Energy earnings set to decline, but oil services remain strong

The energy sector has made bumper profits in the current year, with major oil companies setting records right, left and center. ExxonMobil (NYSE: XOM), Chevron (NYSE: CVX) and Shell (NYSE:SHEL) together generated $46 billion in second-quarter earnings, with all three setting new quarterly earnings records. Overall, high commodity prices are a big part of the big profits for oil and gas companies.
And now energy experts say the party is set to continue into 2023, only that it won’t be quite as wild. In a recent Moody’s Research Reportanalysts say they have changed their outlook for the global energy sector from stable to positive.

According to the report, profits for the sector will broadly stabilize in 2023, but will remain below the levels reached by recent peaks. Analysts note that commodity prices have fallen from very high levels at the start of 2022, but predicted that prices are likely to remain cyclically high through 2023. This, combined with modest volume growth, will support a strong cash flow generation for oil and gas producers. .

Moody’s estimates that U.S. energy sector EBITDA for 2022 will be $623 billion, but will fall to $585 billion in 2023. Analysts say weak capital spending, growing uncertainty over to future supply expansion and the high geopolitical risk premium will continue however. to sustain cyclically high oil prices. Meanwhile, strong US LNG export demand will continue to support high natural gas prices.

Bullish on OFS

A particular element of this report is how bullish analysts are about the Oil Field Services (OFS) sector.

Growing demand for oilfield services (OFS) amid growing drilling and completions activity will continue to drive pricing power and support significant earnings growth for OFS companies,” the analysts wrote.

While discipline will always be the name of the game when it comes to capacity, Moodys says pricing power will continue to strengthen next year, “enabling OFS companies to increase profit margins, even with the ‘labour and material cost inflation’.

Moodys also expects improved profit margins for OFS from increased daily rates for onshore and offshore platforms, as well as higher future rates as customers renew their contracts.

US rigs are up around 30% since January and have recovered to around 95% of their January 2020 levels, according to the report.

OFS companies have reported that drilling and completions activity and prices have increased slightly, while thugs also say they are seeing an increase in job vacancies. Oilfield workers have been among the hardest hit demographics by the Covid-19 pandemic in 2020. Nationally, the oil and gas industry is believed to have lost 107,000 jobs according to global consultancy Deloitte, with an estimated 200,000 thugs losing their jobs at the height of the global lockdowns. Related: Putin forces all energy workers to sign up for military draft

Here are some OFS actions to keep on your radar.

Market cap: $25.1 billion

Cumulative returns since the beginning of the year: 15.8%

One of the largest oil service companies, based in Texas Halliburton Company (NYSE: HAL) provides products and services to the energy industry worldwide, including well completion drilling and appraisal services.

Halliburton provides various production solutions in the areas of exploration, drilling, production software and data management services to upstream oil companies through its Landmark Software and Services product line. In addition, the company’s Testing & Subsea and Project Management product line specializes in reservoir optimization and related technologies. Thailand PTT Exploration and Production and Kuwait Oil Company are among notable oil and gas companies that have awarded contracts to Halliburton to implement digital transformation and improve the efficiency and production of their oilfields.

Halliburton is among the international OFS companies that have been caught in the Russian-Ukrainian crossfire. In April, Halliburton announced that she had immediately suspended future activities in Russia and terminate its remaining activities there. Previously, the company halted all shipments of sanctioned parts and specific products to Russia, although the company says it has no active joint ventures in the country.

Fortunately, HAL is not as heavily exposed to the Russian market, with JPMorgan believing that it derives only 2% of its income from the country.

HAL has an average Strong Buy analyst recommendation with a price target of $31.84, good for a 15% upside.

Market cap: $6.5 billion

Cumulative returns since the beginning of the year: 16.3%

Based in Texas NOV inc. (NYSE: NOV) is a leading global supplier of equipment and components used in oil and gas drilling and production operations, oilfield services and supply chain integration services for the upstream oil and gas industry. NOV was formerly known as National Oilwell Varco.

Wall Street has been downgrading on NOV lately, thanks to valuation and supply chain issues.

Bank of America issued a double downgrade for NOV stock to underperform the buy with a price target of $22 (up 31.2%).

Russia will only create a tighter global supply chain that could delay the margin recovery story that was central to our bullish thesis. We’re not 100% sure that developments in Russia don’t make sourcing materials like aluminum, copper, nickel and steel more problematic for a company that was already struggling with its supply chain. supply and material cost inflation. » BofA’s Chase Mulvehill wrote.

Meanwhile, Gruber improved Nabors (NYSE:NBR) to hold, as global exposure and improving drill rate killed its free cash flow thesis.

Market capitalization: $837.2 million

Cumulative returns since the beginning of the year: 61.6%

precision drilling company (NYSE: PDS) is a Canada-based company, which provides contract drilling, completions and production services primarily to oil and natural gas exploration and production companies in Canada, the United States and certain international websites.

BMO Capital Markets has distributed upgrades to a number of Canadian oil service companies, including Precision Drilling Corporation, CES Energy Solutions Corp. (OTCPK: CESDEF), Pason Systems Inc. (OTCPK:PSYTF), and Secure Energy Services Inc. (OTCPK: SECYF) as drilling activity increases.

“We believe the sector is poised to reach multi-year levels of activity, while prices continue to rise,” he added. John Gibson, an analyst at BMO Capital Markets, wrote in a note to clients titled “Glory Days Ahead, but Expect Volatility to Continue.”

Gibson says Precision, CES and Pason each have high market share in North America, leverage to increase business levels and strong free cash flow generation capabilities.

By Alex Kimani for

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