SLB, Baker Hughes and Halliburton are on course for strong financial results in the coming quarters after the trio of oilfield services (OFS) giants posted a stellar set of results for the first three months of the year.
That’s what Rystad Energy Vice President Binny Bagga said in a special market update sent to Rigzone this week, adding that all three companies grew numbers, margins and cash flow during the first quarter compared to the comparable period of the previous year.
“Following a similar strategy to many E&P operators, the trio have also focused on shareholder returns and increasing dividends, with two plotting a share buyback plan for the year,” Bagga said in the update.
“With energy security a priority for most countries and supply chains maintaining limited capacity on many fronts, Rystad Energy believes the market fundamentals needed for OFS players to improve their financial performance will continue going strong for the rest of the year,” Bagga added.
“This aligns with our previous analysis highlighting the revenue growth potential and margin improvement trend expected for the OFS sector as a whole in 2023,” Bagga continued.
income
In the update, Bagga noted that the companies’ results revealed new highs in first-quarter revenue, “with revenue up for both SBL and Halliburton near levels not seen in the first quarter of the previous four years , while for Baker Hughes they were at their highest in the first quarter in eight years”.
“SLB saw first-quarter revenue increase nearly 30% year-over-year, driven by growth in the well construction and production systems segments, which experienced growth in excess of 30%. This was driven by improved of prices in both North America and Latin America, with both regions witnessing 45% growth in the well construction segment,” Bagga said in the update.
“The start of increased drilling demand was also evident in Halliburton’s earnings, with the company reporting year-over-year growth of more than 30 percent in the first quarter, supported primarily by the completions and production unit , which was up 45 percent as demand for pressure pumping services increased, sales of completion tools improved, and Kuwait and the US territory saw an improved need for services artificial,” Bagga added.
“As such, increased demand for drilling-related services globally saw Halliburton’s Drilling and Evaluation segment grow 17% year-over-year,” continued Rystad’s VP.
Baker Hughes also performed well, with revenue up 18.2 percent year-over-year in 2023 but broadly flat from last year’s fourth quarter, Bagga said in the update.
“Revenue growth in the first period of last year was due to higher volumes in both the Oilfield Services and Equipment (OFSE) and Industrial and Energy Technology (IET) business segments,” he noted Bagga.
Margins
Rystad’s vice president highlighted in the update that all three companies benefited from an improvement in both their adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and net income margins.
“This was driven by capacity constraints in many service segments within the service industry, along with some general easing of inflation and an increase in service prices,” Bagga said.
“SLB saw margin expansion in both its adjusted EBITDA and adjusted net profit margins. Adjusted net profit margin improved about 350 basis points to 11.7 percent in the first quarter of 2023 in compared to the same period last year,” Bagga added.
“Adjusted EBITDA margin of 23.1 percent was 210 basis points higher due to improved profitability in measurement, integrated drilling, equipment and fluids sales as higher activity and improved prices supported trading operations,” Bagga continued.
Rystad’s vice president noted that Baker Hughes also improved its profitability, “as the company saw its adjusted EBITDA margin increase to 13.7% at the end of the first quarter of this year, from 12 .9% of the same period last year”.
“In addition, the company’s adjusted net income increased by $144 million and its adjusted net income margin grew by 210 basis points in the most recent quarter compared to the first quarter of 2022,” Bagga said .
Bagga highlighted that Halliburton more than doubled its net earnings per diluted share compared to the first quarter of 2022, adding that its adjusted EBITDA margin at the end of the first quarter of this year “remained strong at 21.5 percent, 360 basis points higher than the same period.” last year”.
“The improvement came from higher completion tool sales globally, as well as testing services and testing services worldwide,” Bagga said.
Cash flows, shareholder returns
In the update, Bagga said all three companies reported “significant improvements in cash flow from operations relative to the same period last year, with Halliburton’s CFO growing by more than 500 percent.”
“The company also launched a share buyback program, with buybacks totaling more than $200 million in shares. In addition, the company paid $249 million in dividends to shareholders,” Bagga said .
“Overall, the company is targeting a total return of $2 billion to shareholders in the form of dividends and share buybacks,” Bagga added.
“As for Baker Hughes, although the company reported an improvement in both its CFO and capital expenditures during the first quarter of this year, management decided not to proceed with any program of share buyback during the quarter and focused on restoring cash levels after making multiple small acquisitions in the past two months,” Bagga continued.
Baker Hughes, however, maintained its quarterly dividend of $0.19 per share, Rystad’s vice chairman noted.
“The company plans to return 60 to 80 percent of its free cash flow to shareholders sometime this year,” Bagga said.
Bagga noted that Halliburton bought back roughly $100 million of its stock in the first quarter of this year and paid out $145 million in dividends.
“The company for this year plans to return at least 50 percent of annual FCF to shareholders,” Bagga said.
SLB, Baker Hughes, Halliburton Reaction
In the company’s latest financial statement, SLB CEO Olivier Le Peuch said he was “very pleased” with SLB’s start to 2023.
“We have delivered strong year-on-year revenue growth and margin expansion on a scale that instills further confidence in our financial ambition for the full year,” Le Peuch said.
“The quarter was defined by a strong dynamic of activity abroad and in the wider international basins, especially in production and well construction systems,” he added.
“We continue to see positive pricing as our performance differentiates, technology adoption increases, contract terms adjust to compensate for inflation, and service capacity continues to tighten in key international markets. In this environment, our customers are more actively collaborating with us to improve their operational performance, achieve decarbonisation goals and reduce overall costs through greater use of our differentiated technologies,” said Le Peuch.
In Baker Hughes’ earnings call, Lorenzo Simonelli, the company’s president and CEO, said the company was “pleased” with its first-quarter results, adding that it remains “optimistic about the outlook for 2023”.
“We maintained our strong order momentum in IET and SSPS. We also delivered solid operating results at the higher end of our guidance in both business segments,” he added.
“While 2023 has already begun with some macro volatility, we remain bullish on the outlook for energy services and Baker Hughes. Our diverse portfolio includes both long-cycle and short-cycle businesses that position us well to navigate any period of variability that can occur in the energy sector,” continued Simonelli.
In his earnings statement, Halliburton chairman, president and CEO Jeff Miller said the company’s first-quarter performance “once again demonstrated the earning power of our strategy, the strength of our global competitive position and execution for our customers.”
“Our strong culture of execution, differentiated technology portfolio and collaborative approach with customers drive margin improvement and growth in our business. I am confident that we will execute on our strategic priorities and deliver shareholder returns Miller added.
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