Energy profits slump, but oilfield services remain strong
The energy sector has enjoyed bumper profits this year, with oil majors setting records on the right, left and center. ExxonMobil (NYSE: XOM), chevron (NYSE: CVX) and coincidence (NYSE: SHEL) together raised $46 billion in profits in the second quarter, with all three setting new quarterly earnings records. In general, the high commodity prices are largely due to the fat profits made by the oil and gas companies.
Now energy experts say the party is set to run into 2023, but it won’t be nearly as brutal. at recent days Moody’s Research ReportAnalysts say they have changed their view of the global energy sector to stable from positive.
According to the report, overall industry profits will stabilize in 2023, but will remain below the levels reached by recent peaks. Analysts note that commodity prices have fallen from very high levels earlier in 2022, but project that prices are likely to remain cyclically strong through 2023. This, combined with modest growth in volumes, will support strong cash flow generation for producers oil and gas .
Moody’s estimates that US EBITDA for 2022 will be $623 billion but will decline to $585 billion in 2023. Analysts say lower capital expenditures, increased uncertainty about future supply expansion and a higher geopolitical risk premium will continue . To support the periodic rise in oil prices. Meanwhile, strong export demand for US LNG will continue to support Natural gas price hike.
bullish on OFS
One of the most prominent features of this report is the level of optimism of analysts in the Oilfield Services (OFS) sector.
“Analysts wrote that the increased demand for oilfield services (OFS) amid some growth in drilling and completion activities will continue to enhance pricing strength and will support the material growth in earnings of OFS companies.
While discipline will remain the name of the game with regard to capacity, Moodys says pricing power will continue to strengthen next year, “allowing OFS companies to expand profit margins, even as labor and materials cost inflates.”
Moodys also expects an improvement in profit margins for OFS from increased today’s rates for onshore and offshore rigs, as well as higher future prices as customers renew contracts.
US rigs are up about 30% since January, recovering to about 95% of their January 2020 levels, according to the report.
OFS companies report that drilling and completion activity as well as prices have risen, while volatility workers also say they are seeing an increase in job offers. Oil field workers were among the population groups hardest hit by the Covid-19 pandemic in 2020. Nationally, the oil and gas industry is estimated to have lost 107,000 jobs according to global consultancy Deloitte, with an estimated 200,000 construction workers losing their jobs at the height of the global shutdowns. Related: Putin forces all energy workers to sign up for military conscription
Here are some OFS stocks to keep on your radar.
Market value: $25.1 billion
Returns to date: 15.8%
One of the largest oilfield service companies based in Texas Halliburton Company (NYSE: HAL) Products and services for the energy industry worldwide including well drilling and appraisal services.
Halliburton provides diverse production solutions in exploration, drilling, production software and data management services to oil drilling companies through its product line from Landmark Software and Services. Furthermore, the company’s product line for testing, subsea and project management specializes in tank optimization and associated technologies. Thailand Exploration and production of PTT And the Kuwait Oil Company Among the notable oil and gas companies awarded Halliburton contracts to implement digital transformation and enhance efficiency and production in their oil fields.
Halliburton is among the international OFS companies that have come into the crosshairs of Russian-Ukrainian fire. Back in April, Halliburton announced that it had done so Immediately suspended future business in Russia The remaining operations are terminated there. Previously, the company halted all shipments of specific sanctioned parts and products to Russia, although the company says it has no active joint ventures in the country.
Fortunately, HAL is not significantly exposed to the Russian market, with JPMorgan estimating that It gets only 2% of its revenue from the state.
HAL has a Medium Analyst Recommendation for Strong Buy with a target price of $31.84, which is good for 15% up.
Market value: $6.5 billion
Returns to date: 16.3%
Texas based nov . company (NYSE: NOV) is a leading global provider of equipment and components for oil and gas exploration and production, oilfield services, and supply chain integration services to the oil and gas industry. NOV was formerly known as National Oilwell Varco.
Wall Street has been nervous on NOV recently, thanks to concerns about valuation and the supply chain.
American bank issued double reduction NOV stocks to underperform from buying with a price target of $22 (up 31.2%).
“Only Russia will create a tighter global supply chain that can delay the margin recovery story that has been the crux of our bullish thesis. We are not 100% sure that Russian developments do not make sourcing materials such as aluminum, copper, nickel, and steel more problematic for a company that was already struggling with the supply chain and material cost inflation.” Chase Mulvehill of BofA wrote.
Meanwhile, Gruber has been upgraded Nabors (NYSE: NBR), where global exposure and improved rig rate have eliminated the free cash flow carry thesis.
Market value: $837.2 million
YTD Yield: 61.6%
Micro Drilling Company (NYSE:PDS) is a Canada-based company that provides contract drilling, completion and production services primarily to oil and natural gas exploration and production companies in Canada, the United States and some international locations.
BMO Capital Markets has promoted a number of Canadian oilfield services companies including Precision Drilling Corporation, CES Energy Solutions Corp. (OTCPK: CESDEF), Basson Systems Inc (OTCPK: PSYTF), And the Safe Energy Services Corporation (OTCPK: SECYF) As drilling activity picks up.
“We believe the sector is about to run for several years in activity levels, while prices continue to be on the upside,” “Glory days ahead, but expect volatility to continue,” John Gibson, analyst at BMO Capital Markets, wrote in a note to clients.
Gibson says Precision, CES and Pason all display high market share across North America, benefiting from high activity levels and strong free cash flow generation capabilities.
By Alex Kimani for Oilprice.com
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