Early Oil Earnings Show a U.S.-International Divide

Oil companies are starting to report earnings, and the early results show a split in the industry.

Activity is picking up overseas, particularly in offshore projects, but U.S. oil-drilling activity is slumping. That’s one reason shares of
Baker Hughes
(ticker: BKR), a leading international oil-services company, was rising 0.6% on Wednesday, and shares of
Halliburton
(HAL), the top U.S. shale-drilling services firm, was falling 2.8%.

U.S. shale drilling had been growing steadily since oil prices turned higher midway through the Covid-19 pandemic. But that growth has stalled, and operators are now pulling rigs out of service. Many of the companies reducing activity are privately held firms that are responding to oil prices that have fallen by double-digit percentages from a year ago. In the past year, the number of U.S. rigs has fallen by 133, or 16%, according to Enverus.

Meanwhile, several international operators are starting large oil-drilling projects, including offshore operations that could result in years of revenue for service companies.

The drop in U.S. oil activity is affecting companies such as Halliburton, which makes about half its revenue in North America. Halliburton reported better-than-expected second-quarter earnings on Wednesday, but its revenue fell slightly short of estimates. Its total revenue rose 2% quarter over quarter, with significant differences between North American and international performance. Revenue fell 2% in North America, with larger drops in land-based drilling, but its international revenue was up 7%.

Halliburton says it has been retiring its older U.S. equipment and transitioning to electric-powered drilling equipment, which will fetch higher prices from customers looking to make their drilling operations cleaner. But for now, Halliburton’s large exposure to North American drilling looks like it’s hurting its share performance.

Baker Hughes, by comparison, is less exposed to the U.S. market. The company made $1 billion in revenue in North America and $2.8 billion in revenue in other regions in the second quarter. Overseas, large companies are undertaking multiyear projects on the expectation that the world will continue to need oil for years.

A surge in international spending led to 10% overall revenue growth at Baker Hughes quarter over quarter, with the company touting new offshore projects in places like Côte d’Ivoire. CEO Lorenzo Simonelli said Baker Hughes is looking forward to a “multiyear upstream growth cycle in international and offshore.”

Write to Avi Salzman at [email protected]

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