TEXT-S&P: US oilfield services, drilling ratings still stable
Dec 5 - Margins and demand for North American onshore oilfield services and contract drilling continue to decline, owing to lower natural gas drilling and the once unthinkable oversupply of service equipment and rigs, according to a published report titled "Ratings For U.S. Oilfield Services And Contract Drilling Companies Remain Stable, Despite Lower Margins". This trend is likely to persist through the first half of 2013. Natural gas prices have improved this year, but it would take gas consistently above $4.50 per mmBtu to meaningfully lift demand for oilfield services and drilling equipment, in our view. "Our outlook for the sectors remains stable, however, and we expect most companies to avoid negative rating actions because of their generally strong balance sheets and adequate liquidity," said Standard & Poor's credit analyst Paul Harvey. "This is particularly true of firms with significant international operations, such as Baker Hughes Inc., Halliburton Co., National Oilwell Varco Inc., and Schlumberger Ltd." We think their improving results abroad will mitigate the effects of the weaker North American markets. However, we don't expect a collapse in onshore oilfield service and drilling margins. Robust prices for crude oil, currently averaging about $90 per barrel, and to a lesser degree for natural gas liquids (NGLs), should continue to deliver satisfactory returns for exploration and production companies, and in turn support drilling. Crude and NGLs drilling has absorbed much of the equipment leaving gas basins and has helped to offset the drop in the number of natural gas rigs, which were at a 16-year low in October. Nevertheless, the shift to liquids drilling hasn't been enough to fully offset the glut of new equipment that companies ordered when oil and gas drilling levels were at their peak. The report is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to email@example.com. Ratings information can also be found on Standard & Poor's public Web site by using the Ratings search box located in the left column at www.standardandpoors.com.