The great oil rebalancing is well underway.
With Brent and WTI futures continuing to range-trade in the $49-53/bbl. band, with Halliburton reporting that completion activity is ticking up sharply, and with a growing sense of OPEC defeat and retreat, Barclays is now forecasting “hyper earnings growth” across the oilfield services sector.
Indeed, with multiyear capex. cuts setting the sector up for a $1 trillion shortfall in new supply by the end of the decade, inventories are flattening and oil patch M&A continues. Within the Lower 48/U.S. onshore market, the Permian Basin keeps humming along and on the capital markets, shares of Concho, Cimarex, and a few other low-leverage Permian-linked operators have defied gravity. As Ernest Leyendecker — Anadarko’s E&P chief — put it: “The Permian is, in my humble opinion, the basin that keeps on giving,” a topic that Coleman’s analyst team explored in late 2016.
Now, as GE works to finalize the BHI merger and as Schlumberger — previously the most bearish services company in the industry — turns bullish on its pricing outlook, as Weatherford’s interim CEO Kirshna Shivram tells investors the company is developing new sales channels, the oilfield merger market is heating up at a time when new competitive lines are being drawn across NOV, SPN, and WFT.
Looking ahead through the summer, with Smart Sand witnessing a 19% quarter-over-quarter jump in sand sales, with PXD reporting significantly higher sand and proppant intensity on its Permian wells, and with shares of the publicly traded proppant producers rebounding over the past month, Coleman’s analyst team recently undertook a deep dive on the frac sand and ceramic proppant industry.
It remains to be seen whether or when WTI might stabilize north of $55-60/bbl., but this much is clear: ever since the sand mining companies and proppant suppliers slowed production last year, the market has begun to mean-revert, with a rough road ahead to 2018, but the spend outlook is bullish.