North America Still Weighs on Oilfield Services Profits
HOUSTON (Dow Jones Newswires), Jul. 20, 2009
Oilfield service companies are facing a persistently tough North American market, where low natural gas prices have undermined demand for services.
Weatherford International Ltd. (WFT) second-quarter earnings fell 89%, with results missing analysts' expectations as international growth failed to offset a steep drop in North American demand. Halliburton Co.'s second-quarter earnings fell 48% on weak demand and lower prices, particularly in North America.
The company earnings show how low natural gas prices have rattled oilfield service companies even as oil prices helped bolster their international operations.
Big declines in Canadian drilling took a toll on Weatherford earnings. The company has more exposure to the Canadian market than any of the other large services companies.
The Canadian gas market has suffered as much as the U.S. gas market amid booming production and low demand resulting from the economic downturn. U.S. gas futures have plunged more than 70% from last summer when prices peaked above $13 a million British thermal units.
"The North American natural gas story is a pretty homogeneous story, and that story is: there is too much gas," said Bill Herbert, an analyst with Simmons & Co. in Houston.
Natural gas producers have responded to the steep price declines by throttling back drilling activity to curb gas flows into what has become an oversupplied marketplace.
The number of rigs drilling for natural gas in the U.S. has fallen by more than half from a the same time last year, according to oilfield services company Baker Hughes. The Canadian gas rig count stands at 62, a decline of 73% from a year ago.
Weatherford executives said the drilling activity declines in Canada were far worse than they expected. The second quarter was difficult in the U.S., but "horrifically so in Canada," Bernard J. Duroc-Danner, chief executive of Weatherford, said Monday during a conference call.
Halliburton's Canadian operations represent only 3% of its total revenues. Still, the company reported that North American revenues fall 25% from the previous quarter. However, The company's revenue per rig climbed as natural gas producers focused on drilling operations in gas fields known as shales.
Shales are dense rock formations that contain huge amounts of gas. The fields - like the Barnett Shale in North Texas - are more difficult to exploit, requiring companies to drill into the rock and break it up in order to release the gas trapped inside.
Production from shales has helped ratchet up domestic gas production. But this increase is also contributing to a grim outlook for oilfield services for 2009.
"The continued weakness in demand and the likelihood that working gas storage will reach record level makes it unlikely that we'll see any recovery during the remainder of this year," David Lesar, chief executive of Halliburton, said Monday during a conference call.
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