Seventy Seven Energy’s oilfield trucking and rental businesses

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Oilfield rentals

Seventy Seven Energy’s (SSE) oilfield rentals segment provides rental tools and services for drilling, completion, and other activities for land-based oil and natural gas producers. It offers its services in some of the most prolific oil and gas resource regions, like the Anadarko and Permian basins and the Eagle Ford, Haynesville, Marcellus, Niobrara and Utica shales.

Revenues from rentals, trucking and others

SSE’s revenues from the oilfield rental business for 2013 decreased 32% to $160.2 million from $234.4 million in 2012. This decrease was mainly a result of Chesapeake’s reduction in drilling and completion activity. Use of SSE’s tools and services typically correlate with CHK’s drilling and completion activity.

Plus, oilfield rental operating margin also decreased due to pricing pressure for certain services.

Trucking fleet

SSE also inherited from CHK an oilfield trucking fleet. As of March 31, 2014, its oilfield trucking segment consisted of 260 rig relocation trucks, 67 cranes and forklifts to move drilling rigs and other heavy equipment, and 246 fluid hauling trucks.

In 2013, SSE’s revenues from its oilfield trucking business increased 8% to $244.1 million from the $226.1 million recorded in 2012 as its crude hauling fleet expanded. Specifically, fluid handling services revenues increased due to CHK’s increasing activity in liquids-rich plays.Operating margin-rental, trucking and other

Operating margin in the SSE’s trucking business decreased due to higher labor costs as a result of a competitive market for trucking labor.

Analysts expect that the capacity constraints in the midstream segment of the oil and gas industry will help SSE grow its trucking business fast.

Other operations

SSE has other operations, including a natural gas compression unit, a related oil and gas production equipment manufacturing business, and corporate functions.

SSE has been selling its natural gas compressors. In 2013, it sold compressors with total horsepower of ~138,000. Un 2012, it sold compressors with a total of 130,000 horsepower.

Future opportunities

SSE entered into non-metallic mineral mining leases at sand mining sites in Wisconsin. The company expects to complete the construction of a frac sand facility by 2016.

Key investments

CHK is a component of the Energy Select Sector SPDR (XLE). Other companies operating in the oilfield service business include Basic Energy Services, Inc. (BAS), Precision Drilling Corporation (PDS), and Pioneer Energy Services Corp. (PES).

Comparative analysis

For a comparative analysis of SSE and its peers, please read on to the next part of this series.

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