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Oilfield services groups cheer ‘structural upcycle’ after highly profitable year

Line chart of Total returns since Dec 31, 2021 showing Oilfield services stocks outperformed in 2022

The “Big Three” international oilfield services groups last year registered their most profitable 12 months since the heyday of the US shale boom as high energy prices in the wake of Russia’s invasion of Ukraine spurred global drilling activity.

Halliburton, Baker Hughes and SLB reported aggregate net income of $4.4bn in 2022, the highest combined figure since 2014, as the war in Ukraine exacerbated fears over fuel shortages and triggered a rush to boost oil and gas production.

Olivier Le Peuch, chief executive of SLB — previously known as Schlumberger — described 2022 as a “pivotal” year for the energy industry, which he said had entered the “early phase of a structural upcycle”. “Durability is here to stay — and we are talking about years,” he said.

Oilfield services groups — which provide personnel and equipment to do the grunt work of the oil and gas industry, drilling wells and pumping oil — have been among the biggest beneficiaries of the market upheaval that followed the outbreak of war in Ukraine. The sector’s biggest players in recent days announced strong fourth-quarter results, with Halliburton reporting on Tuesday, capping off a banner 2022.

Surging energy prices over the past year have pushed up drilling and production activity and triggered a rush to secure the equipment and personnel provided by services groups. Tight supply has allowed them to raise prices. Meanwhile, intensive cost-cutting regimes implemented during the Covid-19 pandemic have bolstered margins.

“Rising profitability paired with constrained capital expenditures is allowing these companies to generate strong free cash flows,” said Jim Rollyson, head of oilfield services equity research at Raymond James.

Shares in energy companies jumped last year. That bumped the sector’s weighting in the S&P 500 back above 5 per cent, having collapsed to just over 1 per cent in 2020 when the pandemic hit. Oilfield services groups outperformed the wider energy sector. Their shares, as tracked by the OSX index, rose 59 per cent, outpacing growth in operators and marking their best performance since 2009.

SLB — the biggest player globally — racked up $3.4bn in profits in 2022, almost a third of which came in the final quarter. Halliburton also brought in the bulk of its $1.6bn in earnings in the latter part of the year. Baker Hughes was the worst performer, posting a full-year loss of $601mn after struggling with parts shortages, inflation and…

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