Halliburton stock and its peers notched a mediocre week on the market, even as fourth-quarter earnings from the oilfield services and equipment leaders provided fresh details on what propelled a 52% rebound in oilfield service stocks since September. In addition, the group delivered unanimously rosy outlooks for the year, despite projections for lower oil prices in both 2023 and 2024.
Halliburton (HAL), Baker Hughes (BKR) and SLB (SLB), formerly known as Schlumberger, all project strong oil demand and tight supplies for the foreseeable future. Each oilfield services leader also pointed to myriad international growth opportunities, especially in the Middle East. As a result, SLB expects to distribute more than 50% of its free cash flow, totaling $2 billion, to shareholders in 2023.
Halliburton also announced plans to return at least 50% of its free cash flow to investors through dividends and buybacks. Meanwhile, Baker Hughes says shareholders can expect it to return 60%-80%.
"It's clear to me that oil and gas is in short supply and only multiple years of increased investment in both stemming declines and reserve additions will solve short supply," Halliburton CEO Jeff Miller said during the company's conference call. "I believe these investments will drive demand for oil field services for the next several years."
Halliburton Stock, Other Oilfield Services Plays Show Strength
Halliburton stock bounced around 67% from a September low through Monday's session. SLB shares gained 360%. Baker Hughes rallied 55%.
As the market rolls into the end of January, a broad segment of oil- and gas-related stocks continue to show strength. Energy stocks were volatile throughout 2022, but ran easily ahead of the overall market. The 31 stocks in the Oil and Gas Field Services collectively advance 48% for the year, despite spending most of the year in a consolidation. A number of oil and gas related stocks find themselves on the IBD 50 and Big Cap 20 lists. Both these lists make up top-rated and leading growth stocks showing relative strength.
Energy giant Exxon Mobil (XOM), with earnings due Tuesday, has formed a flat base with a 114.76 buy point. Chevron (CVX) has formed a cup base with a 189.78 buy point. Valero Energy (VLO) has also formed an actionable base as has Matador Resources (MTDR).
Oil Drillers Could Improve
Meanwhile, SLB and Halliburton stock are both in buy zones coming out of earnings. The industry group currently ranks No. 1 out of 197 industries tracked by IBD. In that group, Baker Hughes is hovering around a 31.98 buy point in a nine-week flat base.
Top oil and natural gas drilling equipment names Patterson-UTI Energy (PTEN) and Helmerich & Payne (HP) are also forming bases.
CFRA analyst Jonnathan Handshoe wrote on Jan. 24 that HP and PTEN stock fundamentals are likely to improve in 2023 as contracts for around 70% of active oil rigs will end by the second half of 2023. This should lead to a busy round of profitable updating in contracts, according to Handshoe, a possible demand for additional rigs farther ahead.
"Drilling fundamentals should improve across the board, in our view. While we don't expect that there will be demand for new builds for rigs in 2023, however, with rigs rolling off contract and will be repriced with term contracts, we wouldn't be surprised if land drillers started building new rigs to meet the rising demand in 2024," Handshoe wrote.
Halliburton Stock: Oil And Gas Market And Price Forecasts
The optimistic outlooks from SLB, Halliburton and Baker Hughes follow positive oil demand forecasts from both the International Energy Agency (IEA) and the Organization of Petroleum Exporting Countries (OPEC).
The IEA estimates the recent easing of Covid restrictions in China will boost 2023 global oil demand to record highs. Meanwhile, OPEC Secretary-General Haithan Al-Ghais has said he is "cautiously optimistic" about the outlook for the global economy, as a recovery in oil demand in China is tempered by signs of fragility elsewhere. He also said demand in China could grow 500,000 barrels per day in 2023.
Estimates from the Paris, France-based International Energy Agency forecast China's reopening will drive global oil demand to a record 101.7 million barrels per day (bpd) in 2023, up by 1.9 million bpd from 2022.
The Energy Information Administration (EIA) forecasts crude oil production in the U.S. will average 12.4 million bpd in 2023 and 12.8 million bpd in 2024, surpassing the previous record of 12.3 million bpd set in 2019. In 2022, U.S. crude oil production averaged an estimated 11.9 million bpd.
The EIA is also expecting U.S. crude oil prices to average $77 per barrel in 2023 and $72 per barrel in 2024, down from $95 per barrel in 2022. The Energy Information Administration also forecasts U.S. natural gas prices will average $4.90 per million British thermal units in 2023, more than $1.50 per million British thermal units lower than the 2022 average.
Oil And Gas Prices
Meanwhile, U.S. crude oil futures were down around 1.5% to $78.50 per barrel Monday. Last week, U.S. crude oil futures regained support above their 50-day moving average line, after settling above that line for the first time since mid-November. Prices remain far below the March, 2022 peak above $130 per barrel.
On the supply side, OPEC is widely expected to maintain current oil production levels when the oil cartel meets on Feb. 1. The group has warned of limited surplus production capacity, as outlooks call for rising demand.
