According to data from Baker Hughes Inc. (BHI), the number of rigs searching for oil and gas in the U.S. rose for the week ended Nov. 20, reflecting ramped-up drilling activity by the producers amid recent optimism about economic recovery. As shown in the first chart below from Baker Hughes, rigs exploring and producing in the [...]

(BHI) U.S. Oil and Gas Rig Count Hits 8-Month High

According to data from Baker Hughes Inc. (BHI), the number of rigs searching for oil and gas in the U.S. rose for the week ended Nov. 20, reflecting ramped-up drilling activity by the producers amid recent optimism about economic recovery.

As shown in the first chart below from Baker Hughes, rigs exploring and producing in the U.S. totaled 1,113 during the week. This is up by 12 from the previous week’s tally and represents the fifth successive weekly gain. The current nationwide rig count is 27% higher from the 2009 low of 876 (set in the week ended June 12).

The combined oil and gas rig count is down by 828 from the year-ago period. It rose to a 22-year high in 2008, peaking at 2,031 in the weeks ended Aug. 29 and Sept. 12.



The number of natural gas rigs drilling in the U.S. decreased by 2 to 726 -- the second loss in as many weeks. The rig count remains 55% lower than its peak of 1,606 in late summer 2008. In the year-ago period, there were 1,511 active natural gas rigs. This is shown in the following chart, also from Baker Hughes.



The oil rig count was up by 14 to 375, maintaining the positive momentum from the past nine weeks. But the tally is down approximately 11% from the previous year’s count of 419, as shown in the following chart from Baker Hughes. Oil rigs peaked at 442 in early November last year.



The number of miscellaneous rigs, at 12, remains unchanged from the previous week.

Producers had scaled back oil and gas drilling operations over the past several months in the midst of falling commodity prices and tighter access to credit. However, during recent weeks, there have been signs that the companies were beginning to bring rigs back on line (especially oil rigs) amid signs of economic stabilization that could drive up energy demand. This pushed the nationwide rig count above 1,100 working units for the week ended Nov. 13, the first time since March.

The overall picture, though, remains weak, particularly for natural gas, whose inventories have recently hit a new record high of 3.83 trillion cubic feet (Tcf) and is threatening to test the maximum capacity of 3.89 Tcf. The supply picture is expected to reverse in the coming months as producers bet on colder weather and the lagging effect of the sharp drop in domestic drilling activity takes hold.

Until then, we believe that natural gas woes (especially in North America) will continue to haunt energy service firms like Halliburton Company (HAL), Schlumberger Limited (SLB), Baker Hughes, Smith International Inc. (SII), National-Oilwell Varco (NOV) and Weatherford International Ltd. (WFT). These oilfield service names have seen their revenues and earnings plunge in the last few quarters on the back of lower volumes and a very competitive pricing environment. We have Neutral recommendations on all the above-mentioned companies.

We also maintain our Neutral recommendations for contract drillers such as Nabors Industries (NBR), Patterson-UTI Energy (PTEN) and Helmerich & Payne, Inc. (HP), given the extent of excess capacity in the sector that is expected to weigh on dayrates and margins well into next year.

We are positive on oilfield companies like Cameron International (CAM) that derives about two-thirds of its revenue from outside North America. Cameron’s international operations are expected to be a key growth driver for the firm going forward and will play an offsetting role to the relatively soft U.S. drilling scene.
Read the full analyst report on "BHI"
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Read the full analyst report on "SLB"
Read the full analyst report on "SII"
Read the full analyst report on "NOV"
Read the full analyst report on "WFT"
Read the full analyst report on "NBR"
Read the full analyst report on "PTEN"
Read the full analyst report on "HP"
Read the full analyst report on "CAM"
Zacks Investment Research

Contract drilling services provider Helmerich & Payne, Inc. (HP) reported solid fourth quarter results, buoyed by improving rig counts on the back of rebounding commodity prices. Earnings per share, excluding gains from non-operating items, came in at 47 cents, marginally better than the Zacks Consensus Estimate of 44 cents. However, as has been the case with [...]

(HP) Helmerich & Payne’s Profit Declines

Contract drilling services provider Helmerich & Payne, Inc. (HP) reported solid fourth quarter results, buoyed by improving rig counts on the back of rebounding commodity prices. Earnings per share, excluding gains from non-operating items, came in at 47 cents, marginally better than the Zacks Consensus Estimate of 44 cents.
 
However, as has been the case with the other contract drillers that have already reported – Patterson-UTI Inc. (PTEN) and Nabors Industries (NBR) – earnings and revenue comparisons with the year-earlier period were quite ugly, severely hampered by lower rig utilization (especially in the U.S. land drilling market) amid weak demand for drilling services. Helmerich & Payne’s adjusted earnings per share slumped approximately 58.4%, while revenues declined 38.0% to $362.2 million.
 
