The slowdown in the US shale patch is spreading to the oil service industry

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Oilfield service groups are feeling pressure from slowing activity in the US shale patch as companies scale back oil and gas exploration.

The world’s largest oilfield service providers, responsible for the industry’s toughest chores from drilling wells to building roads, reported hitting North American revenue this week amid waning demand.

“During the second quarter, we saw a decrease in shale fracking activity that increased the white space on our calendar,” Liberty Energy CEO Chris Wright said on a call with analysts.

Wright added that Denver-based Liberty, one of the largest providers of hydraulic fracturing equipment used for blasting open shale rock in the country, could reduce the number of fracturing fleets in the second half of the year “if scheduled cuts to our customers become larger.”

The slide in business for oilfield service providers — seen as leaders in the health of the oil and gas industry — is the latest sign of slowing activity in US energy regions stretching from West Texas to North Dakota.

The number of rigs and fracking crews in the field has steadily decreased since late last year. Equipment has been offloaded at fire selling prices, and a recent survey by the Dallas Federal Reserve reported the weakest sentiment since the depths of the coronavirus pandemic.

All of the three major international oilfield services groups — SLB, Baker Hughes and Halliburton — this week reported slowdowns in their North American business during the second quarter.

Halliburton, which has the most exposure to the US onshore market, saw its North American revenue contract by 2 percent on the back of lower fracking activity, despite a strong offshore market in the Gulf of Mexico.

“The environment in North America has stabilized and we’re hearing some customers asking for discounts, particularly in more commodity markets like pressure infusion,” said Lorenzo Simonelli, CEO of Baker Hughes.

The slowdown comes as a slew of inbound private operators that have driven a surge in drilling over the past two years have been swallowed up by larger competitors or have run out of inventory. Publicly traded groups were already backsliding as Wall Street imposed a strict regime of capital discipline and demanded that excess money be returned to shareholders.

The problem has been exacerbated by weak commodity prices. Brent crude closed at just under $80 a barrel on Friday, down by more than a third since last year. Meanwhile, US gas prices have fallen from more than $6 per million British thermal units a year ago to less than $3.

“I’ve had this double whammy of slowing private operator growth coupled with weaker gas markets that ultimately drove the rig count down,” said Jim Rollison, an analyst at Raymond James.

Services groups rely on rising international and offshore demand to offset the decline in shale oil. SLB, which does about 20 percent of its business in North America after offloading the bulk of its fracking business in the United States in 2020, said international momentum was building.

“SLB’s global reach protects us from regional volatility, as we’ve seen recently in North America,” Olivier Le Peuche, CEO of the company formerly known as Schlumberger, told analysts this week. We believe that not being subjected to large scale pumping pressure. . . It allowed us to continue advancing or prevent some backtracking in other activities.”

Jeff Miller, president of Halliburton, said he expected demand to continue to be weak in the second half of the year, but that an expected rise in gas prices should improve things in 2024.

While US oil production is still rising, growth is expected to be just 200,000 barrels per day over the next 12 months, far below the 2 million barrels per day expansion reached between 2018 and 2019.

With producers vowing to stick to the new discipline even if prices rise, there is little expectation that the country will return to the growth juggernaut it became during the height of the shale revolution.

“If you still think that the global oil demand picture is going to be higher over the coming years and that the US isn’t growing the way it used to . . . everywhere else that void should be filled,” Rollison said of Raymond James.

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