Oilfield Services Firms Sound the Alarm: Shale Spending Slows

Oilfield Services Firms Sound the Alarm: Shale Spending Slows | OilPrice.com

Oil companies are growing increasingly cautious on spending on production growth amid concerns about an oversupplied market and oil prices lower than at last year’s levels.

That’s one of the messages from SLB, the world’s biggest oilfield services provider, which flagged continued softness in the short-cycle market, especially in U.S. shale, in its Q3 results release.

Offshore and other long-cycle spending, which tends to be more resilient to oil price fluctuations, remains relatively strong. But U.S. activity and spending are falling and are set to keep that trend of flattish or slightly lower levels next year, executives at SLB, formerly Schlumberger, said on the company’s earnings call last week.

International Offshore Driving Growth

Offshore drilling and developments will be the growth engine of the industry going forward, SLB’s chief executive officer Olivier Le Peuch said.

Commenting on SLB’s third-quarter results, Le Peuch said, “This performance was achieved despite an environment where short-cycle activity growth softened, and some international producers exercised cautious spending triggered by lower oil prices and ample global supply, while land activity in the U.S. remained subdued.”

Related: Deepwater Investments Outpacing Shale

This year’s third-quarter message to the market from SLB is not as rosy as it was this time last year.

In October 2023, Le Peuch touted a “multiyear growth cycle” and said that upstream spending was accelerating with operators investing in more gas production and long-cycle developments, production capacity expansions, and exploration and appraisal.

A year later, international spending continues to grow, but more oil and gas producers are taking a cautious approach to spending.

“Although the rate of upstream spending growth has moderated in the last few months due to the macroenvironment, we continue to expect a sustained level of upstream investment in the years to come,” SLB’s Le Peuch said.

Offshore will drive investment, according to SLB, which has more exposure to international markets and offshore than to U.S. shale, where growth has stagnated.

“In 2025, we see the potential for upstream spending in the international markets to grow in the low to mid-single digits, while North America spending will be flat to slightly down,” Le Peuch said on the earnings call, adding that the outlook will depend on the geopolitical environment and commodity prices.

SLB will release an updated outlook for 2025 in January after the company receives more feedback on customer budgets, he added.

In the latter part of this year, oil prices are being pressured down by concerns about an oversupplied market due to higher output from non-OPEC+ producers, uncertainty around OPEC+ supply, weaker demand from China, and softer economic growth rates in the U.S. and Europe, Le Peuch said.

“This has resulted in a cautionary approach to activity and discretionary spend by many customers as highlighted in our third-quarter results.”

Long-cycle deepwater projects globally—and most capacity expansion projects in the Middle East—remain economically and strategically favorable, the executive said.

However, SLB does not expect U.S. activity rebounding in the near term, and “any potential increases in gas rigs could be quickly offset by a further decline in oil rigs due to increased operating efficiency,” Le Peuch noted.

Lower US Shale Activity

For the fourth quarter, SLB sees E&P companies exhausting their budgets for U.S. onshore drilling, as well as cautious discretionary spending from certain international customers.

SLB is not the only oilfield services firm to warn of lower U.S. spending and activity levels.
Smaller service providers are facing a more challenging U.S. market as slowing activity is pressuring their pricing.

Liberty Energy, for example, said last week in its Q3 financial and operational results that “Frac markets are navigating the slowing of E&P operators’ 2024 development programs in response to the strong first-half 2024 efficiency gains from factors including consolidation, longer laterals, and concentration in high-graded acreage.”

Efficiencies have jumped in recent years. Oil output per rig in the U.S. shale patch increased by 13% last year and is set to grow by another 15% in 2024, per estimates from Wells Fargo cited by The Wall Street Journal.

Amid near-term reductions in customer activity and market pressures, Liberty Energy plans to temporarily and modestly reduce its deployed fleet count by about 5%.

“Elevated uncertainty in energy markets has further left operators reluctant to accelerate completions activity in advance of the new year. We now expect a low double-digit percentage reduction in Q4 activity, a bit more than the typical Q4 softening,” Liberty Energy said.

Completions activity is expected to increase early next year to support “flattish” E&P oil and gas production targets, the company said.

“Since late 2023, U.S. crude oil production has been relatively flat and would likely decline if current completions activity levels persist.”

In the Dallas Fed Energy Survey last month, service providers commented that increased uncertainty and operator consolidation are challenging smaller oilfield service providers.

“Consolidation of operators in the upstream sector continues to ripple through the service sector. Less continuity of work makes it hard to maintain skilled labor,” one executive said.

“As a smaller service company, the scale of the larger operators is making it more difficult to access goods for smaller operators than we have seen in the past,” another manager noted.

Lower oil prices and higher uncertainty are making upstream operators more cautious about future spending, especially in the U.S. shale patch. But the long-term fundamentals of oil and gas haven’t drastically changed since last year, and energy security and a continued rise in demand will benefit the service providers that survive the current softening of the cycle.

By Tsvetana Paraskova for Oilprice.com

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