Nuances of the Upstream Perspective
As our readers are well aware, Mercer Capital tracks and reviews themes from the quarterly earnings calls ofE&P operatorsand mineral aggregators, providing key insights into the upstream perspective on U.S. oil and gas. In this post, we look at oilfield service (OFS) company earnings calls for the first three quarters of 2021. Looking forward, we will likely incorporate OFS earnings calls in our quarterly survey of themes from the public oil and gas sector, using this post as a reference point for the upcoming round of Q4 2021 calls.
We typically review earnings calls for 3 to 8 companies among the E&P operators and mineral aggregators each. Likewise, we look forward to reviewing calls for a roster of approximately 7 OFS companies that operate in the primary onshore U.S. basins covered by Mercer Capital. In this inaugural survey, however, we focus on Q1 through Q3 earnings calls for just two OFS companies – Halliburton and Ranger Energy Services. We follow the earnings call themes for these two companies, who represent some of the largest and smallest (by market cap) public OFS companies, through the first three quarters of 2021 to get a sense of how OFS industry dynamics have evolved over the past year.
Promoting ESG Initiatives
In our review of Q1 2021 earnings call themes among E&P Operators, we saw a continued trend (from Q4 and Q3 2020 E&P operator earnings call themes) of emphasizing and discussing the progress of various ESG initiatives. This theme was absent in the Q2 2021 E&P earnings calls, and not a significant theme in the Q3 2021 E&P earnings calls. However, OFS operators were clear to point out their contribution towards various ESG initiatives throughout the first three quarters of 2021.
“We're excited about the progress of Halliburton Labs, our clean-energy accelerator. In the first quarter, we announced Halliburton Labs' inaugural group of participating companies. They are working on solutions for transforming organic and plastic waste to renewable power; recycling of lithium-ion batteries; and converting carbon dioxide, water, and renewable electricity into a hydrogen-rich platform chemical.” – Jeff Miller, President & CEO, Halliburton [Q1]
“We have successfully completed gas processing jobs for both dual fuel and e-frac fleet and anticipate more to come. There are several rewarding attributes to this transition. We are tangibly contributing to the ESG efforts of our industry.” – Darron Anderson, CEO, Ranger Energy Services [Q1]
“On the Processing Solutions side, we continue to expect our customers' ESG mandate to drive an uptick in both the traditional flare gas capture use and newer fracturing dual-fuel and e-fleet generation fuel supply. We continue to have pilot program success on fuel supply projects, but have yet to sign that elusive long-term contract. Stay tuned here as stronger commodity pricing, incremental flare gas, emission regulation and the build-out and adoption of dual fuel and electric frac fleet are all tailwinds for our Processing Solutions segment.” – Bill Austin, Interim CEO & Chairman, Ranger Energy Services [Q2]
“In the third quarter, Halliburton completed an all-electric pad operation on a multi-year contract with Chesapeake Energy in the Marcellus Shale.” – Jeff Miller, President & CEO, Halliburton [Q3]
Opportunistic Acquisitions & Increased Consolidation of Smaller Operators
While mineral aggregators were active on the M&A front in Q3 2021, with a favorable sentiment towards expanding their holdings since Q1, E&P operators were relatively quiet in the Eagle Ford and Appalachian basins, a bit more active in the Bakken, and chomping at the bit in the Permian. OFS operators, particularly those for whom incremental expansions carry more weight, kept their eyes on the horizon over 2021.
“Our acquisition strategy has been fixed and simple. We are focusing on potential counterparties with top-tier assets, who have a reputation for best-in-class service quality. We are looking at both bolt-ons to our existing service lines and complementary service lines that extend our current core service offerings. Tactically, we believe in being opportunistic.” – Darron Anderson, CEO, Ranger Energy Services [Q1]
“As we said in the prepared remarks, many of these small operators, frankly, we believe, lived and died on the PPP. They priced things that keep them alive and trade dollars. We think by signaling, and more than signaling that there's consolidation, and we think there'll be other players that will try to consolidate.” – Bill Austin, Interim CEO & Chairman, Ranger Energy Services [Q2]
Leverage to Increase Service Pricing
The greatest theme of 2021 from the perspective of E&P operators and mineral aggregators was the upward trajectory out of the crude abyssfrom 2020. What a difference a year makes, both in hindsight and for the road ahead. This was probably most present with OFS operators, which likely hit an inflection point from riding the wave as price-takers to potentially commanding the wave as price-makers in the near-term or at least being able to take more than what they can just get.
“Service pricing improvement is the final step. We're not there yet, but we see positive signs of market rebalancing that should drive future pricing improvements. Total fracturing equipment capacity has limited room to grow in the current pricing environment.” – Jeff Miller, President & CEO, Halliburton [Q1]
“I believe equipment availability will tighten much faster than most people think. In multiple product lines, we believe that equipment supply will fall behind anticipated demand. Today, both drilling and completions equipment are nearing tightness in North America.” – Jeff Miller, President & CEO, Halliburton [Q2]
“Our primary near-term objective is driving margin expansion. Our largest near-term lever here is pricing.” – Bill Austin, Interim CEO & Chairman, Ranger Energy Services [Q2]
“I'll give you two anecdotes. One customer was a smaller customer, that we went and said that these need to be the new rig rates for us to continue, working beyond what we had committed to. They were pretty upset. Used some pretty colorful language. And we said, we're going to okay, well, we will finish up our jobs that we committed to, and we'll walk away. Half an hour, they call back and agreed to it, right? So clearly, our view is that they got on the phone, called around, and realized that there wasn't anything available. And another one with a much bigger customer said that they wanted to add additional rigs. They were trying to use that as a bargaining chip for basically a volume discount. We very quickly said we'll talk about additional rigs only, until we get our first pricing, basically the first wave of price increases. It's been a multiple conversation event, but I think we’re getting there.” – Stuart Bodden, President & CEO, Ranger Energy Services [Q3]
Conclusion
Mercer Capital has its finger on the pulse of the oil and gas sector. As upstream operators, mineral aggregators, and the OFS operators that support them regain their footing, we take a holistic perspective to bring you thoughtful analysis and commentary regarding the hydrocarbon stream. For more targeted energy sector analysis to meet your valuation needs, please contact the Mercer Capital Oil & Gas Team.
