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January 24, 2022 12:15 PM, EST

Oil Explorers Are Fracking at Breakneck Pace, Fueling Inflation

Halliburton Lifts Payout for the First Time in More Than 7 Years
Halliburton Co. signage displayed alongside storage tanks in Port Fourchon, La.Halliburton Co. signage is displayed alongside storage tanks in Port Fourchon, La. (Luke Sharrett/Bloomberg News)

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Shale oil companies are using almost all of the fracking equipment and crews available as exploration expands, accelerating cost inflation and pointing to worsening supply chain disruptions across the industry.

North American oil drillers appear likely to expand spending by more than 25% this year while overseas explorers are on course for a more modest increase in the mid-teens, Halliburton Co. executives said Jan. 24 after reporting their biggest quarterly profit in seven years.

The world’s top provider of fracking services already is seeing tightening labor, trucking and raw material supplies, and in some regions as much as 80% of workers are transplants recruited from other areas. Even something as mundane as the sand Halliburton blasts into wells to help fracture oil-soaked rocks is getting harder to source, CEO Jeff Miller said during a conference call with analysts.

Tracking the number of active oil rigs

The squeeze is proving a boon to Halliburton, which lifted its dividend for the first time since 2014 and said orders for pumping gear have more than doubled. The company’s fracking business is working at full capacity and oil companies are paying higher prices for so-called completion work. ConocoPhillips and peers such as Devon Energy Corp. have been warning since last year that oilfield inflation was a burgeoning threat.

“This is a fantastic set of conditions for Halliburton,” Miller said. “Our current completion tool order book has more than doubled from a year ago, signaling strong growth and profitability again in 2022.”

Oil and natural gas explorers are paying record costs as the economic growth that underpins energy demand rebounds from the pandemic-driven collapse, the Federal Reserve Bank of Dallas said in recent weeks. Supply chain snarls in the Permian Basin — the biggest U.S. oil field — are making drilling projects more complicated, prolonged and expensive.

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Miller said there’s little reason to expect things to change any time soon.

“I don’t see 2023 as an endpoint by any means,” Miller said. “I think the road goes on well beyond on that.”

Halliburton joined larger rivals Schlumberger and Baker Hughes Co. in predicting a new multiyear expansion cycle for oil field contractors, although Halliburton was the only one among the trio to boost shareholder payouts.

Schlumberger said last week it’s boosting spending as much as 18% to $2 billion to gear up for the several years of growth it expects from clients around the world.

As the biggest oil field contractor in the U.S. and Canada, Halliburton stands to gain the most from a spending recovery that’s led by North America, which rival Schlumberger said last week should grow by at least 20%.

Baker Hughes is also seeing waves of growth thanks to a revival in U.S. shale drilling. The Houston-based company last week posted orders that were up 28%, led by the business line that cranks out massive turbines used to liquefy natural gas for export.