U.S. Land Operations
During the quarter, operating revenues totaled $269.1 million (74% of total revenue), down 38.5% year-over-year. Average rig revenue per operating day was $25,895, up 3.4%, while average rig margin per day increased 10.5% to $14,551. However, segment operating income fell 43.2% from the year-earlier quarter to $90.1 million, mainly reflecting lower utilization levels, which were down to 55% (from 98% in the fourth quarter of 2008).
 
Offshore Operations
Helmerich & Payne’s offshore revenues declined 5.6% year-over-year to $47.3 million. Daily average rig revenue fell 9.4% to $47,547, while average rig margin per day was down 7.7% to $20,679. Segment operating income, at $12.0 million, decreased 12.0%. Rig utilization, which was 89% in the same period of 2008, came down to 78%.
 
International Land Operations
International land operations recorded revenues of $43.1 million, as against $93.3 million in the previous-year quarter. Average daily rig revenue was $29,406, down 22.0%, while rig margin per day nosedived 71.2% year-over-year to $3,244. The segment incurred a loss of $6.3 million during the quarter, compared to a profit of $18.6 million in the fourth quarter of 2008. Activity levels declined significantly, falling to 41% from 97% a year ago. The company's decision earlier this year to delay booking revenue in Venezuela also contributed to the dismal international results.
 
Capital Expenditure & Balance Sheet
During the quarter, Helmerich & Payne spent approximately $142.3 million on capital programs. As of September 30, 2009, the company had more than $141.5 million in cash and long-term debt of $420 million (debt-to-capitalization ratio of 15.7%).
 
Outlook 
Management indicated that drilling activity is picking up and hoped that the reported quarter represented the eventual bottoming of the North American natural gas driven land drilling operations. At the same time, it remained concerned about the current supply overhang in the natural gas market and noted an industry backlog of up to 1,500 uncompleted or deferred wells domestically.
Read the full analyst report on "HP"
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Zacks Investment Research

For Immediate Release

Chicago, IL – November 9, 2009 – 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: Avnet, Inc. (AVT), Arrow Electronics (ARW), VeriSign, Inc. (VRSN), Patterson-UTI Inc. (PTEN) and Nabors Industries (NBR).

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Here are highlights from Friday’s Analyst Blog:

Avnet Tops Estimates

Avnet, Inc. (AVT) recently reported revenues of $4.36 billion for the first quarter of fiscal 2010, down 3.1% from a year ago. Excluding the negative impact of foreign currency exchange rates, revenues declined 0.6%.

Management stated that the impact of global slowdown led to the year-over-year decline, but the business environment is improving.

Earlier, rival Arrow Electronics (ARW) reported a small profit and provided a disappointing forecast. Profit narrowed significantly at Arrow due to restructuring charges. The company provided a conservative guidance for the fourth quarter, due to limited visibility.

VeriSign Beats Forecast

Last night, VeriSign, Inc. (VRSN) reported revenues of $258 million from continuing operations in the third quarter of 2009.

Core businesses (Internet Infrastructure and Identity Services) generated revenues of $257 million, up 1% sequentially and up 6% year-over-year. Revenues from discontinued operations came in at $41 million.

Patterson Net Falls, but Beats View

Patterson-UTI Inc. (PTEN) reported a narrower-than-expected third-quarter loss of 12 cents per share, reflecting a recovery in rig demand as customers prepare for ramped up drilling activities in 2010. The Zacks Consensus Estimate was pegged at a loss of 16 cents per share.

In the year-ago period, the company earned 69 cents per share. Revenue was down 71.1% year over year to $176.2 million. The negative comparisons compared to the year-ago period reflect lower drilling activity. The number of rigs operating during the quarter averaged 73 (70 located in the U.S. and 3 in Canada), compared to 276 average rigs operating in the third quarter of 2008. However, it was up from 63 rigs operating in the June quarter.

We remain concerned about the North American land drilling scene and its impact on Patterson-UTI, one of the largest onshore drillers. We believe that the current supply overhang in the natural gas market will continue to weigh on the company’s dayrates and margins during the next few quarters.

On the positive side, Patterson-UTI’s premium newbuild fleet and stellar financial health (free cash flow positive and a debt-free balance sheet) should help it weather the downturn better than its peers, such as Nabors Industries (NBR). Considering these factors, we believe that Patterson-UTI shares are fairly valued at current levels. As such, we see the stock performing in line with the broader market and rate it as Neutral.

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