Gains From Higher Rig Count Limited For Halliburton, Schlumberger

Gains From Higher Rig Count Limited For Halliburton, Schlumberger
An increase in rigs being put back to work in US shale fields is largely being driven by smaller oil companies.

Reuters

Oct 20 (Reuters) - An increase in rigs being put back to work in U.S. shale fields is largely being driven by smaller oil companies drilling less-complex wells that don't need costly, high-tech services offered by industry leaders such as Halliburton Co.

The upshot?

Halliburton and larger rival Schlumberger NV's gains from the rise in rig count is expected to be limited in the short term as smaller oilfield services companies such as RPC Inc swoop in to fill the gap.

Large oilfield services providers are typically hired by big oil companies that want to drill faster and frack wells intensively with more fluids and sand and multiple frack stages to boost production.

"We saw a trend of less service-intensive wells, which is not activity typically worth chasing at today's pricing," Halliburton Chief Executive David Lesar said on its post-earnings call on Wednesday.

Halliburton, which now has the highest market share in the United States, reported a surprise quarterly profit on Wednesday, helped mainly by steep cost cuts. Schlumberger is scheduled to report results after market close on Thursday.

With U.S. oil prices up nearly 40 percent so far this year, the U.S. oil rig count has not fallen for 16 weeks in a row - the longest streak since 19 weeks in 2011 - according to data from oil service firm Baker Hughes Inc.

Smaller oil producers were "first-movers on the crude price recovery, creating a 'bubble' of shale activity not conducive to Halliburton from a pricing perspective," said James West, partner at investment firm Evercore ISI.

These companies tend to drill as cheaply as they can, deploying so-called "low-calorie" rigs, which are mostly vertical rigs and are less sophisticated.

More than 60 percent of the 180 rigs that have been added to the U.S. rig count since it bottomed in May were contracted by privately held companies, West said.

Smaller Is Better

"I think RPC will continue to gain market share in the near term," said Wolfe Research analyst Chase Mulvehill, who expects Halliburton to take back market share in early 2017 as bigger oil producers put more rigs back to work.

Five of 21 analysts covering RPC have revised their third-quarter earnings per share estimate in the past 30 days, by an average of 6.5 percent. The company is expected to report results on Oct. 26.

Smaller rival Superior Energy Services Inc is also expected to gain, although the company's customer base is more diverse than RPC's.

The rigs being deployed are "less about big new capital programs and more around repairing or trying to sustain a bit of production," Halliburton President Jeffrey Miller said on Wednesday.

Halliburton's revenue from North American operations rose 9 percent in the third quarter, the first increase in seven quarters, but lagged the 14 percent rise in total U.S. rig count. The company said it expects its revenue to match the growth in rig count in the fourth quarter.

Schlumberger's North America revenue is also likely to "slightly lag" the rig count, said Bill Costello, a portfolio manager at Westwood Holdings Group.

North America accounted for about a quarter of Schlumberger's total revenue in the second quarter.

(Reporting by Swetha Gopinath in Bengaluru; Editing by Sayantani Ghosh)

Copyright 2016 Thomson Reuters. Click for Restrictions.

WHAT DO YOU THINK?

Click on the button below to add a comment.
Post a Comment
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

Events  SUBSCRIBE TO OUR NEWSLETTER

Our Privacy Pledge
SUBSCRIBE



Most Popular Articles

From the Career Center
Jobs that may interest you
Oil and Gas job opportunity for "Big 4" Trained Auditors
Expertise: Accounting
Location: Houston, TX
 
Project Manager
Expertise: Project Management
Location: Houston, TX
 
Project Accountant
Expertise: Accounting
Location: Nashville, TN
 
search for more jobs

Brent Crude Oil : $53.89/BBL 1.67%
Light Crude Oil : $50.84/BBL 2.14%
Natural Gas : $3.7/MMBtu 2.77%
Updated in last 24 hours