OFS companies’ net debt-to-equity ratios
In this series, we’ll analyze the five OFS (oilfield equipment and services) companies with the highest net debt-to-equity ratios in the industry in the first quarter. Our list of OFS companies excludes offshore drillers. We’ve also only analyzed companies with market caps of over $100 million.
Net debt-to-equity is a measure of a company’s financial leverage. It’s calculated by dividing the company’s net debt by its stockholders’ equity. Net debt is the sum of a company’s short- and long-term debt less its cash and cash equivalents.
Net debt-to-equity represents the level of risk associated with a company’s funding. Typically, the higher the ratio, the more financial risk the company has. A highly leveraged company is more vulnerable to sudden operational distress, such as an increase in interest rates or an adverse change in the economy impacting its ability to repay debt—or even to pay interest on debt. Such situations can trigger a highly leveraged company to file for bankruptcy.
The five OFS companies with the highest net debt-to-equity ratios
As we can see in the graph above, Key Energy Services (KEG) had the highest net debt-to-equity ratio as of March 31. KEG is an onshore rig-based well-servicing contractor.
Core Laboratories (CLB), which provides reservoir description, production-enhancement services, and products to energy producers, has the second-highest net debt-to-equity ratio among OFS companies.
Nabors Industries (NBR) ranks third. NBR provides drilling and drilling-related services and technologies to onshore and offshore upstream energy companies.
Halliburton (HAL) places fourth on the list. Halliburton is the second-largest OFS company by market cap.
Schlumberger (SLB) places fifth on the list. It’s also the largest OFS company by market cap. Read about a comparison of HAL with Schlumberger in Market Realist’s Schlumberger and Halliburton Compared to the Industry.
A comparison with the industry
Four of the five most leveraged OFS companies had net debt-to-equity ratios that were significantly higher than the OFS industry average as of March 31. The average net debt-to-equity ratio in the OFS industry was 0.31 on the same day. SLB’s ratio was higher than—but still the closest to—the industry average.