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Key themes of the Big 3 oilfield service companies

Part 6
Key themes of the Big 3 oilfield service companies (Part 6 of 8)

Larger oilfield service firms will likely outperform small names

Larger oilfield service companies are more able to provide technological advantages

The large-cap OFS names such as Baker Hughes, Schlumberger, and Halliburton have the scale to develop and implement new technologies more easily than their smaller competitors. This is especially beneficial to the large caps, as recent drilling trends have called for more advanced techniques (think horizontal drilling, intensive fracking, and long well laterals).

BHI Horizontal vs Vertical Rig CountEnlarge Graph

Companies believe technology will be instrumental in gaining market share and commanding higher margins

The major OFS names have also commented that technology would be an advantage for them. The CEO of Baker Hughes commented:

  • “Overall, international operations are trending in the right direction and are expected to continue solid profitable growth in 2014 as recent contract wins take hold and the demand for high-end technology products and services continues to grow. Around the world, we are leveraging our strength in technology development to drive growth and profitability. Today, we continue to accelerate the pace of innovation by developing technologies to specifically address three of the industry’s key challenges: increasing well complexity, optimizing drilling efficiency and improving ultimate recovery… there is an increasing appetite for technology. The heat’s on in terms of getting EURs up (total production from a well), getting the initial production rates up, getting those incremental efficiencies per pad… The whole combination falls under our wheelhouse very well… given the rollout of technology… I expect margins there will definitely track north.”

Schlumebrger stated on its call that it was seeing “highly competitive pricing on basic services and slow-but-steady activity growth… for new technology,” and that it could command a premium for new technology as well.

Plus, Halliburton commented that the introduction of new technologies in its Latin American segment would allow it opportunities to upsell.

All three companies also discussed specific technologies that they believed would help upstream energy producers in developing unconventional resources.

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