In a previous AlphaSense blog post, I wrote that the outlook for the U.S. onshore industry in 2018 was solid.
Since then, weather and supply chain issues have delayed the manifestation of the optimism, but 4Q17 earnings season confirmed that 2018 will be a good year.
Oilfield service companies are the headcount-intensive and capital-intensive businesses that do the heavy lifting of getting oil out of the ground and into pipelines.
We keep up with the latest public commentary from oilfield service executives by monitoring earnings call transcripts in AlphaSense, that provides conference call recaps in near real time.
Here are three, key 2018 outlook statements from the oilfield service industry on conference calls in early 2018 along with some analysis of what we discovered in transcripts:
Source: AlphaSense, H&P, InfillThinking.com Estimates
With all of this oilfield service optimism comes well cost inflation. Looking ahead, consensus has formed among oil producers that U.S. onshore well costs will rise 5-15% on average this year. But oilfield service providers say their price increases will exceed this inflation level.
While reviewing Halliburton’s transcript on AlphaSense, we noticed that management said this level of price inflation probably underestimates what we will see in the market this year given tightness and customer urgency.
Now to be sure, management did point out that blanket statements like this are difficult to make, because starting points play into this, and those can vary. But Halliburton is pushing their prices higher in early 2018 and sees a runway to continue to do so throughout the year.
While oilfield service customers have talked recently of austerity and capital discipline, we are seeing signs that they will spend 15-20% more y/y with oil prices near multi-year highs in the low-$60s.
In fact, in late-January we wrote in a note to our clients about the potential for “stealth budget raises” after recognizing the first of what will likely be multiple E&P company disclosures about spending at the top end of capital budget ranges.
Most oil producers describe their year-ahead capital spending programs in a range. By opting to spend at the high-end, capital conscious firms can hit their spending guidance, while still quietly increasing spending to accommodate the kind of oilfield inflation that Halliburton hinted at above.
This is a trend we will be tracking throughout the year, using Alpha Sense to make our monitoring more efficient.
Joseph Triepke is the founder of InfillThinking.com, an independent research firm delivering oilfield market intelligence to subscribers. Prior to launching Infill Thinking, Joseph was an equity research analyst covering the energy industry for large buyside and sell-side institutions.
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