The Undeniable Signs Of A Shale Slowdown
The world’s largest oilfield services company said its earnings were hit in the first quarter because of a slowdown in shale drilling activity.
“First-quarter revenue of $7.9 billion declined 4% sequentially, reflecting the expected reduction in North America land activity and seasonally lower international activity in the Northern Hemisphere,” Schlumberger CEO Paal Kibsgaard said in a statement. Pricing for its services was “soft,” while fracking and other “drilling-related businesses” saw a dip in activity.
The company was unbowed, noting that the weakness in North America is offset by improving conditions globally. “From a macro perspective, we expect the oil market sentiments to steadily improve over the course of 2019,” as the OPEC+ cuts tighten up the market. Also, Kibsgaard said that the “weakening of the international production base” after “four years of underinvestment” will become “increasingly evident,” which should spark an uptick in spending.
The global E&P sector is “starting to normalize.” In fact, spending could rise by 7 to 8 percent this year around the world.
However, U.S. shale is in a different situation. After spending heavily for years, which successfully ramped up production to record heights, many shale companies are still not performing well financially. As a result, the U.S. shale industry is at somewhat of an inflection point. Kibsgaard said that the sector is “set for lower investments with a likely downward adjustment to the current production growth outlook.”
While the industry is looking up globally, the outlook for U.S. shale is rather downbeat. “[T]he higher cost of capital, lower borrowing capacity, and investors looking for increased returns suggest that future E&P investment levels will likely be dictated by free cash flow,” Kibsgaard said. “We therefore see E&P investments in North America land down 10% in 2019.”
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