Updated: Apr 14, 2020
OG BRIEF #3
January 23, 2020
Have You Hugged a Fracker Today?
My background in oil & gas began in "frac'ing" (It's rude to spell it with a 'k' and spell-check admits it's NOT spelled frac'k'turing...so politely go frack yourself...just kidding, but seriously).
US hydraulic fracturing is a multi-stage stimulation process used to unlock oil & gas from dense shale rock, which has directly contributed to the US becoming the world's leading producer of oil at 13 million barrels per day - more than doubling in the last decade.
Frac'ing has provided affordable oil & gas that has grown our economy, improved quality of life, reduced our dependence on foreign oil, and added jobs (until recently). So you can thank your local frac'ers for providing US energy independence: Have you Hugged a Fracker Today? They're gonna need it.
Schlumberger, Halliburton, Baker Hughes Report 2019 Earnings
International oilfield services behemoth, Schlumberger (SLB), reported a $10.1 billion loss in 2019 compared with a $2.2 billion profit in 2018. The company is responding to the ongoing shale slump by selling underperforming assets, idling frac fleets, closing locations and laying off employees. Schlumberger CEO Olivier Le Peuch commented "after two years of strong growth, North American revenue fell sharply, driven largely by the land market weakness affecting our OneStim® pressure pumping business, as customers reached their budget limits earlier in the year and remained highly disciplined on capital spend." I suspect Schlumberger will shift their focus away from North America, doubling down on their dominant position in international and offshore markets to produce better margins and profits in 2020.
Halliburton (HAL), the market leader for frac horsepower and well completions in the US, reported an 18% revenue decline in North America as a result of declining customer activity and pricing reductions, but boasted an adjusted operating income of $2.1 billion in 2019 as a result of shifting focus to international markets - in an attempt to compete with established international oilfield providers like Schlumberger. Halliburton will need to improve their presence in non-shale producing regions to offset the decline in North American shale activity expected for 2020.
Baker Hughes (BKR), separating from GE and launching a new "green" brand, reported a free cash flow of $1.2 billion in 2019 while focusing on increasing margin improvement and evolving the portfolio to position for the "Energy Transition". Baker Hughes is literally going green by committing to a goal of net-zero carbon emissions by 2050. This lofty goal, in my view, can only be achieved by focusing on the less carbon-intensive segments like LNG, production digitization, artificial lift, and renewable opportunities rather than intensive carbon capital spend for new wells where Halliburton and Schlumberger are more exposed.
Oil Falls Further on Rising US Inventories, Despite Libya Outage
Oil prices dipped below $55 on Thursday, as the EIA and API both reported inventory builds for the week ending Friday January 17, despite the news that General Khalifa Haftar has shut off more than half of Libya’s oil exports. The National Oil Company (NOC) has declared force majeure, taking a whopping 800,000 barrels per day of crude offline for export.
And now, with the country’s entire 1.2 million bpd in production facing a complete shutdown, the market remains confused as to just how much oil is already offline.
According to the NOC, four key ports - Hariga, Brega, Sidra and Ras Lanuf - are closed and under force majeure as of 18 January. What that means is that once these ports reach their storage capacity, which is limited, the NOC will have to shut down crude oil production. Right now, the NOC is reducing crude oil production rates to avoid a total shutdown of production.
What To Watch For Next Week:
Tues, Jan 28: API Weekly Crude Oil Inventories @ 3:30pm CST
Wed, Jan 29: EIA Weekly Crude Oil Inventories @ 9:30am CST
Wed, Jan 29: Hess (HES) reports earnings @ Pre-Market
Thurs, Jan 30: Murphy Oil Corporation (MUR) reports earnings @ Pre-Market
Fri, Jan 31: Exxon Mobil (XOM) reports earnings @ Pre-Market
Fri, Jan 31: Chevron (CVR) reports earnings @ Pre-Market
Fri, Jan 31: Weekly Rig Count