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Will Upstream Operators’ Capex Impact Tidewater’s Margin?

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Upstream operators’ capex cut

In the past few years, some major US upstream and integrated companies reduced their capex following the sharp fall in crude oil prices. From 3Q15 to 3Q16, 19 of the most prominent names in this space slashed their capex 41%. Lower upstream capex resulted in lower prices for OFS (oilfield equipment and services) companies’ services and products, which reduced OFS companies’ operating revenues and margins.

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From 2Q16 to 3Q16, these companies’ capex fell 11% as crude oil prices started to recover in 2016. Many of these companies have started to increase their 2017 capex budget. Read ExxonMobil Preps Its Upstream Portfolio: A Company Update to learn more. Higher capex on energy drilling and production can lead to improved margins for OFS companies going forward.

Tidewater’s EBITDA margin

As you can see in the above graph, Tidewater’s (TDW) EBITDA (earnings before interest, tax, depreciation, and amortization) margin was severely affected as upstream companies slashed the budget and re-negotiated contracts with Tidewater. From fiscal 2Q16 to fiscal 2Q17, Tidewater’s EBITDA margin fell from ~23% to 8.2%. The EBITDA margin is a measure of a company’s operating earnings. Tidewater accounts for 0.03% of the iShares Micro-Cap ETF (IWC).

EBITDA margin for Tidewater’s peers

Fairmount Santrol Holdings’ (FMSA) EBITDA was -3.8% in 3Q16, while Halliburton’s (HAL) EBITDA margin was ~13%. National Oilwell Varco’s (NOV) EBITDA margin was -2.3% in 3Q16.

Next, we’ll discuss Tidewater’s implied volatility.

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