Energy earnings are set to decline, but oil services remain strong

The energy sector has posted outstanding profits this year, with the major oil companies setting records on the right, left and center.. Exxon Mobile (NYSE: XOM), Chevron (NYSE: CVX) e Shell (NYSE: SHEL) together led to $ 46 billion in second quarter earnings, with all three new quarterly earnings records. Overall, the high commodity prices were largely to thank for the large gains of the oil and gas companies.
And now energy experts say the party will continue into 2023, it just won’t be that wild. In a recent Moody’s Research Reportanalysts say they have changed their outlook for the global energy sector from positive to stable.

According to the report, the sector’s earnings will stabilize overall in 2023, but will remain below the levels reached by recent highs. Analysts note that commodity prices have fallen from very high levels in early 2022, but have predicted that prices will remain cyclically strong through 2023. This, combined with modest volume growth, will support strong flow generation. cash for oil and gas producers.

Moody’s estimates US energy sector EBITDA for 2022 will reach $ 623 billion, but will drop to $ 585 billion in 2023. Analysts say low investment, growing uncertainty about future supply expansion and high geopolitical risk premium will, however, continue to support cyclically high oil prices. Meanwhile, the strong US LNG export demand will continue to support high natural gas prices.

bullish on SFO

One of the highlights of that report is how bullish the analysts are regarding the Oil Field Services (OFS) sector.

Rising demand for oilfield services (OFS) amid some growth in drilling and completion activities will continue to increase pricing power and support material earnings growth for OFS companies, ” analysts.

While discipline will still be the name of the game when it comes to capacity, Moodys says pricing power will continue to strengthen next year, “allowing OFS companies to expand profit margins, even with cost inflation. of labor and materials “.

Moodys also expects better profit margins for OFS from increasing daily rates for onshore and offshore plants, as well as higher future rates as customers renew contracts.

U.S. platforms have risen about 30% since January and are recovering to about 95% of January 2020 levels, according to the report.

OFS companies have reported well drilling and completion activities as well as prices have gone up, while roughnecks also say they are seeing an increase in job vacancies. Oilfield workers were among the hardest hit by the Covid-19 pandemic in 2020. Nationwide, the oil and gas industry is estimated to have lost 107,000 jobs according to global consulting firm Deloitte, with roughly 200,000 rudimentary losing their jobs at the height of the global blockade. Related: Putin Forces All Energy Workers to Register for Military Draft

Here are some OFS stocks to keep an eye on.

Market cap: $ 25.1 billion

YTD Returns: 15.8%

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

Halliburton provides a variety of manufacturing solutions in exploration, drilling, manufacturing software and data management services to upstream oil companies through its Landmark Software and Services product line. Additionally, the company’s Testing & Subsea and Project Management product line specializes in reservoir optimization and associated technologies. of Thailand PTT exploration and production And Kuwait Oil Company are among the major oil and gas companies that have awarded Halliburton contracts to implement digital transformation and improve efficiency and production in their oil fields.

Halliburton is among the SFO international societies that have been involved in the crossfire between Russia and Ukraine. In April, Halliburton announced it had done so immediately suspended future business in Russia and is closing the remaining operations there. Previously, the company had stopped all shipments of specific sanctioned parts and products to Russia, even though the company claims it has no active joint ventures in the country.

Fortunately, HAL is not that heavily exposed to the Russian market, with JPMorgan’s estimate it only gets 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

YTD returns: 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 recently tightened up in November, thanks to valuation and supply chain concerns.

Bank of America issued a double downgrade for NOV shares to underperform buying with a target price of $ 22 (31.2% upside).

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

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

Market cap: $ 837.2 million

YTD Returns: 61.6%

Precision drilling company (NYSE: PDS) is a Canadian-based company that provides drilling, completion and contract manufacturing services primarily to oil and natural gas exploration and production companies in Canada, the United States and some international locations.

BMO Capital Markets has distributed updates to a number of Canadian oilfield services companies, including Precision Drilling Corporation, CES Energy Solutions Corp. (OTCPK: CESDEF), Pason Systems Inc. (OTCPK: PSYTF), And Safe Energy Services Inc. (OTCPK: SECYF) as drilling activity increases.

“We believe the industry is on the verge of a multi-year run in activity levels as prices continue to rise,” John Gibson, 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 exhibit high market share across North America, leverage rising business levels, and strong free cash flow generation capabilities.

By Alex Kimani for Oilparmi

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