Comparing debt profiles
Net debt is the total debt less cash, cash equivalents, and short-term marketable securities. In this part, we’ll analyze the net debt for our four large market cap OFS (oilfield equipment and services) companies as of September 30, 2017. The companies include Schlumberger (SLB), Halliburton (HAL), Baker Hughes, a GE company (BHGE), and National Oilwell Varco (NOV).
Schlumberger’s 9M17 net debt growth
As of September 30, 2017, Schlumberger’s net debt growth was the highest among our set of OFS companies. Its 9M17 total borrowing decreased 19% over a year ago. However, Schlumberger’s cash and marketable securities decreased 54% during the same period, which more than offset the total debt’s fall. The net debt increased 16% in 9M17—compared to 9M16. Schlumberger accounts for 3.4% of the SPDR S&P Oil & Gas Equipment & Services ETF (XES). XES fell 21% in the past year—compared to a 12% dip in Schlumberger’s stock price during the same period.
Halliburton’s net debt
As of September 30, 2017, Halliburton’s net debt increased marginally over September 30, 2016. In 9M17, although Halliburton’s total debt decreased 11% over a year ago, its cash and marketable securities decreased 42% during the same period. The net debt was nearly at the same level on September 30, 2017—compared to the net debt on September 30, 2016.
Baker Hughes’s net debt
In 9M17, Baker Hughes’s net debt was $128 million—compared to -$714 million in 9M16. Baker Hughes’s 9M17 total borrowing increased 62% over the past year, while its cash and marketable securities’ increased 28%. On September 30, 2017, the cash and equivalents include $1.27 billion of cash held on behalf of General Electric (GE) following Baker Hughes’s merger with General Electric’s oil and gas business. A corresponding liability was reported in the short-term borrowings. As a result, the net debt turned positive in 9M17.
National Oilwell Varco’s net debt
National Oilwell Varco’s total debt declined marginally in 9M17—compared to 9M16. Its cash and marketable securities increased ~13% during this period. So, National Oilwell Varco’s net debt decreased ~12% in 9M17—compared to 9M16.
Next, we’ll compare these OFS energy stocks’ relative valuation multiples.