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North American Energy Cycle Picks Up Steam
Posted: Feb 05, 2010 08:46 AM by Eric Fox
Recent industry data and management commentary from energy companies during conference call season indicates that the recovery in the oil services and drilling cycle is gaining traction as the economy improves. We'll look at further evidence from individual companies.
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Patterson-UTI Energy, Inc. (NASDAQ:PTEN) released its rig utilization report for January 2010. The company had an average of 136 drilling rigs operating during the month, composed of 122 rigs in the United States and 14 rigs in Canada. This was up from the average of 118 total rigs operating in December 2009.
The land rig count has increased sharply off the bottom reached in the summer of 2009, when the rig count hit 876. The latest for the week ending January 29th, 2010, showed 1317 rigs working in the U.S. - up 35 from the previous week.
During its fourth quarter earnings conference call held in late January 2010, Smith International (NYSE:SII) used the phrase "increased demand" at least four times when discussing business trends. John Yearwood, the CEO of Smith International, said, "from a business line perspective, the fourth quarter highlighted increased customer demand." Management also noted a significant increase in demand in the U.S. for, "unconventional reservoir drilling technologies," toward the end of the fourth quarter.
Baker Hughes (NYSE:BHI) was also optimistic during its fourth quarter earnings conference call. The company stated, "In some areas of the U.S. we are again starting to hire as a result of strengthening demand for our products and services. And as this demand expands and leads to improved capacity utilization, we will be able to implement price increases."
This rebound in the rig count is being driven by the 2010 development plans of exploration and production companies, many of which are ramping up drilling in the major North American shale basins. Demand for oil services is tied to the rig count and will see a similar, albeit less publicized, increase during 2010.
Petrohawk Energy (NYSE:HK) averaged only 11 rigs in the Haynesville Shale in 2009, but is currently operating 17 rigs across its acreage there in Louisiana and Texas. The company plans on drilling between 110 and 120 wells in 2010, up from 73 in 2009.
Petrohawk Energy plans a similar ramp up in the Eagle Ford shale. The company drilled 24 wells at its Hawkville Field in 2009, and plans 60 more wells in 2010.
The Bottom Line
The oil services and drilling cycle recovery is starting to build momentum as economic growth resumes and demand returns. How far this will continue is an open question that investors will need to answer before jumping in. (Learn about factors that affect oil prices in our article, What Determines Oil Prices?)
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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.
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