Three Large Oilfield Service Companies Report Strong Second-Quarter Profits

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Three large oilfield services (OFS) companies reported robust quarterly earnings last week. Although second-quarter results for two of the firms, Baker Hughes Company (NASDAQ:BKR) (Houston, Texas) and Halliburton Company (NYSE:HAL) (Houston), trailed first-quarter 2023 results, when oil prices were higher, they were dramatically better than year-earlier quarterly results. That suggests that the prolonged slump for those two companies, which provide equipment and services to Oil & Gas producers, is over.

A third major OFS provider, SLB (NYSE:SLB) (Houston), formerly known as Schlumberger, Ltd, has not experienced a profit slump. Its second-quarter earnings exceeded those from the prior quarter as well as the comparable year-earlier quarter. SLB has a broader range of businesses than Baker Hughes or Halliburton, and that broader portfolio could have cushioned SLB's earnings. It also does a far greater portion of its business overseas than its two rivals, so volatility in the U.S. market could have less of an impact on SLB.

Click on the image at right to see quarterly net income for the three companies for second-quarter 2023, first-quarter 2023 and second-quarter 2022.

The OFS business necessarily tracks that of oil prices and oil and gas producers. Oil prices rose sharply from late 2020 through early 2022 but have declined from their highs in the aftermath of Russia's invasion of Ukraine in February 2022. The world's largest oil and gas producers will begin reporting second-quarter earnings this week.

Click on the image at right to see historical and projected spot cash prices for a barrel of West Texas Intermediate (WTI) crude oil since 2018.

"There's been a lot of talk about the energy transition, electric vehicles and a post-oil world, but it's clear the world still depends on oil and gas, which is good for OFS companies," commented Gordon Gorrie, vice president of the oil and gas research at Industrial Info.

Second-quarter results for three large OFS companies are summarized below.

Baker Hughes
Baker Hughes reported $410 million in net income for the just completed period, which was down from $576 million in the preceding quarter but a turnaround from a loss of $839 million for the year-earlier second quarter.

On a year-over-year basis, the second quarter jumped 25%, to $6.3 billion, and new orders rose 28%, to $7.5 billion, in the April-June 2023 period compared to the April-June 2022 period.

Revenue improved for both segments of the company's business, Oilfield Services & Equipment (OFSE) and Industrial & Energy Technology (IET), with the latter group growing 34% and the former expanding 20% compared to year-earlier quarterly results. Year-over-year quarterly operating profit rose faster at OFSE, up 68%, than at IET, which grew 32%.

Commenting on Baker Hughes' second-quarter results, Lorenzo Simonelli, chairman and chief executive officer, said on July 19, "We were pleased with our second-quarter results and remain optimistic on the outlook for 2023. We maintained our strong order momentum in Industrial & Energy Technology and Oilfield Services & Equipment, specifically within Subsea & Surface Pressure Systems (SSPS)."

He continued: "Growing economic uncertainty continues to drive commodity price volatility globally. However, despite lower oil prices over the first half of the year, we maintain a constructive outlook for global upstream spending in 2023. Market softness in North America is expected to be more than offset by strength in international and offshore markets."

"Outside of the upstream markets," Simonelli said, "we remain confident on the liquefied natural gas (LNG) outlook, with solid demand growth this year led by Europe and Asia. Based on the continued development of the LNG project pipeline, we still expect the market to exceed 65 million tons per annum (MTPA) of final investment decisions (FIDs) this year and should see a similar level of activity in 2024. We continue to see the potential for this LNG cycle to extend for several years with a pipeline of new international opportunities expanding project visibility out to 2026 and beyond."

Halliburton
Halliburton also reported strong second-quarter earnings on July 19. Net profits for the just-completed quarter were $610 million, down slightly from $651 million in the March quarter but a significant jump over year-earlier second-quarter earnings of $109 million.

The company booked a $104 million pre-tax loss associated with its business in Argentina in the just-completed period and a $344 million pre-tax charge in the June 2022 period.

Jeff Miller, chairman, president and chief executive of Halliburton, commented, "Halliburton's strong performance in the second quarter demonstrates the earnings power of our business. Total company revenue increased 14%. Both of our divisions delivered strong margin performance across all regions."

"Oil and gas are critical to the global economy and meeting long-term demand requires sustained capital investment," he continued. "I am confident in the strength and duration of this upcycle and Halliburton's ability to outperform in it."

He noted the company has returned about $248 million in share repurchases during the second quarter.

Pre-tax operating income at Halliburton's Completion and Production business segment rose to $707 million for the just-completed period, up from $666 million in the January-March 2023 period and well above the $499 million reported in the year-earlier quarter. The company said those results were driven by increased completion tool sales globally, higher artificial lift activity in North America, improved cementing activity and higher pipeline services internationally, and higher stimulation activity and well intervention services in the Gulf of Mexico.

Halliburton's other segment, Drilling and Evaluation, earned $376 million on a pre-tax operating basis for the just-completed quarter, up slightly from $369 million in the prior quarter and $286 million in the comparable year-earlier quarter. The company said these results were primarily due to an increase in fluid services globally, and higher drilling activity in the Western Hemisphere and Saudi Arabia. These increases were partially offset by lower software sales in North America and the Eastern Hemisphere, and decreased project management activity in Saudi Arabia, it added.

SLB
Profits continued to rise for SLB, which reported second-quarter earnings July 21. The OFS major earned $1.03 billion on revenue of $8.1 billion for the just-finished quarter. In the January-March 2023 period, it earned $934 million on $7.7 billion in revenue. For the second quarter of 2033, net profits were $959 million on $6.8 billion of revenue.

Second-quarter revenue grew by 22% to 25% at three of its businesses--Reservoir Performance, Well Construction and Production Systems--while at a fourth unit, Digital & Integration, revenue declined 1% year-on-year.

Quarterly pre-tax operating margins rose for the Reservoir Performance, Well Construction and Production Systems units compared to the prior quarter and the comparable year-earlier period, suggesting SLB's pricing power was increasing. Margins for the fourth unit, Digital & Integration, improved from the January-March 2023 period but declined from the year-earlier quarter.

In a statement, SLB Chief Executive Olivier Le Peuch said, "I am very pleased with our second-quarter results, which reflect significant growth in the international markets, particularly in the Middle East & Asia, and offshore. North America revenue also grew sequentially benefiting from our agility across the most resilient basins and market segments, although the rig count in the area declined."

"As the upcycle continues to unfold," he continued, "we are excited about the opportunities for our business, with international and offshore-led growth fueling strong pre-tax segment operating margin expansion and cash flows as highlighted in this quarter's results. We are very well positioned in these markets, as international represents nearly 80% of our global revenue, and offshore constitutes approximately half of that. Both sequentially and year on year, we saw broad international revenue growth that resulted in margins expanding across all divisions and geographical areas."

"Our focus on the quality of our revenue continues to drive margins, and during the second quarter, we received numerous multiyear contract awards," Le Peuch said.

"This is bolstering our outlook for long-term growth that will outlast near-term commodity price volatility, and it is reinforcing our belief in the breadth, resilience, and durability of the upcycle," he added.

Quarterly revenue grew 21% for the international sector compared to the April-June 2022 period. Revenue from North America grew 14% year on year.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).