TEXT-S&P: US oilfield services, drilling ratings still stable

Wed Dec 5, 2012 11:23am EST

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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 research_request@standardandpoors.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.
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