilfield services market busy after two years of downtime during the 2020 oil bust and the COVID pandemic, Miller said. Halliburton's hydraulic fracturing services are sold out for the year, which will add to the cost inflation that America's pure-play shale gas drillers are expected to report starting next week. Halliburton sells or rents the rigs, crews and tools that E&Ps use to drill and complete new oil and gas wells.

Halliburton's North American revenue grew 8% over the previous quarter, "consistent with the high-single-digit capex inflation guided by the operators," Sanford C. Bernstein & Co. analyst Bob Brackett told clients in a note April 19. "We already know that U.S. shale oil production overall likely did not grow, but revenue, capex, and margins results will give insight into trends in drilling and completions activity and in cost inflation."

Publicly traded operators are leery about adding rigs and frac crews when shareholders want buybacks and dividends after years of red ink, Truist Securities Inc. oil and gas analyst Neal Dingmann said in an April 20 note.

"Most operators remain hesitant to boost activity for fear of deteriorating efficiencies, which could likely cause a number of investors to sell the shares," Truist said. "A couple E&Ps we previously expected to have at least moderate growth this year are now suggesting no growth; we believe the strategy change is largely due to the current just-in-time oilfield services inventory versus previously having much more visibility/equipment, so any new activity would likely hurt overall efficiency metrics."

After bottoming out at $6.5 billion in the second quarter of 2021, spending by the top public pure-play shale gas companies has been creeping up, according to S&P Global Market Intelligence data.

"I believe supply dynamics have fundamentally changed due to investor return requirements," corporate environmental, social and governance goals, and regulatory pressures, Miller told analysts on the Halliburton call. "Which make it more difficult for operators to commit to long-cycle hydrocarbon investments, and instead drive investment flexibility through short-cycle barrels."

Halliburton reported net income of $263 million, or 29 cents per share, for the first quarter, a 55% increase over the year-ago quarter. Revenue increased 24% to $4.3 billion, with $1.9 billion from North American activities, a 37% increase year over year, Halliburton said.

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