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Haley Zaremba

Haley Zaremba

Haley Zaremba is a writer and journalist based in Mexico City. She has extensive experience writing and editing environmental features, travel pieces, local news in the…

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Oilfield Service Companies Are Bailing On The Permian


The United States shale revolution didn’t just transform West Texas, and it didn’t just transform the energy sector, and it didn’t just transform the entire U.S. economy. It was a boom felt around the world. As the United States flooded international markets with cheap and plentiful shale oil and gas over the past decades, it shaped whole economies, industries, and communities around it. And now, as that revolution winds down, it’s hard to say where the damage will end. It’s been a hard year for all oil markets, as the spread of the novel coronavirus decimated global oil demand. Matters were made worse when the OPEC+ leading nations of Saudi Arabia and Russia disagreed over how to respond to flagging oil demand, which then devolved into an all-out oil price war, causing a massive global oil glut and pushing oil storage to a premium. While this series of unfortunate events negatively impacted the Brent international crude oil benchmark, no market was hit as hard as the U.S. At its worst, the West Texas Intermediate shale benchmark plunged into previously unthinkable negative territory, ending the day of April 20th at nearly $40 below zero per barrel.

The effects in the Permian Basin have been devastating. Countless legions of oilfield employees have been fired or furloughed, companies have fallen like dominoes, and shut-in wells have become a painfully common sight. Goldman Sachs has reported that listed domestic oil producers have cut their capital expenditure by a whopping 50 percent. Oilprice has already reported on the way that Texas oil towns are drying up along with the wells, and last week the Financial Times reported on another sector that is significantly impacted by the shale bust. 

“Parched US shale patch crushes oilfield services sector,” The Financial Times headline proclaims. The report is about the exodus of oilfield services companies like Halliburton, which “do everything from drilling producers’ wells and laying pipes to maintaining roads and operating software.” When U.S. shale was exploding, these companies reaped major benefits and brought in boatloads of cash, but times have changed. “With the worst price crash in decades wreaking havoc on a sector that has booked tens of billions of dollars in writedowns over the past year, [oilfield services companies] are looking to turn away from the country in the clearest sign yet that the shale patch’s glory days may be over,” writes the Financial Times. 

Related: Big Oil Forced To Change Strategy After The Oil Price Crash

Halliburton, one of the biggest oil services groups in the world, is no exception. “North America is going to be a changed market moving forward,” Halliburton chief financial officer Lance Loeffler told the Times. “Our view is that the international markets will take share back from a supply perspective . . . and we need to be prepared for that.” 

Most of the capital expenditures that have been slashed by U.S. oil producers this year “would have been spent on work carried out by oilfield services groups, whose revenues collapsed.” This has meant massive writedowns across the sector, and more lean times on the horizon. “The big three service providers — Schlumberger, Halliburton and Baker Hughes, which have a combined market capitalisation of $55bn — have taken writedowns of almost $45bn over the past year.” 

Even as oil prices rebound, the shale sector can’t be expected to bounce back to where they were before this year. For one thing, shale was already on the decline before the COVID-19 pandemic. What’s more, now that so many shale companies have declared bankruptcy or shut-in their wells, pre-COVID production capacity is no longer a possibility without serious time and investment. Restarting a shut-in well also requires significantly more time and capital than it does to stop production in the first place. And then there is the fact that oilfield service companies have also shut down much of their own activity. 

“Schlumberger, the biggest services group, said last week it had closed 150 North American facilities, while Halliburton said it had got rid of 100,” reports the Financial Times. 

In short: shale isn’t dead, but don’t expect a major rebound any time soon.


By Haley Zaremba for Oilprice.com 

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