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The largest oil services company in the world said its earnings were affected in the first quarter due to the slump in shale drilling activity.
"Sales of $ 7.9 billion in the first quarter decreased 4% sequentially, reflecting the expected reduction in terrestrial activity in North America and reduced international seasonal activity in the United States." 39 Northern Hemisphere, "said Paal Kibsgaard, CEO of Schlumberger, in a statement. Pricing for its services was "soft," while fracking and other "drilling activities" saw a drop in activity.
The company was not bored, noting that the weakness of North America was offset by the improving global situation. "From a macro point of view, we think that the feelings on the oil market will gradually improve in 2019," while the OPEC + cuts tighten the market. In addition, Kibsgaard said that "the weakening of the international production base" after "four years of under-investment" would become "more and more obvious", which should trigger an increase in spending.
The global E & P sector is beginning to normalize. In fact, spending could increase by 7 to 8% this year worldwide.
However, the American shale is in a different situation. After spending a lot for years, allowing production to reach unprecedented heights, many shale companies are still not financially efficient. As a result, the American shale industry is at an inflection point. Kibsgaard said the sector is "ready to cut investment with a likely downward adjustment of current production growth prospects".
Although the industry is rising globally, the outlook for American shale is rather poor. "[T]The high cost of capital, reduced borrowing capacity and investors looking for higher returns suggest that future levels of investment in E & P will likely be dictated by free cash flow, "Kibsgaard said. "We are seeing E & P's North American investment decrease by 10% in 2019." Jointly: the net decrease in the number of US rigs marks the first annual loss since 2016
According to Schlumberger's general manager, shale drilling poses other specific problems that will continue to haunt the sector. "In addition, the growing technical challenges – parental-child interference, removal of prime areas, and limited growth in lateral length and number of supports per floor – point to a more moderate growth in shale oil production over the next decade. United States in the coming years, "Kibsgaard warned.
This is not just bad news for Schlumberger and his customers. As Bloomberg notes, the number of fracturing crews deployed in shale basins hit a record high in April, up 12% from January. Production continues to increase, but at a slower pace than in the past. The EIA is forecasting a production increase of 80,000 barrels per day in May, down from the most impressive monthly increases last year, but a nonetheless very significant increase.
Some analysts have not been impressed. "The EIS CMA contained significant downward revisions to the shale oil supply. Last month, the EIA estimated that the supply of the seven main shale
rose by 282,000 barrels per day (kb / d) from December to March, "wrote Standard Chartered in a report on April 16." This month, the increase from December to March has been reduced to just 42 kb / j. Total oil shale supply was also revised downward in April from 213 kb / d to 8.38 mb / d, including downgrades of 83 kb / d for the Permian, 84 kb / d for the Bakken and 20 kb / d for Eagle Ford. "
Nevertheless, a handful of new pipelines in Texas are expected to be commissioned later this year and next year, which could trigger a new round of drilling.
Overall, however, even though US shale basins continue to attract huge levels of investment, the staggering growth rate seen in recent years may be over. Halliburton, another oil services giant, has not yet announced its profits, but said in March that he expects North American oil producers to spend 10 percent less. this year. Related: The newest hot spot of oil in China is in the backyard of America
Another challenge for Texas drillers is starting to appear. The huge volumes of mild sweet oil in Texas surpass the ability of the region to manage it. The lack of pipeline capacity has forced significant reductions in recent years, but producers must now update their oil because refiners can not manage such a large supply of light oil. Reuters reports that much of Permian's outgoing oil has an API gravity in the 50s, lighter than the 40-44 degrees for the WTI.
As much of the refining capacity of the Gulf Coast is equipped to process heavy and medium oil – blends have become scarce due to breakdowns and declines in Mexico, Venezuela, Iran, and constraints in Canada – they have trouble dealing with so much light oil. According to Reuters, some of the ultralight Permian oil is facing reductions of $ 1 to $ 2 per barrel less than the heavier grades.
Reductions of a few dollars due to a mismatch between quality and refining capacity will certainly not be the death knell of shale drillers, but they add to the growing list of challenges for a sector already facing important issues regarding its financial viability.
By Nick Cunningham from Oilprice.com
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