Oilfield-Service Companies Wait for the Boom: Industry Outlook
By Terence Flanagan
Dallas, March 27 (Bloomberg) -- The biggest companies that
provide equipment and services to the oil-drilling industry are
still waiting for the boom in oil prices to reach them.
Profits are soaring at major oil companies, but they are
reluctant to commit to expensive drilling projects. Just 15 months
ago, oil prices, now at a nine-year high, were at a 12-year low.
Another bust could be only months away.
With the big oil companies wary of spending, Halliburton Co.,
Schlumberger Ltd., and others that count on them for business will
see first-quarter earnings plunge. Analysts following Halliburton,
the largest oil-service company, say its earnings will fall 28
percent. Profit at No. 2 Schlumberger will drop 25 percent.
Big oil companies such as Exxon Mobil Corp. and BP Amoco Plc
``are waiting to see what OPEC is going to do' before increasing
spending, said Gary Russell, an oilfield-service analyst at Frost
Securities in Dallas.
The 11 members of the Organization of Petroleum Exporting
Countries have backed a plan to boost crude oil output next month
by no more than 2 million barrels a day, or 8.7 percent. Analysts
say that's probably not enough to ease oil prices, which have more
than doubled on the New York Mercantile Exchange in the past year.
While oil prices have soared, the 10 biggest U.S. oil
companies will increase their capital spending, which includes
expenditures on oil exploration, just 6 percent this year. Oil
service companies won't see most of the $2 billion in additional
spending until late this year, analysts said.
U.S. Market Improved
With spending little changed so far this year, the number of
drilling rigs in service outside the U.S. fell to 559 in the
quarter from 639 a year earlier, according to Baker Hughes Inc.'s
weekly tally.
It's a different story in the U.S. and Canada, where smaller,
independent oil companies are quicker than their bigger
international rivals to react to rising crude prices. As a result,
service companies that do most of their business in the U.S. will
see first-quarter earnings soar.
Analysts expect Weatherford International Inc.'s profit to
more than triple, while BJ Services Co.'s earnings, which will
include a June acquisition, will rise to 30 cents a share from a
penny a year earlier.
``The domestic market improves quickly,' said Robin
Shoemaker, an oil-service analyst at Bear, Stearns & Co.
``Projects are smaller in budgets and in planning,' so companies
can take quick advantage of high oil prices, he said.
Apache Corp., Burlington Resources Inc. and Kerr-McGee Corp.,
three of the biggest U.S. exploration companies, have raised their
spending this year by an average of 28 percent.
Stock Performance
While first-quarter earnings for the overall industry will be
mixed, the stocks have outperformed the Standard & Poor's 500
Index on expectations of higher returns.
The 15-member Philadelphia Oil Service Sector Index, which
includes Halliburton and Schlumberger, has climbed 31 percent this
year. That compares with a rise of 4 percent for the Standard &
Poor's 500 Index.
``2000 will be a strong year,' said Andrew Szezcila,
president of oilfield operations at Baker Hughes. ``The first half
will be manageable and the second half will be a wild ride.'
Baker Hughes, which is expected to break even in the first
quarter, will earn 6 cents a share in the second quarter and
40 cents for the year, according to First Call/Thomson Financial.
1st-Qtr Year-Ago Number of
Estimate EPS Analysts
Halliburton $0.13 $0.18 25
Schlumberger 0.24 0.32 28
Baker Hughes 0.00 0.13 29
Smith International 0.19 0.14 19
Cooper Cameron 0.22 0.28 22
Weatherford 0.10 0.03 14
BJ Services 0.30 0.01 21
Tidewater 0.24 0.43 18
R&B Falcon -0.22 0.02 24
Diamond Offshore 0.12 0.37 27
Sources: First Call/Thomson Financial for all but Weatherford; IBES International for Weatherford |
