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Complete Your Portfolio With Oil Plays

Posted: Jan 23, 2009 14:50 PM by Eric Fox

Tickers in this Article: HAL, SLB, XES, CPX

Complete Production Services (NYSE:CPX) operates true to its name by offering a line of oil services that span the drilling process from beginning to end. Complete Production is an oil services company with a well-diversified product line across many geographic areas. The company has positioned itself well to service the unconventional resource plays that have become so important in North America. These unconventional resources are more service intensive and require more horizontal completions than other wells. This is borne out by statistics on rig use. In 2000, 30% of all rigs were being utilized in horizontal drilling applications. In 2008, 48% of all rigs were drilling horizontal wells. (For background reading, see Oil And Gas Industry Primer.)

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Diversification
Geographically, Complete Production has diversified to protect against a downturn in any one area. About 31% of its revenues come from operations in the Barnett Shale, 25% from the Rocky Mountain area and 14% from the mid-continent.

The company's largest segment is completion and production services, which comprised 84% of total revenues. Services provided here span all along the drilling process, from preparing the wellbore using cementing, to stimulating the well using hydraulic fracturing, to the completion end where the company provides coiled tubing, well servicing and production testing.

Recent Acquisitions
Complete Production continues to pursue its strategy through two recent acquisitions. In October, the company purchased Appalachian Well Services, a pressure pumping company that operates in the Marcellus Shale in Appalachia, and TSWS, a well servicing company that operates in Northern Louisiana, Eastern Texas and Southern Arkansas. (Learn the five ways mergers and acquisitions can increase a company's value; check out Mergers Put Money In Shareholders' Pockets.)

Financials
Complete Production has sold off more than some of its peers in the industry. The stock peaked at $37.84 in July 2008 and is now trading in the single digits, a decline of 81%. The S&P Oil & Gas Equipment & Services SPDR (NYSE:XES) is down only 69% over the same period. Large cap oil service companies like Schlumberger (NYSE:SLB) and Halliburton (NYSE:HAL) are also both down only 69% from their 52-week highs.

Some of this weak relative performance may be due to finances. Complete Production had only $8.5 million in cash and $861.6 million in debt pro forma for the two acquisitions it made in October. The company has $650 million in senior debt due in 2016 and a $400 million credit facility, of which it has drawn $207.4 million. The line matures in 2011.

Risks
Pricing for the services that Complete Production provides are declining and will probably continue to decline in 2009 as the energy downturn continues to wind its way through North America. This will pressure revenues and margins.

Although Complete Production is riding the wave of unconventional drilling that has come to dominate North American development, some of these new plays require a high price of natural gas to make them economical. As the price of natural gas continues to decline, this will lead to a further cutback in drilling, which may be more concentrated in these unconventional drilling areas.

Bottom Line
Complete Production is a way to play a rebound in the energy sector for those bullish in 2009. It is well-represented among the unconventional shale plays that have come to dominate drilling for natural gas in North America.

Learn more in A Guide To Investing In Oil Markets.

By Eric Fox

Eric J. Fox, is the founder of Brittain Capital Management, LLC., which manages the Alesia Fund, LP., a Value oriented long/short investment partnership. You can read more of his views on investments at his blog - Stock Market Prognosticator. Mr. Fox also publishes a paid investment newsletter. Please visit The Unknown Stock Report for more details.

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