Oil price concerns could affect oilfield service companies soon



Rig service companies have mixed sentiments

In the previous parts of this series, we discussed rig count activity in US onshore and offshore fields. In this part, we’ll review the major oilfield service companies’ outlook on the US market.

Onshore vs Offshore YTD

Article continues below advertisement

Management’s views

In corporate releases related to 3Q14 earnings, companies that service rigs—Schlumberger Limited (SLB) and Baker Hughes Incorporated (BHI)—were cautiously bullish about US drilling activities for the rest of the year.

In its latest earnings press release, Baker Hughes said, “We project the U.S. onshore well count will continue to modestly increase into the fourth quarter as we expect the holiday period slowdown to be less pronounced than prior years.”

Meanwhile, falling oil prices have stirred the oilfield equipment and servicing industry. On November 17, Baker Hughes (BHI) signed a definitive agreement to merge with Halliburton (HAL). If the deal goes through, it will be the biggest deal in this industry so far. The agreement may also mark the beginning of a consolidation trend in this industry. Read Market Realist’s series Baker Hughes-Halliburton: A critical deal for the oil industry to learn about the deal in detail.

Article continues below advertisement

In its 3Q14 press release, Schlumberger, the largest US oilfield equipment and servicing company, didn’t specifically disclose its outlook for US rig activity. It did, however, express concern about the energy oversupply. The company said, “Market sentiments are currently driven by short-term oversupply due to the continued growth in North America production.”

Transocean Ltd. (RIG) is an offshore oil drilling company. It recorded a ~$2.6 billion impairment charge in 3Q14. This was due to a “decline in the market valuation of the company’s contract drilling services business.” In effect, declining crude oil prices prompted the impairment charge.

Key stocks and exchange-traded funds (or ETFs)

Land-based rig counts can gauge land-based upstream energy companies’ activity levels. These companies include Devon Energy Corporation (DVN) and Cabot Oil & Gas (COG). Some of these companies are part of the Energy Select Sector SPDR ETF (XLE).


More From Market Realist