After a Harsh Winter, Oilfield Services Wake Up From Hibernation
Unusually severe winters can be both a blessing and a curse for the energy industry. This year, for example, as much of the United States suffered prolonged cold snaps and snow storms, high demand was met with production declines as facilities literally froze to a halt. As a result, a record volume of natural gas was withdrawn from storage in the lower 48 states, and energy companies everywhere began citing “weather challenges” in calls with investors and analysts in defense of their performance.
The headwinds elicited bearish grumblings from the market, which could do little else but begrudgingly tolerate production setbacks from companies like Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX), and Chesapeake Energy (NYSE:CHK), which are all invested in U.S. shale plays that were blasted by the severe weather this year.
According to Chesapeake, operational issues and infrastructure construction delays had a negative impact on the production ramp in the Utica shale in particular. In its fourth-quarter earnings report, the company said, “As a result of the infrastructure and operational issues, the vast majority of Chesapeake’s wells that are connected to sales lines are on restricted choke and have not been producing at full capacity.” In a recent press release, Chevron added its two cents, warning investors of depressed first-quarter earnings thanks in part to weather-related downtime.
But after a harsh winter, the energy industry — and, in particular, oilfield services companies like Halliburton (NYSE:HAL), Schlumberger (NYSE:SLB), and Baker Hughes (NYSE:BHI) – appears to be gearing up for a strong second quarter. The optimism, championed by analysts like Stephen Gengaro at Sterne Agee, is due largely to the idea that there’s pent-up demand in the market thanks to the winter slowdown.