Baker Hughes Reports Profit Growth on Strong LNG Demand
Oilfield service provider Baker Hughes reported higher-than-expected profit growth for the final quarter of last year attributing it to strong demand for its services from the LNG industry. Baker Hughes reported net income attributable to the company of $439 million for the three-month period, which was $257 million higher than a year earlier. The company also boasted free cash flow of over $2 billion at the end of 2023, noting it represented a 54% conversion rate from adjusted earnings before interest, tax, depreciation, and amortization. International revenues were the biggest contributor to the strong performance of the company, rising by 15% on the year while North American revenues only inched up by 1%. Baker Hughes competitors have reported similar trends, by the way, with international demand for their services much stronger than demand at home. One LNG project specifically made a massive contribution to Baker Hughes’ strong performance. This was the Ruwais LNG project in the UAE, where the oilfield service provider was awarded contractual service agreements worth $1 billion. The Ruwais project will be entirely powered by electricity and will have a capacity of 9.6 million tons of liquefied gas annually. LNG expansion at home also contributed to the company’s financial performance last year as several projects are at different stages of development, set to boost the United States’ LNG export capacity substantially over the next couple of years. Baker Hughes’ competitors SLB, formerly Schlumberger, and Halliburton, also reported forecast-beating figures for 2023, attributing the strong performance to international rather than domestic demand for their services. SLB said that its international revenue had gone up by 18% during the fourth quarter while domestic revenue remained flat. Halliburton, for its part, reported a 7% quarterly decline in North American revenues, which are the biggest contributor to its overall revenues.
Traders Turn Bearish on U.S. Oil
Traders are selling West Texas Intermediate futures in anticipation of further strong production growth. As a result, prices are weakening further despite the uncertainty of such an outlook. In fact, expectations from the industry and the EIA are for much slower U.S. oil production growth this year. But that has had no effect on trader behavior. The latter might be in for a surprise. Hedge funds and other institutional traders sold the equivalent of 24 million barrels of U.S. crude in the week to January 16, Reuters market analyst John Kemp reported this week. This compared with Brent buys equivalent to 18 million barrels, Kemp noted. Traders, then, expect even lower prices for U.S. oil later this year. And there is only one reason they expect this: more explosive growth like the one booked last year. Traders don’t want any more surprises, it seems. Yet they might still end up surprised. In its latest Short-Term Energy Outlook, the Energy Information Administration predicted that output this year could reach 13.2 million barrels daily. This would be a new record high but this is not the important part. The important part is that the projected 2024 figure is only about 200,000 bpd higher than the average daily for 2023. And that 2023 average daily represented an increase of over 1 million bpd over the 2022 average. Traders, however, have a good reason to expect more growth and that reason is that last year, the industry did not actively try to boost production so substantially. It happened kind of inadvertently as drillers continued to improve efficiency in a bid to extract more oil for the same money. A surprise for the industry itself was higher than expected productivity from many wells, which also contributed to the production growth that shocked the oil market and made traders bears overnight. The question this year would be whether the U.S. oil industry can and, more importantly, wants to repeat that stellar performance. The answer is likely to be “Not really.” The latest Dallas Fed survey, released in December, suggested that few companies in the oil patch have any major spending increase plans. Most in the industry appeared still cautious with their production growth plans and frugal with their cash. When asked about spending plans, most respondents said they planned to either keep spending at 2023 levels or increase it slightly this year. This, of course, does not mean that efficiency gains and well productivity could not still surprise to the upside. It simply means that it is not the most likely scenario: efficiency gains do not follow a linear upward curve and well productivity can surprise in both directions. So, after a year of strong gains, chances are this one may be quieter on that front. There is, then, a potential for weaker growth in U.S. oil output than expected. And this potential weaker growth would be materializing against the background of constrained supply from OPEC. Sure, Brazil’s Petrobras has big production growth plans, and Guyana’s output is growing steadily, but when analysts talk about non-OPEC supply growth, they invariably mean the U.S. first and foremost. The U.S. is the swing producer these days. And it is also the maker or breaker for oil bulls and bears alike. The problem is that the market appears to take uncertain developments for certainties. The expectation that U.S. oil output will continue growing as strongly as last year is a good example. And it appears to be an unshakeable expectation, for now. Perhaps it will materialize and shale drillers will exceed even last year’s growth rate. Or maybe growth will be as weak as the EIA and industry executives expect it and disappoint hedge fund bears.
Oil and Natural Gas Corporation Limited Approves Formation of Wholly Owned Subsidiary for Green Energy and Gas Business
The Board of Directors of Oil and Natural Gas Corporation Ltd. at its meeting held on January 23,2024 has inter-alia, considered and accorded approval for formation of a wholly-owned subsidiary company. The proposed name of the company is “ONGC Green Limited” subject to approval of the Ministry of Corporate Affairs, Govt. of India. The wholly-owned subsidiary company shall be engaged into the business of value-chains of energy business viz. Green Hydrogen, Hydrogen blending, Renewable Energy (Solar, Wind and Hybrid etc.), Bio-fuels/Bio-gas business and LNG.
India starts bidding for Jammu-Srinagar natural gas pipeline
India’s Petroleum and Natural Gas Regulatory Board (PNGRB) has started the bidding process for the 325-km Jammu-Srinagar natural gas pipeline. The pipeline’s initial capacity will be 2 million cu m/day (MMcmd). Bids for construction, operation, and future expansion work are due May 13, 2024. The Jammu-Srinagar pipeline will extend GAIL (India) Ltd.’s 2-MMcmd Gurdaspur-Jammu pipeline. GAIL last year won the license to build the 175-km pipeline linking Punjab with Jammu and Kashmir (OGJ Online, June 23, 2023)