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Oil Industry Faces a Dichotomy


The latest earnings reports from oil companies reveal a stark contrast in the industry’s performance. While offshore projects are gaining momentum overseas, the U.S. oil-drilling sector is experiencing a significant slump. This divergence is reflected in the stock market, with Baker Hughes (BKR), a prominent international oil-services company, witnessing a 0.6% increase in its shares on Wednesday. In contrast, Halliburton (HAL), the premier U.S. shale-drilling services firm, saw its shares decline by 2.8%.

During the Covid-19 pandemic, U.S. shale drilling had demonstrated steady growth following the rebound in oil prices. However, this growth has now plateaued, leading operators to withdraw rigs from service. Many of these companies are privately held and have been prompted by the double-digit decline in oil prices over the past year. According to Enverus, the number of U.S. rigs has fallen by 133, which accounts for a 16% decrease.

Conversely, several international operators are embarking on ambitious oil-drilling projects, particularly in offshore operations. These ventures hold the promise of generating substantial revenue for service companies over the next few years.

The Impact of Declining Oil Activity on Companies

The decline in oil activity in the United States is having a significant impact on companies such as Halliburton. This company, which generates about half of its revenue from the North American market, recently announced better-than-expected second-quarter earnings. However, its revenue fell slightly short of initial estimates.

In terms of overall revenue, Halliburton experienced a 2% increase compared to the previous quarter. However, there were noticeable differences between its performance in North America and on the international front. Revenue in North America dropped by 2%, primarily due to significant decreases in land-based drilling. On the other hand, the company saw a significant uptick in its international revenue, which increased by 7%.

To adapt to the changing market conditions, Halliburton has started phasing out its older U.S. equipment and transitioning to electric-powered drilling equipment. This shift is aimed at appealing to customers who prioritize cleaner drilling operations and are willing to pay higher prices for such solutions. However, at present, the company’s heavy reliance on North American drilling operations appears to be negatively impacting its overall share performance.

In contrast to Halliburton, Baker Hughes faces less exposure to the U.S. market. In the second quarter, the company generated $1 billion in revenue from North America and $2.8 billion from other regions. It seems that large overseas companies are undertaking multi-year projects based on the expectation that the world will continue to rely on oil for years to come.

International Spending Drives Revenue Growth at Baker Hughes

Baker Hughes, a global leader in the energy sector, has reported a significant increase in overall revenue thanks to a surge in international spending. The company witnessed a remarkable 10% quarter-over-quarter growth, highlighting its successful engagement in new offshore projects, including those in Côte d’Ivoire.

According to CEO Lorenzo Simonelli, Baker Hughes is poised to continue its growth trajectory, particularly in the international and offshore markets. Simonelli expressed his excitement about the prospects of a multiyear upstream growth cycle in these key areas.

Website: Baker Hughes

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