BofA: '22 should be good year for oilfield services -Oct 18

[dan_s]

Note received from BofA Equity Research this morning.

We don’t expect E&P underinvestment to continue at $80
At $80 oil, we think it’s misguided for investors to think E&Ps will continue to
underinvest. Yes, some US E&Ps should hold at maintenance activity levels while OPEC+
still keeps oil off the market. But at $80 oil, we see upside to US E&P spending next
year. And while this recovery in E&P spending and OFS activity should be more balanced
this cycle between US Shale and Int’l, we continue to think investors are
underestimating just how much US onshore activity will be up next year. Accordingly,
HAL remains on US1 list as our OFS top pick while NEX becomes our SMID Cap OFS top
pick, where tightening US frac fundamentals next year could be a catalyst for both to
outperform.

E&Ps should brace for US service inflation
Given our expectations for 35% US E&P capex growth next yr, which includes 20%+ for
Public E&P and 50%+ for Private E&Ps, we see meaningful upside in activity that could
drive service pricing meaningfully higher. For example, we actually expect 150 horizontal
(hz) rigs and about 50 frac fleets to be added between now and YE22. If these additions
play out like we think, this would take the hz rig count above 630 by YE and the active
frac fleet count to about 280, meaning low-to-mid 80% utilization for frac and mid-to-high
80% utilization of Super Spec rigs. This could lead to dayrates of $22-23k/day and
EBITDA/fleet comfortably eclipsing the $10mn level and possibly into low teens. < Great news for HP and PTEN

Int’l grinds higher; less operating leverage to $80 oil
We aren’t negative on int’l activity as we still forecast 15% y/y growth in int’l E&P capex
next year. We just think investor expectations are calibrated appropriately for int’l OFS
activity. Basically, even with US Public’s continued capital discipline, $80 oil is more
positive for US onshore activity than int’l, in our opinion. Moreover, we think pricing
leverage next year will be more pervasive in US onshore than across int’l markets.

EPS Preview: 3Q noise offset by stronger ’22 backdrop
For 3Q results, we could see much less beats than in the past given (1) supply chain
friction, (2) input cost inflation & (3) Hurricane Ida disruptions. Notably 3Q/4Q potential
downside include: HP, GTLS, NOV, and CHX. On the flip side, HAL, OII, NEX and SLB
appear to us to have the most 3Q and/or 4Q upside. And looking out to ’22, we see
upside to consensus for all except for NOV (+0%), CHX (+0%) & HLX (-5%). Est & PO
changes are found in Exhibit 11, where EBITDA and POs are up just slightly, on average