In our most recent earnings call blog posts, Themes from Q3 Earnings Calls, Part 1: Upstream and Themes from Q3 Earnings Calls, Part 2: Oilfield Services (“OFS”) Companies, we explored the transformation of the energy sector due to M&A activity and the persistent drive to optimize efficiency in well operations and services. This week, we delve into the Q4 2023 earnings calls of upstream and OFS companies, underscoring the consistent emergence of these themes across the entire sector.

Global Focus

Companies in all segments of the energy sector are benefiting from international demand. On the upstream side, operators are finding that there is a significant amount of demand for LNG and LPG outside of the United States.

Despite a warm winter, operators seem set to continue to cater to markets where US exports have attractive pricing.

Meanwhile, oilfield service firms are also benefiting from growing demand overseas as countries attempt to increase their energy security.

E&P

• “The macro picture for NGLs has improved materially this winter due to a combination of strong domestic demand and consistently high export levels despite the challenges seen in the global waterborne shipping environment. … Also, Antero’s export volumes are not impacted by potential constraints at the Gulf Coast export docks, which are at high utilization rates with current export levels and limited capacity expansions expected until 2025.”
  – David A. Cannelongo, Senior Vice President of Liquids Marketing & Transportation, Antero Resources Corporation
• “Although global LNG pricing has weakened somewhat on warmer winter weather, the arbitrage between global LNG and Henry Hub pricing is still significant, and therefore, should still drive improved financial performance for our international operations… Importantly, we don’t expect this to be a 1-year financial uplift.”
  – Lee M. Tillman, Chairman, President & CEO, Marathon Oil Corporation

OFS

• “Our results in 2023 demonstrate the effectiveness of Halliburton’s profitable international growth strategy, the strength of our global competitiveness across product lines, and the power of our value proposition with customers. In 2024, we expect international E&P spending to grow at a low double-digit pace and foresee multiple years of sustained activity growth.”
  – Jeff Miller, Chairman, President & CEO, Halliburton Company
• “Broadly speaking, rising activity in critical global offshore and international markets is leading to purchases of the tools and kit needed for our oilfield customers to execute development plans. We remain constructive in our global outlook over the next several years because there are so many areas that look so strong. 2023 saw the reentry of IOC customers into the deepwater market after a decade-long hiatus, with several basins seeing renewed energy and focus on exploration, like Namibia and Suriname, brownfield developments like Norway, West Africa and the Gulf of Mexico, and greenfield developments like Brazil, Guyana, and Australia.”
  – Clay Williams, Chairman, President & CEO, NOV, Inc. 

E&P and OFS Get Frack-tional to Focus on Efficiency

In the latest Q4 2023 earnings calls, the industry’s paramount focus is on elevating efficiency to new heights. Notable developments, including a keen emphasis on durable inventory, conversion efficiency, and the integration of technologies such as robotics and digital advancements, underscore a resolute commitment to operational effectiveness.

The significant investments geared towards both growth and cost reduction serve as a testament to the sector’s dedication to maximizing efficiency.

This strategic emphasis not only aligns with the global drive towards sustainable energy solutions but also strategically positions companies to address evolving market demands with inventive solutions, highlighting efficiency as the linchpin for future success.

E&P

• “If you think about a company’s future, two things are really important for the oil and gas sector. One is… durable inventory… But it’s also the conversion efficiency of that inventory. And I think now, with the announcement of this Endeavor merger, we’re in control of both the numerator and denominator of that ratio. So our durable inventory greatly extends, and then our conversion efficiency that we’ve been known for, for a long time actually gets to come to bear on a larger asset base.”
  – Matthew Kaes Van’t Hof, President & CFO, Diamondback Energy Inc.
• “For our 2024 plan, we forecast a $6.2 billion CapEx program to deliver 3% oil volume growth and 7% total production growth. We expect to see some deflation throughout the year and are forecasting well costs to be down a low single-digit percentage compared to last year. The primary drivers are a 10% to 15% reduction in tubulars and ancillary service costs. Our plan reflects increased investment in long-term strategic infrastructure in the Delaware Basin and Dorado, which are expected to reduce operating costs and expand margins for the life of these assets.”
  – Jeffrey R. Leitzell, Executive VP & COO, EOG Resources Inc.

OFS

• “NOV’s investments in technologies over the past several years have focused squarely on providing solutions that drive improved economics for our customers, utilizing new robotics and digital advancements to expand and enhance our traditional product portfolio… Our sustained investments in new products and technologies helped to drive our strong top-line results, as fourth quarter 2023 revenues have increased nearly 90% from the first quarter of 2021 low, which compares to the Big 3 average of about 60% over the same time period, equating to approximately 26% compound annual growth rate for NOV versus 19% for the Big 3.”
  – Clay Williams, Chairman, President & CEO, NOV, Inc.
• “The strategic investments we’ve made in our business in the last few years have been instrumental in fueling earnings growth, allowing us to grow cash returns to our shareholders…. Our customers place a high premium on technologies that enhance safety, automation, and cost efficiency, and these are the areas we are focused on.”
  – Kyle Ramachandran, CFO & President, Solaris Oilfield Infrastructures, Inc.

Mercer Capital has its finger on the pulse of both the upstream market and the oilfield service space. As the oil and gas industry evolves through these pivotal times, we take a holistic perspective to bring you thoughtful analysis and commentary regarding the full hydrocarbon stream. This includes E&P operators, mineral aggregators, and ancillary service companies crucial to starting and maintaining the stream’s flow. For more targeted energy sector analysis to meet your valuation needs, please contact the Mercer Capital Oil & Gas Team for further assistance.