What’s Good for Oil Services Is Good for U.S. Shale

When oil prices collapsed, American oil production declined as well. Shale production, the chief driver of resurgent U.S. oil output over the past decade, is relatively expensive, and the crude price collapse made many fracking operations unprofitable. But the young American shale industry didn’t collapse under the weight of bargain crude the way many analysts expected, in no small part thanks to the haircut many oil services firms accepted to keep the crude flowing. Companies like Halliburton and Schlumberger accepted much narrower profit margins in the U.S. market, and that helped shale producers keep costs low enough to enable them to continue to frack profitably.

In the meantime, those same producers were also innovating new ways to cut costs on the operations side, and in so doing brought their breakeven costs down $20 in just a few years. Now, oil services companies are starting to see their faith in shale rewarded. The FT reports:

Schlumberger, the world’s largest oilfield services group by market capitalisation, has pointed to “robust” activity in North America and strengthening markets in some other parts of the world as its revenues and earnings rose in the second quarter. […]

In revenue terms, North America was by far the company’s strongest market, as shale oil production companies ramped up activity to take advantage of a healthier crude price. Revenues in North America were 27 per cent higher than in the second quarter of 2016 at $2.2bn, while revenues in the rest of the world were down 4 per cent at $5.14bn.

Schlumberger isn’t the only oil services company that’s thriving in 2017, though—smaller services firms are rebounding as well. America’s robust oil services industry was one of the necessary starting components to get the shale boom off the ground, so the fact that these companies are on the rise once again is a very good sign for U.S. energy security going forward.

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