Investors cautious ahead of oil field services second-quarter results

Investors are eyeing oil field services companies carefully as some of the biggest players in the sector prepare to release second-quarter financial results amid signs of weaker-than-expected activity in the U.S. and a cautious outlook for the rest of the year.

Houston-based Baker Hughes and Schlumberger, the world’s largest oil field services firm with main offices in Houston, Paris and the Hague, are set to report results for the April-June quarter on Friday.

Halliburton, Nabors Industries and Cameron International report results next week, followed by Swiss drilling contractor Transocean in early August.

Nabors raised some concerns last week when it said its second-quarter earnings would fall short of Wall Street expectations. It cited weakness in its rig services and completion and production services units, and said it could suffer more bumps in the road if activity remains stagnant.

Several trends are affecting oil field services companies, especially in the U.S.

Some rigs are becoming more efficient, allowing operators to get more work out of each one.

Well counts: Oil field service companies benefiting from increased well productivity

Also, demand for domestic onshore rigs has dropped along with drilling activity because of low U.S. natural gas prices, though the decline has been tempered somewhat by demand for onshore rigs in shale plays.

Offshore, demand has remained strong amid steady or higher oil prices. Companies with international exposure also have benefited.

Shares of Schlumberger, Baker Hughes, Halliburton, Cameron and Transocean were flat to slightly up since Nabors’ announcement Tuesday. Nabors’ stock dropped 8 percent since then, closing Friday up 20 cents at $14.80.

Nabors is a major land rig contractor and, therefore, is particularly exposed to negative trends in the land rig count in the U.S.

Just a brush-off?

Shareholders of other companies seem to be holding on to see what the second half of the year will look like. Tudor, Pickering, Holt & Co. said in a research note Thursday that the muted market reaction to Nabors’ news amounted to a “relatively impressive brush-off by the group.”

“A number of other service companies have made similar comments,” the note to clients said. “So maybe (it’s) already factored into investor mindset or maybe investors like us just don’t think there’s visibility to make a call either way.”

Services companies gave investors plenty to contemplate in the second quarter.

In April, Schlumberger announced a $90 million deal for a 50 percent stake in Denver-based Forest Oil Corp.’s Eagle Ford Shale play, which analysts saw as an opportunity for Schlumberger to showcase its technology.

Rigs in Mexico

The following month, Halliburton warned investors that its second-quarter operating profit margin would be hurt by a decline in rigs working in Mexico.

Morningstar analyst Stephen Ellis said in a research note after that announcement that the Mexico situation also will affect other players in the industry, including Baker Hughes, for the remainder of 2013.

“Given that the rigs are high-end rigs, we expect to see a meaningful negative impact to the industry’s second–quarter results within their respective Latin America segments,” Ellis said at the time.

Innovation: New drilling labs deal with fluid situation

He noted that Latin America accounted for 10 percent to 20 percent of major oil field services firms’ operating income during the first quarter.

Bi-fuel vehicles

Also in May, Halliburton, the world’s largest provider of hydraulic fracturing services, said it is expanding its use of natural gas to fuel its vehicles and engines, with the addition of 100 trucks that can run on compressed natural gas. It said the bi-fuel pickup trucks will be used in Texas, Oklahoma, Colorado, California, Louisiana, Utah and Pennsylvania.

Halliburton also is using some natural gas to fuel engines that power pumps for hydraulic fracturing, and other companies also are experimenting with the fuel, which can reduce fracturing costs significantly.

Amid a heated proxy fight, Transocean shareholders in May ousted board chairman J. Michael Talbert and installed one of billionaire investor Carl Icahn’s allies as a director, though they rejected Icahn’s proposal for a $4-a-share dividend. Shareholders chose to go with the company’s $2.24 dividend proposal.

Restive at Nabors

In June, Nabors faced restive shareholders too, but held off a proposal to separate Anthony Petrello’s dual roles of chairman and CEO.

The board also rejected the resignations of two directors, saying letting them step down would not be in the company’s best interest.

Hydraulic fracturing: Industry giant GE aims to improve fracturing

Nabors previously agreed to add two independent directors to its board under pressure from its largest shareholder, which has been pressing for changes in the company’s business.

As for its recent earnings guidance, Nabors projected second-quarter operating income in the range of $88 million to $91 million.

“Unfortunately, the lingering winter weather and subsequent flooding in our northern markets, together with a slower recovery in Canrig, have resulted in a weaker than expected quarter,” Petrello said. Canrig is a Nabors subsidiary that manufactures drilling equipment.

Seeing results

Major oil field services companies report on second-quarter earnings this month and next:

Friday: Schlumberger, Baker Hughes

July 22: Halliburton

July 23: Nabors

July 25: Cameron

Transocean: Week of Aug. 4