From the San Antonio Express-News
San Antonio-based Pioneer Energy Services is a contract driller and provides a number of well and production services. It will report second-quarter financial results Tuesday, as oil and gas companies and their service firms grow more cautious for the second half of the year.
After spending the first half of 2017 rushing workers and equipment back into the oil field, the mood in the energy business has turned more cautious.
As oil and gas producers — and the service companies that supply equipment and handle the workaday tasks of the field — report their midyear financial results, companies are trimming budgets or giving themselves the option of pulling some of their planned investment off the table for this year.
“Today, rig count growth is showing signs of plateauing and customers are tapping the brakes,” Dave Lessar, executive chairman of Houston service company Halliburton, said last week in a call with analysts. “This tapping of the brakes is happening all over the place in North America.”
Last week, Anadarko Petroleum Corp., the first large U.S. producer to announce trims, said it would cut spending by about $300 million.
Also last week, Whiting Petroleum Corp., a Denver-based company that’s the largest producer in the Bakken formation of North Dakota, said it would trim its planned spending this year by 14 percent. Hess Corp. trimmed spending, and it reported a wider-than-expected loss.
Paul O’Donnell, analyst with IHS Markit in Houston, said the industry sentiment has become “definitely more cautious. They’re being cautious in their outlook. They’re keeping their options open.”
A report from IHS Markit shows that oil companies working in the Permian Basin have hedged 65 percent of their remaining 2017 production at $50 per barrel.
Companies hedge their production to provide some protection against oil and gas price swings. During the oil bust in 2015 and 2016, hedges kept many companies afloat.
Crude oil prices this year have been fine, but not great, for producers and service companies. The price has improved recently, with a barrel of crude closing just below $50 Friday. (This year is far better than the market bottom of $26 per barrel in early 2016, when the oil industry shed workers and went into survival mode.)
U.S. drilling has made a comeback this year in response. There were 958 drilling rigs at work last week, up by eight from the week prior and up by 495 from the same week last year, according to service company Baker Hughes.
San Antonio’s Pioneer Energy Services, which provides land contract drilling and production services to oil companies, will report first-quarter financial results Tuesday before the market opens. Analysts polled by Thomson Reuters expect the company to lose an average of 18 cents per share for the second quarter, though the company’s revenue is expected to rise significantly over the same period last year.
An index of oil and gas equipment and service companies is down 32 percent for the year.
Royal Dutch Shell PLC said in an earnings call with analysts last week that the company was adopting a “lower forever mindset.” The phrase immediately caught fire in an industry where “lower for longer” had become an accepted post-bust mantra.
Ben van Beurden, CEO of Royal Dutch Shell, said it wasn’t that the company didn’t foresee movement in oil prices. “We do not want to have the mindset that higher oil prices are around the corner to help us out,” van Beurden said.
Dennis Elam, an accounting professor at Texas A&M University-San Antonio, said those kinds of comments often mean the bottom is in, or near, for a commodity such as oil.
“The kind of comment you see from Shell is the kind of thing you see at the market bottom. ‘It’s never going to come up again,’” said Elam, who is more optimistic.
Even as service giant Halliburton said it’s preparing for lower growth in the second half of the year and its executive chair made the “tapping the brakes comment,” the company’s chief executive sounded less worried.
CEO Jeff Miller said the market is better described as “going from 80 miles an hour to 70 miles an hour,” and he noted that “we never underestimate our customers’ ability to adapt to the environment.”
