The shale revolution's sweet spot is oilfield services, the lower-risk backbone
of the American oil and gas boom that pays off regardless of a play's economics.
Behind the stardom of the explorers and producers who have put themselves
on the revolutionary shale map and absorb most of the risk--are the service
providers who make up a highly lucrative market segment.
The US land-based rig count rose 3% over the last quarter, reaching a two-year
high of 1,870 active rigs. A major factor in this growth has been an uptick
in horizontal drilling in the Permian Basin, Texas' revived giant, where the
rig count was up 21% year-on-year.
And while oil prices slumped in October, drilling activity continues to rise,
according to Baker
Hughes, the third-largest oil services company. Baker Hughes' rig
count is up 3.8% in the fourth quarter of this year, compared to the third
quarter.
RBC Capital Markets estimates that
20,061 horizontal wells will be drilled in the United States alone this year,
with that number increasing by well over 1,000 in 2015. Overall, analysts are
projecting a 5% increase in the US land rig count next year, with horizontal
drilling rigs--already up 24% over last year--being the real movers here.
Oil prices are "no longer the only driver of that bus because continued efficiencies
from pad drilling, hydraulic fracturing and increased stages per well continue
to increase recoveries and lower costs per unit of oil and gas produced", Natural
Gas Intel quoted analysts as saying.
All the drilling poises the oil and gas services industry for big gains.
For potential investors, it's a good time, too, because the past couple of
weeks have seen oil
services oversold after West Texas Intermediate and Brent crude prices
took a dive coming off their summer highs.
The Q3 conference calls from industry giants Baker Hughes Inc. and Schlumberger
Ltd. were very positive--they see no changes in overall spending outlook
from their customers.
Baker Hughes' third-quarter
profit rose 10% on higher revenue across all segments.
And even though oil services giants such as Halliburton are
low risk and aren't experiencing any downturn whatsoever as a result of the
oil price slump, their stocks have been crushed.
Small cap services stocks have fared even worse. But business continues to
boom for these operators as well.
Dave Werklund is Chairman of Calgary-based Aveda
Transportation and Energy Services --whose stock has gone from $5.85-$4
in the last two months, despite no downturn in business.
At over $100 million revenue, Aveda is the largest pure-play drill rig mover
in the United States. Today its footprint covers over 80% of the rig-moving
market, from Alberta all the way down to Texas.
"With over 2,000 active rigs operating across North America today, and an
average rig being moved approximately 17 times per year, the rig-moving industry
is set for phenomenal gains," Dave Werklund, Executive Chairman of Calgary-based
Aveda Transportation and Energy Services told Oilprice.com.
This little known segment is actually a $2-billion niche in the services sector.
Once horizontal wells are drilled from a pad, the fully constructed rig has
to be dismantled, moved to the next location using hydraulic walking or skidding
systems, and then put back together.
Producers are demanding this work be done faster and safer than ever before.
It's a service that continues to be in high demand.
The advent of pad drilling, which allows the drilling of multiple wells from
a single pad, is also transforming the services industry from equipment design
and leasing to the task of moving the larger loads from pad to pad.
"With the conversion to pad drilling in the US, the size and weight of the
rigs have increased exponentially," says Werklund. That was a lucky break for
Aveda, as they already had much bigger trucks in their fleet because of the
bigger rigs their original Canadian customers used. As soon as they came down
to the US, producers began using their services.
The general consensus is
that American producers will not stop drilling even with an oil price of $80
per barrel. Instead, they're digging in.
The lesson for investors? While energy
service stocks have seen a crushing six weeks--in tandem with oil prices--activity
levels have not slowed.
Source: http://oilprice.com/Energy/Energy-General/The...S-Oil-Boom.html
By. James Stafford of target="_blank" Oilprice.com
