Continued strong performance expected for multi-service providers of oilfield services for balance of 2011 and 2012, while offshore drillers see measured, but steady growth
Continued strong oil prices, combined with rising exploration and production (E&P) budgets worldwide, are driving robust demand for oilfield services in North American unconventional oil and gas shale plays, as well as in international arenas. In particular, strong demand in Latin America, South America, the Middle East and West Africa is expected to continue through the balance of 2011 and 2012, says a special study from IHS (NYSE: IHS), a global source of information and analysis.
“The generally strong 2010 financial performance for the six, multi-service providers of oil field services continued in the first half of 2011, largely driven by rising oil prices and unconventional oil and gas drilling in North America,” said John Parry, senior analyst at IHS, and author of the IHS Herold Special Study on the Oilfield Services Sector. “The moratorium on drilling in the Gulf of Mexico limited, but did not stall, what was otherwise a nice recovery compared with 2009 to 2010. Accordingly, operating margins for the group have exhibited a steady upward trend, which began in 2009.”
The six companies in the multi-services sector include Baker Hughes, Cameron International, National Oilwell Varco, Halliburton, Schlumberger and Weatherford.
“The shortage of pressure-pumping capacity for multi-stage fracturing is likely to ease in 2012, which may soften margins for these services, but the companies in this sector continue to be bullish on markets outside of North America, with Latin America, South America and the Middle East considered particularly robust,” added Parry. “Other areas of demand are in the North Sea, West Africa and Southeast Asia.”
In addition, recent mega-mergers and acquisitions in the sector appear to be paying off for companies such as Schlumberger (Smith), Baker Hughes (BJ Services), and Ensco (Pride). “These deals, which total about $25 billion, have made them even more competitive,” he said.
As for the financial performance of offshore drillers, Parry said: “This segment continues to feel the effects of the Gulf of Mexico moratorium and the competition from new rigs entering the market, which is related to the major reinvestment cycle that has been underway since 2007. This is reflected in the 10% revenue slide in the first half of 2011 for this group. However, this figure is somewhat improved from the 15% revenue drop in 2010, and there is an encouraging sign in the sequential improvement in operating profit margins for the first half of 2011.”
This group includes Diamond Offshore, Ensco, Noble Corp., Rowan and Transocean. Despite the slower growth, offshore drillers are optimistic that the hefty reinvestment cycle in high-specification, high-performance rigs currently underway will begin to pay off in 2012 and beyond, fostered by expanded drilling into new deepwater basins. Ensco, Noble Corp. and Rowan, Parry noted, will likely benefit most from these additions.
Source: IHS
