Oil drillers will double the number of final investment decisions this year compared to last year, which would mean the industry may pull the trigger on 20 large multiyear projects in 2017, energy research firm Wood Mackenzie forecasts.
The total would still fall well short of the 2010-14 average of 40/year, but they generally would be smaller, more efficient projects, and capex per boe averages $7, down from $17 per boe for 2014 projects, Wood Mackenzie says.
Barclays believes it is finally time to return to the oilfield services sector despite some rich valuations, given the potential for “hyper earnings growth” from pricing and strong operating leverage on rationalized cost structures.
Barclays notes upstream spending is now more than 40% below the 2014 peak, and it sees room for 7% Y/Y growth in 2017, given the de facto $50/bbl floor that OPEC has put on prices; verifying that OPEC nations stick to the deal will be difficult at first, so the firm thinks near-term oil price risks are to the upside, and the “atrophied” U.S. supply chain will have to scramble to meet a 50% Y/Y increase in E&P spending.
The firm suggests U.S. shale drillers are looking to seize market share following OPEC members' recent decision to trim production amid the global crude oil glut.
Barclays lists Halliburton (HAL -1%), U.S. Silica (SLCA -2.6%), Forum Energy Technologies (FET -0.2%), Superior Energy Services (SPN +1%) and Dril-Quip (DRQ +0.2%) as its five favorite names in the sector, but it downgrades Weatherford (WFT +0.3%) to Equal Weight from Overweight citing uncertainty around management and the company's strategy.
Oilfield services stocks are not cheap on any 2018 valuation metric, Wichlund says, but he expects to see upward earnings revisions beginning in Q1 and continue for the next few years - the opposite of the past two years of downward earnings revisions - and thinks management teams will underpromise and over-deliver on pricing and utilization gains as the cycle turns.
The firm upgrades Nabors Industries (NBR +3.8%) and Superior Energy (SPN +5%) to Outperform from Neutral, and raises Precision Drilling (PDS +5.2%) and Patterson-UTI (PTEN +2.9%) to Neutral from Underperform, while cutting Baker Hughes (BHI +0.1%) to Neutral from Outperform, citing a "significantly disconnected" valuation from business fundamentals.
Crude oil prices edge higher as traders continue to digest inventory reports.
U.S. crude oil inventories came in unexpectedly high at 485.4M barrels, while refineries operated at 91.5% capacity. Market watchers are also keeping tabs on Libya which is expected to boost production over the next several months.
Oil prices are also facing a headwind with the U.S. Dollar Index at a multi-year high.
WTI crude oil futures +0.40% to $52.70/bbl at last check. Brent crude +0.40% to $54.69/bbl.
It's the latest in a string of last-minute actions ahead of the incoming Trump administration, which has said it would roll back much of Obama's environmental legacy; other recent actions have included an EPA determination to keep intact tougher fuel economy standards, an Interior Department regulation putting tighter restrictions on coal mining near streams, and an indefinite pause in issuing a final decision on the Dakota Access pipeline.
Hydraulic fracturing can pose a risk to drinking water in some circumstances, but further conclusions about the severity of the risk cannot be determined with current data, the EPA says in a new report.
The report removes a finding from a draft issued in June 2015 indicating that fracking has not caused “widespread, systemic” harm to drinking water in the U.S.; the phrase was not included because “data gaps did not allow us to quantify how widespread the impacts are,” according to the EPA's science advisor.
In last year's draft report, the EPA said the number of contamination cases was small compared to the large number of wells that are fracked nationwide; the new final report says more broadly that the agency has scientific evidence that fracking activities “can impact drinking water resources under some circumstances.”
The American Petroleum Institute criticizes what it calls an “abandonment of science” in the EPA’s revised conclusions.
Crude oil continues to slide - WTI now -3.8% at $45.27/bbl, and Brent -3.8% at $46.40/bbl - dragging oil and gas equities (XLE -2.1%) down with it.
Iran's oil minister says he is not prepared to reduce supply, and Saudi Arabia says it would not participate in a production deal without Iran and Iraq.
Reuters reports that Iran has written to OPEC saying Saudi Arabia needs to cut oil output to 9.5M bbl/day; Saudi has said it was prepared to reduce its production only by 500K bbl/day from current levels of 10.5M.
Crude oil prices are lower ahead of what some see as a make-or-break OPEC meeting.
Though OPEC already agreed in principle to cap output at 32.5M to 33M barrels a day, the details that emerge from the November 30 gathering and Russia's stance after the OPEC decisions are announced will be crucial.
The oil market is poised for volatility next week with managed short positions on many WTI and Brent contracts standing at record levels.
WTI crude oil futures -1.86% to $47.07/bbl at last check. Brent crude -2.08% to $47.98/bbl.