Oilfield service providers see demand rising for the North American market in 2024, remaining optimistic despite the expected activity slowdown in this year’s second half.
Demand for services fell in second-quarter 2023 as US shale producers cut drilling and well completions, but US crude oil prices continue to rise and rig counts are expected to follow, leading to renewed optimism as quarterly earnings reports roll out.
“Uncertainty around the macro outlook for crude oil and natural gas prices maintained an underlying sense of apprehension in the US drilling market during the [second] quarter,” said Helmerich & Payne chief executive officer, John Lindsay. “Recently, however, some of this uncertainty has receded, and we are starting to see signs of optimism on the horizon.”
He said a recovery could come as early as this year’s fourth quarter based on an expectation that the US rig count could bottom out in the current quarter. He’s not alone.
Patterson-UTI, currently advancing a merger with fellow oilfield services provider NexTier Oilfield Solutions Inc., expects additional rigs to be released in the coming weeks but sees a recovery in both rig count and hydraulic fracturing activity beginning this year and continuing into next.
For the week ended July 28, the US land rig count stood at 664 after falling by 5 units, Baker Hughes data showed. Evercore ISI, in a report on July 26, said it believes the US rig count “will trough at the 635-650 level.”
Evercore updated its US land rig and pressure pumping forecasts to reflect the near-term softness in the market. “We expect that the rig count is nearing a trough and will slowly add back rigs as we enter 2024. The frac market will also start to recover in 2024 after the brief pullback as operators take advantage of lower well costs. Pressure pumpers will proactively manage supply to help balance the market in the second half of 2023,” the firm said.
Chris Wright, chief executive officer of Liberty Energy Inc., describes the frac market in North America as holding “steady, healthy activity levels” after easing from late 2022. He also sees signs of rig count stabilization, and is optimistic for the year to come.
“Relative to prior cycles, frac demand has a natural floor as the large majority of completions activity is simply offsetting normal production declines. Operators are largely adhering to flat or very modest production growth targets. The combination underpins higher base levels of frac fleet utilization and more insulation from commodity price volatility than in prior cycles. The current, more consolidated industry is better prepared to navigate near-term softness in completions activity by reducing fleet counts to balance the market and protect margins,” Liberty said in its earnings report on July 19.
Another company, NexTier, said its deployed fleet count could fall by as many as three by the end of the third quarter with a slight decline in average pumping hours per fleet.
Overall, Liberty chief executive Wright said, “The industrialization of emerging economies is driving long-term demand for reliable, affordable energy, and the North American land market is in a strong position as the largest supplier of incremental production.” The industry remains healthy, he said, “even with a modest contraction in oil prices from 2022 levels and transient softness in natural gas markets.”
Robert Drummond, NexTier president and chief executive officer, expressed similar optimism.
“We believe the current market slowdown is transitory,” he said, noting that by early 2024 “demand for our services will need to increase as higher drilling and completion activity will be needed for US land production to help fill growing global oil and natural gas demand.”