Which Major OFS Player Seems Most Bullish About 2021?

(The views and opinions expressed in this article are those of the attributed sources and do not necessarily reflect the position of Rigzone or the author.)

In this look back at the week’s hits and misses in the oil and gas markets, one of Rigzone’s regular market-watchers discusses encouraging signs from major players in the oilfield services (OFS) sector. Moreover, he offers his take on which of the top OFS companies appears most optimistic about business conditions in 2021. Keep reading for details on this and other timely topics.

Rigzone: What were some market expectations that actually occurred during the past week – and which expectations did not?

Tom Curran, Senior Energy Services and Equipment Analyst in Equity Research, B. Riley Securities: The “Big 3” diversified oilfield services (OFS) companies – Halliburton (NYSE: HAL), Baker Hughes (NYSE: BKR) and Schlumberger (NYSE: SLB) – shared updates on onshore North America that suggested most customers will adhere, for now, to their existing 2021 plans for the first half and have yet to clarify when, at the earliest, and under what conditions they might become more aggressive. In other words, they reaffirmed the conventional wisdom heading into earnings season: the E&P complex will spend enough to sustain output at its 2020 exit level, require more than just two weeks of supra-$50 WTI to consider a resumption of output growth and, once it does pivot back to growth, will ramp in a circumspect, disciplined manner.

As it’s often been in the past, Halliburton’s language and tone was the most incrementally bullish of the Big 3 relative to Wall Street expectations. Chairman and CEO Jeff Miller said:

I am more optimistic than I certainly was 90 days ago … 2021 will be better than the second half of 2020 annualized … we’ve got good momentum in 1Q21 and we’ve got pretty good visibility for the year, so I think that momentum, it builds in 1Q21, but it doesn’t fall off at the pace that it has in the past. Certainly, that’s just because the drivers will be different. And I think capital discipline and flat production coexist in this market.

Tom Seng, Director – School of Energy Economics, Policy and Commerce, University of Tulsa’s Collins College of Business: The swearing-in of a new U.S. President this week sent mixed signals to a holiday-shortened trading week for oil. On the one hand, President Biden's desire for a new stimulus package and accelerated vaccine rollout was greeted with optimism by the stock market, translating into an improving economy and, therefore, increased demand for energy. On the other hand, the revoking of the international border crossing permit for the Keystone XL pipeline and the signaled freezing of federal oil leases has given the market pause to reflect on what could be the beginning of an anti-fossil fuel bias by this new administration. Additionally, the speed of the vaccine rollout – or lack thereof – will indicate just how soon the economy can recover and lives can return to normal.

WTI pushed towards the $54 level again this week but appears to be heading for a slight loss on the week. Brent crude has traded above and below $56 this week while looking to settle lower as well. The output curtailment by Saudi Arabia two weeks ago is still the only real fundamental underpinning for the market at this time. That rally could run out of steam unless the market sees additional cuts or additional demand soon. 

This week's delayed U.S. Energy Information Administration (EIA) Weekly Petroleum Status Report showed a very large 4.4 million-barrel increase vs. forecasts calling for a gain of only 2.5 million barrels and an American Petroleum Institute (API) report showing a 2.6 million-barrel increase. At 487 million barrels, inventories have risen back to nine percent above the five-year average for this time of year. Refinery utilization increased to 82.5 percent, or 14.8 million barrels per day (bpd). Total motor gasoline inventories decreased by 300,000 barrels and have fallen to three percent below the five-year average for this time of year. Distillate inventories increased by 500,000 barrels last week to eight percent above the five-year average.

Counter to the overall U.S. activity, crude oil stocks at the key Cushing, Okla., hub were down by 4.7 million barrels to 52.5 million barrels, or 69 percent of capacity there. U.S. oil production last week held at 11 million bpd down from 13 million bpd a year ago. Imports of oil were 6 million barrels last week. (Our largest source of imported crude comes from Canada and Keystone XL could've increased this, allowing us to cut imports from some of the more "troubled" areas of the world.)

The Dow, S&P and NASDAQ are lower on the week today as the markets pause to reflect on when and what kind of stimulus package will be forthcoming and as vaccine rollout concerns continue. But, all three indexes are still at high levels. The U.S. dollar is also trading lower on the week which would normally be supportive of higher oil prices.

Meanwhile, despite a larger-than-forecasted withdrawal, natural gas prices look to settle lower this week on warmer forecasts. The EIA's Weekly Natural Gas Storage Report indicated a withdrawal of 187 billion cubic feet (Bcf) vs. expectations for a drop of 177 Bcf last week, leaving stored natural gas at 3 trillion cubic feet (Tcf) which is now only one percent higher than last year but seven percent over the five-year average. At the mid-point of the "core" winter months, 3 Tcf is a large amount of peaking supply available should frigid weather enter the U.S. Supply last week was down to 90.3 Bcf per day (Bcfd), steady from the prior week and about 94.1 Bcfd a year ago. Total demand last week was 112.7 Bcfd, down 5.5 Bcfd from the prior week with residential and power consumption down. Exports to Mexico were steady at 5.5 Bcfd while exports of LNG rose slightly to 10.9 Bcfd. 

The International Energy Agency expects global oil demand to increase this year by about 5.5 million bpd to 96 million bpd, still below the pre-COVID level of around 100 million bpd.

Rigzone: What were some market surprises?

Seng: President Biden's executive order revoking the permit for the Keystone XL pipeline, while expected to happen, seemed an odd "priority" for his first day in office. It would be interesting to know what information he was given, and by whom, in making this decision. That could tell us a lot about who will influence his energy policies moving forward.

Curran: Three OFS companies partially preannounced results for Fourth Quarter 2020: two were positive and one was negative. On Tuesday, Solaris Oilfield Infrastructure (NYSE: SOI) issued its second consecutive prerelease of stronger-than-guided quarterly fleet utilization. The company expects the sequential change in its quarterly full utilized proppant silo count for 4Q20 to come in at an increase of 20 to 25 percent, which is far superior the forecast management provided on the 3Q20 call of “flat to modestly higher.” 

The negative prelease was also issued that day, from NOV (NYSE: NOV), who reported certain preliminary profit and loss items. Relative to consensus, the company’s revenue missed slightly, at $1.33 billion versus $1.36 billion, but its adjusted EBITDA fell well short – at $17 million compared to $57.1 million. Then, on Wednesday, Propetro (NYSE: PUMP) reported that it now predicts 4Q20 ranges for revenue and EBITDA with midpoints of $154 million and $23.5 million. Both are better-than-expected, with consensus at $149.9 million and $19.0 million. Operationally, the company said its effective frac fleet utilization for 4Q20 was 9.6 spreads, roughly in-line with management’s 3Q20 call guidance of 9-to-10 spreads.

To contact the author, email mveazey@rigzone.com.