Oil giants hold profits while service backlogs swell amid cautious spending

Major oil operators continue to accumulate record levels of profit yet maintain a restrained approach to capital expenditure, despite emerging indications that demand for services may soon outstrip supply. While supermajor companies report multi-billion dollar earnings and reduce their debt burdens, they are selectively choosing projects rather than increasing overall investment flows. Conversely, certain service sector firms are witnessing a significant expansion in their work backlogs as operators secure future capacity without immediately committing to full-scale operations.

BP recently disclosed that profits attributable to shareholders reached $7.8 billion for the first half of the year, representing an increase from $2.3bn recorded during 2025. This improvement was driven by higher refining margins and elevated liquid prices. Although production volumes fell by six per cent compared to previous periods, BP managed to enhance returns to its shareholders through a four per cent boost in dividends and debt repayment strategies. Similar financial discipline is evident across the industry at TotalEnergies, Shell, Equinor and Eni. The Italian and Norwegian entities have pledged commitments towards share buybacks, while the French company emphasised a strategy focused on deleveraging.

These energy giants are primarily concentrating efforts on optimising existing operational assets rather than pursuing expansionary projects. Mergers and acquisitions activity has remained limited thus far, with Shell being a notable exception due to its multi-billion dollar investment in Canada. However, even this substantial transaction served as an addition to liquefied natural gas facilities rather than entry into entirely new geographic areas.

Service companies have not experienced the same magnitude of revenue growth reported by producers. Halliburton described its performance through incremental improvements and a consistent emphasis on returns alongside capital discipline. Schlumberger noted that results were solid but issued warnings regarding potential revenue reductions in the third quarter should significant escalation occur in the Middle East region, estimating this could impact revenues by $150m.

Concerns are also mounting within North American shale operations where Halliburton reported flat international revenue growth while operating income halved. Helmerich & Payne posted a net loss for the first half with its North American operating income reduced significantly. Baker Hughes diverged from this trend partly due to an increased focus on gas transportation and infrastructure, areas increasingly relevant given global energy security concerns.

Despite a dip in second quarter revenues, orders rose by 49 per cent year-on-year at Baker Hughes. The company reported a book-to-bill ratio of 1.6 for the period with industrial and energy technology reaching 2.2, validating its acquisition strategy involving Chart Industries and betting on infrastructure over drilling.

Saipem presented mixed results although management highlighted increased tendering activity from 2025 onwards. Executives indicated that offshore drilling rates showed positive signs while some clients had postponed activities. Offshore construction remained favourable according to the company. Alessandro Puliti of Saipem remarked that converting activity into higher margins must be balanced against strong client bargaining power, noting that winning a tender grants negotiation rights rather than immediate work commencement.

Seismic data serves as an indicator for industry health with Viridien reporting oil and gas revenue down 46 per cent year-on-year in the quarter due to Middle East impacts. Nevertheless, its backlog increased by 19 per cent over six months through contracts from international operators and national companies across various regions.

TGS reported first half revenues falling five per cent yet second quarter figures showed growth driven by multi-client sales with a significant backlog increase of 78 per cent year-on-year. The pattern persists where revenue declines coincide with rising backlogs as service firms queue up future work despite current activity slumps.

Industry leaders anticipate better conditions ahead with SLB forecasting higher service intensity particularly in well intervention alongside increased equipment demand and infrastructure repair needs. Saipem suggested possibilities of recovering extra costs from clients following disruptions while acknowledging that some additional expenses such as vessel premiums will persist temporarily. The shadow cast by Middle East conflicts creates opportunities for operators to negotiate tighter terms though supply tightness remains a consideration.

The risk involves market instability should geopolitical resolutions flood supplies or if US shale dynamics shift unexpectedly. Operators are securing seismic surveys and tendering offshore contracts while maintaining closed chequebooks, allowing service companies to accumulate backlogs without immediate revenue conversion. This strategy reflects rational caution given potential future supply crunches or gluts but relies on tenders converting into actual drilling projects before financial pressures mount.

One party will ultimately be incorrect regarding market timing as operators prefer options over obligations until certainty is achieved.