HOUSTON (Reuters) - Oilfield service companies do not expect their businesses will get a major activity boost from oil prices in the second half of this year, but demand is robust enough that they will be able to raise fees, executives said.
“We are well structured for the $45 to $55 a barrel range,” Andy Hendricks, chief executive of drilling and fracking services provider Patterson-UTI Energy (PTEN.O), said in a phone interview on Thursday. “We expect the rig count for us to go up slightly throughout the year.”
Patterson is upgrading seven rigs at a cost of $8 million, an expense justified by contracted rates of slightly above $20,000 per day. One rig already has been delivered, and the remaining six will be delivered by December.
Rival Helmerich & Payne Inc (HP.N) expects oil CLc1 to remain below $50 a barrel through year-end, but still sees opportunities to increase its rig lease rates, CEO John Lindsay said on its third-quarter earnings call Thursday.
It forecasts average rig margins per day for fiscal 2018 and 2019 of $13,000 and $14,500, respectively.
The optimism among service companies comes despite a cautious view among shale producers. Oil prices earlier this year climbed above $50 a barrel, and many producers set budgets expecting further gains.
For the oilfield service firms that supply pressure-pumping, land drilling and fracking services, the profit outlook varies according to how much business is locked into long term deals.
Patterson-UTI said rig pricing improved in the second quarter, but gains were offset by some rigs rolling off higher-priced, long-term contracts. It expects to have an average 94 rigs operating under long-term contracts this quarter, and an average of 60 rigs under long-term contract in the 12-month period ending next June.
The company expects an about $400 per day decrease in average daily margin from the second to third quarter as contracts expire, Hendricks said, noting that a number of those were leased “before the downturn [and] at significantly higher dayrates.”
However, two-thirds of Patterson’s fracking equipment was not tied to contracts or pricing agreements. That flexibility could give it more pricing power in the pressure pumping market, which is high demand due to a growing backlog of drilled-but-uncompleted wells.
“Our team is continuing to push the pricing on those particular frack spreads with those customers,” Hendricks said.
Reporting by Liz Hampton; Editing by Gary McWilliams and Cynthia Osterman