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The North American fracking market is still weak, but improving

Ingrid Pan, CFA

Key themes of the Big 3 oilfield service companies (Part 2 of 8)

(Continued from Part 1)

Oversupply caused margins in pressure pumping to plummet

Over the past two or so years, the North American pressure pumping (fracking) market suffered as service companies brought a glut of supply onto the market, putting downward pressure on revenues and margins. This has been a point of weakness for oilfield service companies in recent quarters. On the 3Q13 earnings calls, management from the Big Three service companies gave their opinion on the state of the North American fracking market.

Example: Frac Tech, a standalone pressure pumping company

For the large integrated service companies, the North American pressure pumping market only makes up a segment of total operations. However, you can examine the financials of a company such as Frac Tech to get a feel for North American pressure pumping on a standalone basis. Frac Tech is a privately owned oilfield service company with operations almost entirely comprised of North American pressure pumping. As demonstrated in these graphs, gross profit has fallen off steeply since late 2011 and hasn’t significantly recovered.

Gross margins have also plummeted, in some quarters falling in negative territory.

Note again that Frac Tech is a smaller, less-diversified company, whose business is almost entirely pressure pumping, so the company’s results don’t indicate results for the large diversified oilfield service companies, but can serve as a general indicator of how the North American pressure pumping market is performing.

Continue to Part 3

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