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Oil field services giants begin switching to offense

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920x1240Executives of the largest oil field services companies in recent days called a bottom to the energy industry’s downturn and said they are slowly shifting to offense as they try to raise prices for oil producers.

Executives of Halliburton, the world’s second-largest energy services provider, likened the negotiations to unwind the deep discounts offered to customers to a “barroom brawl” and “hand-to-hand” combat. But they and their counterparts at the global leader, Schlumberger, said that raising prices is key to their recovery from the worst oil bust in three decades.

Both companies announced multibillion-dollar losses in the second quarter and thousands more job cuts. The two companies have slashed a combined 85,000 jobs over the past two years, including 13,000 in the three months that ended in June.

That the services companies are moving to raise prices is another sign that the worst of the deep and prolonged industry downturn may be over, analysts said. Halliburton chief executive Dave Lesar and Schlumberger CEO Paal Kibsgaard said in calls with analysts that they believed the market had turned the corner, but the rebound would be gradual.

“We’re at the bottom, but we’re not expecting an immediate and sharp recovery,” Kibs-gaard said Friday. “It’ll be a steady increase in rig count and frack activity. It’s going to be a slow and steady recovery.”

More evidence of a recovery came Friday, when Baker Hughes, the Houston oil field services company, reported that U.S. drillers added 15 more rigs this week, continuing the steady climb that began in May, when the rig count hit an all-time low of 404. The rig count is now at 462, still well below the more than 1,600 in October 2014.

The increased activity follows oil prices that have risen from a low of about $26 a barrel in February to more than $50 a barrel last month. Crude settled at $44.19 per barrel Friday, down 56 cents.

The recovery still faces challenges, particularly a glut of petroleum products. While stockpiles of crude oil have fallen in recent weeks, those declines have been more than offset by increases in refined products. Total petroleum inventories hit a record high of just below 1.4 billion barrels, the Energy Department reported earlier this week.

The deep spending and job cuts made by service companies are also likely to weigh on the recovery, said Bill Herbert, a senior energy analyst at Piper Jaffray & Co., an investment research firm. Oil producers may be surprised by the difficulties of ramping up drilling activity because the services sector is so decimated, Herbert said.

“That’s going to be a significant wake-up call,” Herbert said. “Any near-term recovery is going to be methodical as opposed to cathartic.”

Despite reporting combined losses of nearly $5.5 billion, Schlumberger and Halliburton are better off than the rest of the energy services sector, analysts said. Baker Hughes, the world’s third-largest energy services company, reports its second-quarter earnings next week.

The Haynes and Boone law firm counts 83 oil field services bankruptcies filed since the beginning of 2015, more than half of them by Texas companies. The largest of these bankruptcies include the Houston companies C&J Energy Services, Hercules Offshore, Paragon Offshore and Vantage Drilling, as well as Seventy Seven Energy of Oklahoma City.

Kibsgaard, during a call with analysts, predicted oil prices would rise in the short term, but not enough for companies to make a profit.

Longer term, he said he was more optimistic, especially with oil production falling in the U.S. and global demand rising.


TAGS: Energy, Oil, Gas, Petroleum


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