Oilfield services firms see tough Q3 despite higher oil prices

Wall Street is trimming third quarter forecasts for oilfield services companies who are struggling as oil companies continue to pressure their suppliers to reign in costs.  Anadarko photo.

Oilfield services companies showing weakness in well completions

Oilfield services companies in the United States will post their third quarter results in the coming weeks.  A shaky recovery in the oil market and customers dealing with drilling constraints and pressures to cut spending, have prompted Wall Street to trim earnings forecasts for a number of firms.

This comes when oil prices are near four-year highs.  But, oil companies are holding off finishing new wells at a time when oilfield services companies are facing cost pressures associated with a tight labour market and Trump administration tariffs on imported steel are driving up costs for the companies.

“The risk for a number of (oilfield service) firms is to the downside,” Brad Handler, a Jefferies equity analyst in New York told Reuters.

According to Reuters, shale producers Devon Energy and Oasis Petroleum are doing more work that has traditionally been done by the service firms.

As well, oilfield services companies are doing less well completion work, which in the past, had carried the companies as they waited for offshore drilling work to return.

The Permian Basin pipeline bottlenecks have impacted oilfield services companies in the region.  According to Reuters, fracking well completions and tying into pipelines makes up about 60 per cent of onshore well expenditures, but producers are holding off completions until new pipelines open up in 2019.

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

In the Permian, the number of active hydraulic fracturing spreads or fleets is down to 172 from 192 earlier in the year.  Data from Primary Vision also shows that these fleets active across the United States have dropped to 460 from 480.

“Lower utilization and increased completion efficiencies is creating more slack in the system, with pressure pumpers most at risk heading into year end,” according to a note Barclays.

Analysts from Bernstein say they expect the market to bottom early in 2019.  Colin Davies, a senior analyst for Bernstein wrote in a note “There is still risk of further declines as we approach winter and roll into the new E&P (exploration and production) budget cycle.”.

Schlumberger is reporting its third quarter results on Friday.  Reuters reports that the company is expected to report a profit of 47 cents per share, up from 39 cents per share at this time last year.

Meanwhile, Halliburton is forecast to post a profit of 49 cents per share.  In the third quarter of last year, Halliburton paid out profits of 42 cents per share.