Oil service firms face pressures

Source:Reuters-Global Times Published: 2018/10/17 18:18:40

Wall Street trims earnings forecasts for oilfield leaders

Even as crude prices hover near four-year highs, US oilfield service firms' third-quarter results due out in coming days will reflect a shaky recovery, as their customers face drilling constraints and pressure to hold down spending.

Oil producers are holding off finishing new wells, and cost pressures from tight labor markets and US tariffs on imported steel are driving up service firms' costs.

Meanwhile, shale producers including Devon Energy Corp and Oasis Petroleum Inc are doing more work that was traditionally handled by service companies.

The west Texas drillers that drove the shale revolution have overwhelmed the region's infrastructure with oil production driving up costs, depressing regional oil prices and slowing the pace of production growth.

"The risk for a number of (oilfield service) firms is to the downside," said Brad Handler, a Jefferies equity analyst in New York who follows the oilfield service sector.

Wall Street is trimming earnings forecasts for oilfield market leaders' Schlumberger NV and Halliburton Co, and for pressure pumper Keane Group Inc and sand provider US Silica Holdings Inc. Schlumberger kicks off third-quarter reporting by the sector on Friday.

The cuts are coming despite third-quarter oil prices that are up more than 40 percent year-on-year.

Schlumberger is expected to report a profit of 47 cents a share, up from 39 cents a share, in the same quarter a year ago, according to Refinitiv I/B/E/S. Halliburton's per share profit is expected to be 49 cents, compared with 42 cents a year ago.

Weakness in completing wells is worrisome because such services have carried the day for firms still waiting for offshore drilling to pick up.

Completing a well by fraccing and tying it to pipelines represents about 60 percent of onshore well expenditures. With producers holding off completions until new pipelines start up next year, there is less demand for services.

"The market for frac spreads is very soft, below even what we started in 2018," Bill Thomas, chief executive of EOG Resources Inc, told investors at a New York conference last month.

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