What Lies Ahead For Oilfield Service In Q3 Earnings?
Zacks Investment Research | Oct 15, 2019 11:43PM ET
Investors will get a brief idea of how oilfield service firms might have fared in the recently completed third quarter from Schlumberger Limited’s (NYSE:SLB) earnings announcement, scheduled for Oct 18.
Although a weak oil pricing scenario and conservative capital spending by U.S. explorers might have acted as headwinds in the quarter, rising rig count in international markets may have lent support.
Oilfield Service Business Overview
Oilfield service players offer technologies to oil and natural gas drillers for efficient drilling and setting up of wells. Among the services offered are manufacturing and mending of equipment that are utilized for extracting crude from wells.
Notably, drillers are now specializing in horizontal or angled drilling since explorers and producers are not finding it profitable to employ vertical drilling techniques to many wells. Oilfield service firms help explorers drill horizontal wells more efficiently.
Overall, the fate of all oil service firms is positively correlated to crude prices and also to the capital investment decisions of drillers.
Unfavorable Q3 Oil Price
Per the U.S. Energy Information Administration (EIA), average prices of West Texas intermediate (WTI) crude for the first two months of the September quarter were recorded at $57.35 per barrel and $54.81 per barrel, respectively. In comparison, average prices of the commodity were recorded significantly higher at $70.98 per barrel and $68.06 per barrel, respectively, in the first two months of third-quarter 2018. The last month of the September quarter also witnessed a steep decline in WTI oil price.
The significant year-over-year fall in Q3 oil price reflects that global economic slowdown and the prolonged U.S.-China trade war have hurt energy demand.
Conservative US Spending
Domestic explorers and producers started 2019 with a conservative capital budget as they witnessed massive crude downturn during the fourth quarter of 2018. Moreover, U.S. explorers are more bothered about bottom-line growth than oil and gas production. Hence, continued conservative spending by explorers and producers is likely to have hurt demand for oil service firms in the to-be-reported quarter.
Meanwhile, the count of oil drilling rigs in the international market has considerably increased year over year in each of the three months of third-quarter 2019, per data provided by Baker Hughes, a GE company (NYSE:BHGE) . This reflects robust oilfield service activies in markets outside North America.
Permian Bottleneck
We also need to consider the pipeline bottleneck problem in the Permian to forecast results for the oilfield service players in the recently completed third quarter. This is because among all U.S. shale plays, Permian has been mainly contributing to the nation’s oil production boom.
Hence, the constraint in transportation capacities in the prolific basin has slowed down drilling operations. This has also likely affected domestic oilfield service demand in the September quarter of 2019.
3 Biggest Oilfield Service Giants Unlikely to Beat Estimates
Our proven model does not conclusively predict an earnings beat for oilfield service bigwigs, Schlumberger Limited,Halliburton Company (NYSE:HAL) and Baker Hughes, a GE company, this time around. The combination of a positive Zacks Investment Research
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