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PREVIEW-Oilfield services eyed for clues on share rebound
October 14, 2011 / 6:25 PM / in 6 years

PREVIEW-Oilfield services eyed for clues on share rebound

* Sector index starts to recover after 29 pct loss in Q3

* US rig count 8 shy of quarter-century peak hit in 2008

* Analysts see sell-off as overdone, await exec commentary

* Halliburton reports on Monday, Schlumberger on Friday

By Braden Reddall

Oct 14 (Reuters) - What oilfield services executives say next week about clients’ drilling plans will have more of an impact on whether the sector’s recent rally can be sustained than the quarterly profit numbers.

Global No. 2 player Halliburton Co will kick off with its third-quarter report on Monday, followed next Friday by the first set of results from sector leader Schlumberger Ltd since Paal Kibsgaard took over as chief executive.

Last quarter’s 29 percent plunge for the Philadelphia oil service index appears partly justified given the glum mood at a London oil conference this week.

But analysts see that sell-off as an overreaction -- the index has bounced 13 percent higher in October -- and cite the lack of evidence so far of either a drilling slowdown or weakness in pricing for services.

“With the group beat down so hard, as if activity levels are going to decline substantially, we’re setting up for a decent short-term rally in some of these names,” Brian Uhlmer of Global Hunter Securities said, though he noted any rebound would obviously be derailed by a macroeconomic shock.

Oil demand estimates for 2012 have been pared back, but producers have so far shown no signs they will stop spending on new projects. After all, Brent crude prices remain a third higher than a year ago, even with the recent pullback.

The rush to develop U.S. shale resources has also only gained speed in the past year, which is a big driver behind the anticipated 60 percent growth in third-quarter net profit for Halliburton, the North American oilfield services leader.


The Baker Hughes U.S. rig count, measuring activity for more than half the global fleet, is up by 353 in the past year at 2,023. That happens to be near the quarter-century peak of 2,031 hit in 2008, before the financial meltdown hammered oil prices and the active rig count was sliced in half.

Analysts caution against reusing the 2008 “playbook” as another economic slump looms, but various unanswered questions haunt investors who were burned last time. So comments from bosses at services companies, who often have valuable insights to oil producers’ strategy, will be scrutinized for clues.

Investors will also keep a close eye on what exploration and production companies say about 2012 capital expenditure. At least as far as North America is concerned, the industry is not yet tipping any dramatic changes.

“Despite recent commodity price volatility, discussions with our customers indicate continued demand across all segments,” Ken Huseman, the CEO of Texas-based Basic Energy Services Inc , said in a monthly update this week.

“We will monitor customer plans for 2012 before making additional significant commitments for fleet expansion.”

Halliburton has struck an equally sanguine note on pricing and activity. Yet this has not stopped its shares from dropping 7 percent in the last month, against a 4 percent drop for Schlumberger, which is far less dependent on North America.

Weatherford International Ltd reports results on Oct. 25 and industry No. 3 Baker Hughes follows a week later.

Analysts at Barclays Capital acknowledged this week that their estimates for North America-focused services companies would have to be cut to reflect a weakened oil price outlook.

But they see those revisions as more than accounted for by the market, which is discounting a rig count drop of between 25 percent and 30 percent, and a similar decline in pricing.

“This is a scenario that we do not expect to unfold,” Barclays wrote, predicting a 10 percent fall in the rig count and a “modest” reduction in pricing in certain product lines.

Barclays said on Friday its “flattening to modest decline” outlook was supported by drilling permit levels in the 30 U.S. states it monitors, which fell 5 percent in September after an 8 percent increase in August and a 7 percent decrease in July.

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