Odessa, TX – Far from the $60 a barrel or better price tag the Permian Basin producers would prefer lies the real threat of a shale crash just over the horizon. Two of the world’s biggest oilfield service companies are warning of a bigger shale crash than the one that hit the U.S. and Canada in 2016.
With Russia and Saudi Arabia competing and glutting the market, and the unrest from the coronavirus, the decline in North American drilling rigs could approach the lows seen five years ago. The drop could be much faster this time around according to Schlumberger Ltd. as they informed analysts and investors in a webinar on Tuesday. And as the most financially troubled oilfield service providers seek to stay afloat, there’s not much help this time around says Halliburton officials.
Investors cheered plans by both companies to significantly slash spending. Halliburton soared as much as 33% for a history-beating advance, while Schlumberger climbed 11%.
Lance Loeffler, chief financial officer at Halliburton says, “There is no more lifeline. Financial markets aren’t lending their support.”
Halliburton, which generates most of its business in the U.S. and Canada and leads the world in fracking, is planning for the possibility that nearly two thirds of rigs could be shut down by the final three months of the year. Schlumberger, the world’s biggest overall oilfield services provider, said it’s slashing its own spending by as much as 30% in 2020.
In the webcast, Chief Executive Officer Olivier Le Peuch said North America may see a sharper, more abrupt cut in drilling before the end of the second quarter. “We’re acting sharply and decisively in this context. It will reach in a matter of weeks the trough, where it took a year or six months to reach a trough last time.”
While changes to rig activity generally lag the movement of oil prices by several months, shale explorers have wasted no time cutting where they can. Oil drilling in the Permian Basin, home to the world’s biggest shale patch, plunged to its lowest level since the last crude-market slump just a few years back. At its worst, the U.S. rig count could see a 70% drop over a six-month period, eclipsing the greater than 60% cut in 1986.
It’s not the kind of news we like to hear in Midland and Odessa, but could become a very real situation in the near future… and last a while to boot.