Just about every US land oilfield service company made some version of the following statement during their Q2 2019 quarterly earnings calls this summer:
“We are reluctant to predict another bottom and see further softening during (calendar Q3 2019)…” – H&P’s CEO John Lindsay.
And investors ran for the hills for protection.
So how bad will this “further softening” be? Consider the following table:
Almost $100B will be spent in the US this year by oil companies buying the oilfield services and equipment to drill & complete new wells and to keep old wells producing. The biggest portion of the market – deep horizontal wells – has actually been stable all of 2019 and, in fact, has been growing a bit recently. The underperforming part? Shallow horizontal drilling. That part is down by 20% or so. Maybe a third.
So when companies like H&P alert investors to a softening, what is at risk? A portion of the $13B spent on fairly short horizontal wells…maybe $3B? Maybe $5B?
Maybe part of all shallow drilling is at risk - $23B. Does the market shrink by $5B? $10B?
Here is what you need to keep in your sights:
Of the projected $96B in US land spending, perhaps spending will fall to $90B.
Meanwhile, offshore and international are picking up, growing from last year’s $130B to this year’s $143B.
We lose $6B in spending in the US, but gain $13B in spending internationally… where profitability is FAR better for an oilfield service company.
It is time to quit hyper-focusing on the US land market and start paying attention to offshore and international where the truly big money is.