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The Zacks Analyst Blog Highlights: Schlumberger, Halliburton, Core Laboratories, ProPetro and Oceaneering International

Zacks Equity Research
·6 mins read

For Immediate Release

Chicago, IL – April 17, 2020 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Schlumberger SLB, Halliburton HAL, Core Laboratories CLB, ProPetro Holding PUMP and Oceaneering International OII.

Here are highlights from Thursday’s Analyst Blog:

Pre-Earnings Analysis of Oilfield Services Sector

As is the norm, oil services companies – providers of technical products and services to drillers of oil and gas wells – will kick off the first-quarter 2020 earnings season for U.S. energy firms. Considering the current weakness in the energy market environment amid the plunge in crude prices so far this year, the health of the oilfield service sector has taken a big hit.

The slump in oil prices has pushed drilling activity lower by introducing tremendous uncertainty around the exploration and production (‘E&P’) spending outlook. As supplier of technology, solution and parts to the E&P sector, the sentiment toward the oil services firms is rather pessimistic ahead of their reports. Consequently, most sector components – including well-established big names like Schlumberger and Halliburton – are likely to report weak earnings.

Let's take a look at the key items likely to have impacted oilfield services companies' revenues and earnings.

Oil Prices Tank: Strong commodity prices typically lead to robust upstream activities. As exploration, drilling, and production picks up, oil service providers see a surge in their sales and profitability. With the West Texas Intermediate (or WTI) crude oil prices crashing in the March quarter, clients have been forced to make substantial capital spending cuts.

For the three-month period ending Mar 31, WTI prices fell 66.5% - the largest quarterly percentage decline on record – as coronavirus induced a massive slump in oil demand amid a supply glut. With major cities under lockdown and travel restrictions in place, the consumption for crude has dropped substantially. In fact, the commodity ended the quarter at just over $20 a barrel, which is certainly not enough to trigger investments in mature field development, exploring unconventional resources, or expanding offshore programs. This slowdown in activity hurt overall demand for services and equipment across the industry spectrum and does not bode well for the upcoming earnings season.

North America E&P Activity Slumps: The North American market remains a key driver of revenues for oil service firms. As such, the rig count in the United States is another yardstick in determining exploration spending by producers and therefore, the health of oilfield service providers. Usually, the more operating rigs there are, the more oil service companies make in revenues.

During the first quarter of 2020, U.S. rig count decreased by 77 (from 805 to 728) in conjunction with the oil price crash. While there is a typical delay of around three-four months between oil price changes and its reflection on rig counts, the statistics suggest faltering North American drilling and completion activity in the January-March timeframe. Oil service firms with sizable presence in the region are expected to have suffered heavily on this sentiment.

International Situation Slightly Better: While international E&Ps are also pulling back on spending due to continued weak oil prices, the degree of decline is likely to be less than North America. This is because most of these projects are backed by national oil companies and/or integrated majors that consider a long-term horizon. Moreover, a sizeable proportion of international projects are offshore that have been okayed over the past few years and are difficult to stop or cancel suddenly.

Pricing Woes: The severe slowdown in North American drilling has led to pricing pressure for oil servicing firms, impacting their top-line growth. While no operator is immune to lower product pricing, the situation is worse for smaller companies that are debt-heavy or cash flow negative and are unable to provide concessions to E&P clients. 

Our Take

In a nutshell, the oilfield service fundamentals remain extremely bearish with most of the companies entirely focused on survival. From Core Laboratories to ProPetro Holding to Oceaneering International, the company boards have adopted various strategies to survive the downturn. They have been lowering capital spending, furloughing employees and cutting executive pays. Even biggies like Halliburton and Schlumberger – both carrying a Zacks Rank #3 (Hold) - have announced a set of belt-tightening measures. 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The oil service companies will be in the limelight later this week as first-quarter earnings reports for the group start rolling in. Investors may want to take a cautious approach to the industry ahead of earnings. At the same time, analysts feel that the full impact of the coronavirus pandemic and the oil price slump will only be felt in the upcoming quarters.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.

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Schlumberger Limited (SLB) : Free Stock Analysis Report
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Core Laboratories N.V. (CLB) : Free Stock Analysis Report
ProPetro Holding Corp. (PUMP) : Free Stock Analysis Report
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