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Dan Dicker

Dan Dicker

Dan Dicker is a 25 year veteran of the New York Mercantile Exchange where he traded crude oil, natural gas, unleaded gasoline and heating oil…

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Little To No Value In Oilfield Services Yet

I’ve got deadlines – and a new set of columns to be written about the energy space every week. These days that’s tough, because there’s so little to like in the energy sphere, even as the stock averages hover near to index highs. More bad news surfaced today in the oil services sector, making the big services companies like Schlumberger (SLB), Halliburton (HAL) and particularly Helmerich and Payne (HP) difficult places to find value.

With the rig count drop, we haven’t yet seen a major drop in production – but activity is certainly way down. That impacts the oil services companies most, and it’s not just in the shale players that we find that kind of distress. Recent predictions in other areas of oil production have been dropping equally strongly, as in oil sands production in Canada. Just take a look at this small chart of what was expected in Canadian production as of June 2014 as opposed to what is the new reality of expectation now:

We could look at lots of other places as well to see the collapse of oil services activity in other oil areas, including offshore in Brazil and domestically in Venezuela, but the point is clear: There’s going to be a smaller pool of work for everyone.

This has expressed itself in a free-for-all of pricing discounts for the remaining rigs onshore and offshore that are going to be working through 2015 and into 2016. If you want to keep clients, you’re going to have to compete on price – it’s as simple as that. Here’s a quick look at the comparative indexes of costs associated with drilling, support and sand/cement services through early 2015, and things are only going to get worse from here:

I couldn’t recommend even the most conservative play in oil services here, despite the fact that an oil price recovery will likely help the services companies first, even before the producers themselves. Someone like Schlumberger even, having rallied with oil from a share price of $80 to near $90 today is extremely susceptible to a drop below its 52-week lows as these price indexes get squeezed further – and they will be.

Even worse would be an onshore frack specialist like Helmerich and Payne, once the company of choice for a fast growing US oil fracking environment. HP was known to have the ‘special sauce’ for efficient gel fracs of Eagle Ford and Permian wells and virtually doubled in price from 2013-2014 to close to $120 a share. Even having lost half it’s value since June 2014, I’m still not ready to jump back into this admittedly ‘best of breed’ oil shale specialist.

I know, you’re tired of hearing this from me, but again this is the theme I’m delivering: Now is not the time to be aggressive into oil stocks – including the oil services.




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