Keane’s value drivers: Upstream capex and crude oil
From 2Q16 to 3Q16, some of the major US upstream and integrated companies’ falling capex moderated, as crude oil prices started to recover in 2016. Since March 2016, crude oil prices have recovered 55%. Many of these companies have started to increase their 2017 capex budget. Read Market Realist’s Inside the Permian Pie: Why E&P Players Are Snatching up Slices to learn more.
In the past couple of years, these upstream companies slashed capital expenditure, following crude oil price’s sharp decline. From June 2014 to February 2016, crude oil prices fell 72%. Lower upstream capex resulted in lower prices for OFS companies’ services and products, which reduced OFS companies’ operating revenues and margins. In 9M16, Keane Group (FRAC) recorded an operating loss, led by lower prices for its hydraulic fracturing fleet.
US rig count and its effect
The US rig count reached its multiyear high in September 2014 and then dropped sharply led by the crude oil price fall. From September 30, 2016, until the week ending January 27, 2017, the US rig count recovered ~36% to close at 712. A higher US rig count could increase oilfield equipment and service providers like Halliburton’s (HAL) and Schlumberger’s (SLB) revenues and earnings in 2017. Higher crude oil prices have driven higher US rig counts. An overall improvement in the energy market scenario, led by the crude oil price recovery, has prompted Kane Group’s management to come out with the IPO. SLB is 0.6% of the SPDR S&P 500 ETF (SPY).
We’ll discuss Keane Group’s revenue and earnings next.