FLAT US E&P CAPEX
PLATTS - US onshore E&P capital investments in 2019 are likely to be flat to slightly down from last year, with international activity outside North America picking up slowly over the next several months, Schlumberger's top executive said Friday.
Paal Kibsgaard, CEO of the world's largest oilfield service company, said during a fourth-quarter earnings call that US land activity should also start slowly but pick up gradually in the second half.
"In this scenario, it is likely that the E&P operators would gradually lower drilling activity and instead focus on drawing down the large inventory of drilled uncompleted wells," Kibsgaard said.
Assuming WTI oil prices "reasonably" recover to average roughly 2018 levels of at least $60/b, operator focus on some of the thousands of drilled but unproduced wells (DUCs) would still drive US production growth, but at a rate "substantially" lower than the 1.9 million b/d in 2018, Kibsgaard said.
On Friday, NYMEX WTI for February closed at $53.80/b.
In November, there were 8,723 DUCs in the US, 46% of which were in the Permian Basin, US Energy Information Administration data showed. Permian DUCs have grown relatively rapidly, from 1,127 in August 2016 to 4,039 in November 2018.
'SOLID' REVENUE GROWTH OUTSIDE NORTH AMERICA
On the other hand, Schlumberger's projected "solid" year-over-year revenue growth in 2019 from markets outside North America. Increases are expected in mid-single digits during the first half of the year, signaling operators' intentions to spend more money in those arenas, Kibsgaard said.
Those companies will probably start the year at "conservative" spending levels in view of global oil prices that fell in Q4 2018 and remain $10-$20/b lower than last year, he added. ICE Brent closed Friday at $62.73/b.
Activity pickups internationally will be led by Latin America, Asia and Africa as new investment programs are kicked-off in those regions, with more nominal activity growth in the North Sea, Russia and the Middle East.
"The underlying decline from the aging production base in key oil producing countries like Norway, the UK, Brazil and Nigeria are being offset by new project startups, as well as more exploration activity," Kibsgaard said.
"After four years of under-investments and a focus on maximizing short-term cash flows, national oil companies and independents are starting to see the need to invest in their resource base simply to keep production at current levels," he said.
Fresh investment is also evident in Mexico, Angola and Indonesia, where production has been in decline for several years.
Schlumberger earned $32.8 billion in revenues in 2019, 36% coming from North America, with pretax operating income of $4.2 billion.
FUNDAMENTALS SHOULD IMPROVE
Both oil prices and supply-demand fundamentals should improve in 2019 as the OPEC-Russia production cuts take full effect, lower North American activity results in lower production growth, and waivers from Iran export contracts expire and aren't renewed, Kibsgaard said.
Schlumberger warned it could end efforts to purchase a stake in Eurasia Drilling, a move it has eyed since mid-2017, if it fails to receive regulatory approvals from Russian authorities.
"Our plan is that we're going to make one final attempt and approach over the coming weeks; and if we see no clear path to obtaining the needed approvals, we are likely going to withdraw our application," Kibsgaard said.
Instead, Schlumberger will seek "alternative avenues in partnership" with Russia's top drilling company to further its participation in the conventional land drilling market in that country, he added.
Despite volatile oil prices and expected slower activity in early 2019, Schlumberger is "more or less sold out" of its high-end product lines and advanced technologies, Kibsgaard said.
A large part of the company's 2019 field equipment capex of $1.5 billion-$1.7 billion will focus on making sure it has enough capacity to take on more work requiring that equipment, he said.
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