Why Has Schlumberger Jumped Ship on US Fracking?

In the latest blow for the energy industry, French-owned oilfield services company Schlumberger Limited has announced plans to sell its US fracking arm. The business is being purchased by Colorado-based company Liberty Oilfield Services, with the deal valued at around US$448 million. In exchange for the onshore hydraulic fracturing division known as OneStim, Schlumberger will receive a 37% share in Liberty Oilfield Services.

Renewables boom triggers oil and gas slump

The sale comes just weeks after clean energy group NextEra outperformed ExxonMobil in stock market value. As the largest solar and wind power generator in the world, the increased value of NextEra reflects the strong transition investors are making towards green energy.

“We’re seeing just enormous demand for renewables right now,” said NextEra chief executive Jim Robo in an interview with Wolfe Research. “People are excited about renewables and the transformation happening in the energy sector, and they feel that this is probably one of the better-positioned companies in the United States to exploit that opportunity,” adds Glenrock Associates analyst Paul Patterson.

COVID-19 sends 30+ companies bankrupt

In the second quarter of 2020 Schlumberger’s fracking unit was hit with an enormous 40% drop in revenue. The collapse was triggered by the unprecedented crash in oil prices which saw WTI descend into negative territory in April for the first time in history. Since January, the number of active fracking sites in the United States has fallen by around 80%, with producers spooked by low prices and falling demand sparked by the COVID-19 pandemic.

Schlumberger isn’t the only company feeling the aftershock of the pandemic, with more than 30 upstream exploration and production companies filing for bankruptcy in 2020. While oil prices have since recovered to round US$40 per barrel, analysts warn more bankruptcies could be on the way.

Analysts pin hopes on vaccine

Despite the negative outlook, multinational investment bank and financial services provider Goldman Sachs is optimistic prices will continue to climb over the next 12 months. In a recent report the group raised its price forecast by .7%, with analysts expecting Brent crude and West Texas Intermediate to hit US$65 per barrel by the end of 2021.

“There is a growing likelihood that vaccines will become widely available starting next spring, helping support global growth and oil demand, especially jet,” reads a note issued by Goldman Sachs. As well as a COVID-19 vaccine, Goldman Sachs optimism is built around expectations OPEC+ nations will adhere to production cuts to lift prices. While the model is good in theory, scenarios like the recent Russia/Saudi Arabia price war in March illustrate just how volatile the market can be.

To find out more about how the energy landscape is transforming in the face of COVID-19 and climate change don’t miss ‘Clean Burning Marine Fuels Making A Difference To Air Quality.’