U.S. natural gas futures have dived for six straight weeks, settling at $2.71 per million British thermal units on Monday. Natural gas prices are down around 70% since they hit 14-year highs of $10 per million BTU in August.
Halliburton Stock: Oil Demand Optimism
SLB topped fourth-quarter revenue and earnings views on Jan. 20. The company reported EPS grew 73% to 71 cents per share while revenue jumped 27% to $7.9 billion.
Third Bridge analyst Peter McNally said SLB has suffered from a slow international recovery in recent years, "but this may have finally turned the corner."
If performance such as in the fourth quarter is sustained, this will have important implications for future results for Schlumberger, which relies on international markets for more than three quarters of company revenues," McNally said.
He added that it is noteworthy that SLB's "digital & integration" business segment exceeded the $1 billion quarterly revenue level for the first time in Q4.
"We entered 2023 against the backdrop of market fundamentals that remain compelling for both oil and gas and low carbon energy resource. First, despite concern for potential economic slowdown in certain regions, oil and gas demand growth remains resilient," SLB CEO Olivier le Peuch told investors during the Q4 earnings.
In 2022, SLB earnings advanced 70% to $2.18 per share. Full-year revenue came in at $28.1 billon, up 23% compared to 2021. This was in-line with company expectations. In 2023, SLB is looking to grow in excess of 15% compared to 2022.
SLB expects record level of upstream investment in the Middle East throughout 2023. The company said it already has a combination of oil and gas offshore development plans in place throughout the region.
"I really believe that the cycle that we have entered in internationally, that is characterized now by the Middle East joining the growth engine, if you like, is set to be very durable," le Peuch said.
Oilfield Service Stocks: Strong Orders
Morgan Stanley analyst Connor Lynagh says the market generally agrees with SLB's assessment of oil and gas in 2023, but are less clear on the service industry's ability to maintain inflated prices.
"But debates remain about the magnitude of a potential economic downturn this year and the durability and magnitude of potential service-pricing power," Lynagh wrote in a recent note.
The factors should begin to clear up by mid-2023, Lynagh says.
Baker Hughes, on Jan. 23, missed fourth-quarter earnings and revenue targets, with revenue growing 8% to $5.9 billion in Q4, while earnings increased 52% to 38 cents per share. However, BKR also painted a bright picture for the 2023 oil market, even as the global economy could face headwinds.
Third Bridge's McNally said the most significant data point in Bakers' report was $8 billion in new orders booked during the quarter.
"This reacceleration after a few quarters of cooler bookings brightens the outlook as we look ahead to 2023," he said.
On Jan. 23, Baker Hughes executives reported a record backlog of $25 billion, aided by increased LNG equipment orders.
In 2022, orders increased 24% to $26.7 billion. Full-year revenue edged up 3% to $21.16 billion— the first advance in three years for the company. Revenue from the company's oilfield services segment increased 10% compared to 2021. Full-year EPS shot up 43% to 90 cents per share.
Baker Hughes Looks Forward
Baker Hughes forecasts Q1 2023 revenue between $5.3 billion-$5.7 billion and adjusted EBITDA between $700 million-$760 million. For 2023, the company expects revenue between $24 billion-$26 billion and adjusted EBITDA between $3.6 billion and $3.8 billion.
Baker Hughes CEO Lorenzo Simonelli said during the Q4 earnings call the global economy is expected to experience some challenges under the weight of inflationary pressures and tightening monetary conditions in 2023. However, the oil and gas outlook remains cheery, with the Middle East leading the way.
"With years of underinvestment now being amplified by recent geopolitical factors, global spare capacity for oil and gas has deteriorated and will likely require years of investment growth to meet forecast future demand," Simonelli said.
Halliburton Stock: HAL's Opinion
Halliburton stock ended the week mildly lower after topping earnings and meeting revenue views on Tuesday. HAL saw Q4 EPS and revenue increase 100%, to 72 cents and $5.58 billion, respectively. Halliburton reported 2022 EPS of $2.15, up 99% compared to 2021. Full-year sales shot up 33% to $20.3 billion.
Analysts expect 2023 earnings growing 40% to $3.02 per share. Full-year revenue is predicted to increase 16% to $23.6 billion.
CEO Jeff Miller told investors everything points "toward continued oil and gas tightness in 2023." Miller expects activity in the U.S. to remain strong and service intensity to increase through 2023. He added that China's reopening will likely further increase global demand.
Miller added that Halliburton is also bullish on North American growth, and sees it edging up in 2023. Morgan Stanley's Lynagh backed that view.
"We have noticed a high degree of concern about North American activity and service pricing," Lynagh wrote on Jan. 25. It will probably take continued margin expansion through 2023 to disprove the bear thesis, the analyst noted, said "we are not all that concerned."
Please follow Kit Norton on Twitter @KitNorton for more coverage.
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