Oilfield service companies skeptical about rig activity
As crude oil price recovers, could the US rig count plateau? (Part 8 of 11)
Rig service companies express concerns
Previously in this series, we looked at the rig count activity in US onshore and offshore fields. In this part, we’ll review the major oilfield service companies’ outlook for the US market.
Management views
Schlumberger (SLB) is the largest oilfield equipment and servicing company. In a corporate release related to its 4Q14 earnings, Schlumberger was cautious about 2015 US drilling activities. Crude oil prices are clearly a concern for oilfield service companies.
Schlumberger’s (SLB) management stated, “In response to the falling oil prices, the industry is currently in the process of significantly reducing E&P investments which will lead to a reduction in supply as declining rates impact current production capacity and lower exploration and development activity delay supply additions.”
Halliburton (HAL), another oilfield giant, was more forthright about the uncertainty the energy industry faces moving into 2015. It says upstream companies will renegotiate contract terms with oilfield service companies, which may cause HAL’s revenues to fall. Its management stated, “price discount discussions with customers did begin in the fourth quarter and have accelerated over the past several weeks. And price reductions are now occurring across all product lines.”
Many upstream companies have already reduced their 2015 capex (capital expenditure) budgets.
Schlumberger update
In 4Q14, Schlumberger (SLB) recorded a pretax $1.7 billion asset impairment charge precipitated by the crude oil price decline. Schlumberger (SLB) makes up 19.2% of the Market Vectors Oil Services ETF (OIH) and 6.9% of the Energy Select Sector SPDR ETF (XLE).
Industry consolidation
Meanwhile, falling crude oil prices have stirred things up in the oilfield equipment and servicing industry. On November 17, 2014, Baker Hughes (BHI) signed a definitive agreement to merge with Halliburton (HAL). If it goes through, it will be the biggest deal ever in the industry. The agreement may also mark the beginning of a consolidation trend in the industry. For more on this topic, read Analysis of the Baker Hughes and Halliburton transaction.
Transocean update
At a recent industry conference, Transocean (RIG) described the challenges ahead for the offshore drilling market. It believes customers are holding back or deferring plans to spend on exploration. Lower offshore drilling activity, or lower demand, is resulting in an oversupply in the ultra-deepwater drilling industry.
Browse this series on Market Realist:
