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Tickers in this Article: BJS, CHK, HK, ATPG, SLB, HAL, BHI, WFT
This is a tricky time for pressure pumping specialist BJ Services (NYSE:BJS), as the market is giving very little credit to this company's future prospects, even though extracting oil and gas is getting harder and more reliant upon hydraulic fracturing and pressure pumping. Companies ranging from Chesapeake Energy (NYSE:CHK) to Petrohawk Energy (NYSE:HK) to ATP Oil & Gas (Nasdaq:ATPG) are cutting back on their near-term drilling budgets.

Unfortunately for BJ Services, it doesn't have quite the breadth of services offered by larger competitors like Schlumberger (NYSE:SLB), Baker Hughes (NYSE:BHI) Halliburton (NYSE:HAL) or Weatherford (NYSE:WFT) that might help it "embed" itself more deeply in a client's operations. So, while the company is likely to benefit from the stresses on credit-crunched small competitors, it may well also see curtailed business from equally credit-crunched small E&P clients.

Performance Has Started To Suffer
As is often the case, the quality of the financial performance depends upon where you look. Twenty percent revenue growth was a good starting point, as both North American and international pressure pump revenue grew at a high-teens rate. It was all for naught down the income statement, however, as operating income fell 9% year over year and EBITDA dropped 4%. On a more encouraging note, those numbers were stronger on a sequential basis, helped in part by a seasonal boost from Canadian operations. (To learn more, read Understanding The Income Statement.)

Difficult Decisions May Be On The Way
When business gets tough in any industry, management has a difficult choice between preserving margins or preserving market share. Based on management's commentary on the conference call, it would seem that they're going to try for both - taking advantage of smaller competitors who come under even more extreme pressure, but not wrecking the basic business model in the process.

Management will have interesting choices to make when it comes to capital expenditures. It is apparently still cheaper to build new equipment than to buy rivals, and the company estimates that it needs to replace about one-quarter of its fleet. Luckily, BJ Services looks to have the balance sheet flexibility to maintain its business even as the sector hits a rocky patch. (To find out more about assets and liabilities, read Reading The Balance Sheet)

Tricky Balance Between Price And Value
Simply put, pressure pumping isn't going anywhere and BJ Services is the No.3 player behind Schlumberger and Halliburton. What's more, the company is actively working to grow its international business and depend less upon North American operators. If that all isn't enough, the stock seems incredibly cheap relative to the trading range over the past decade.

BJ Services isn't my favorite energy services stock, nor do I believe it's among the best operators out there. But there's something to be said for buying "good" assets at a terrific prices, and even I can't complain about the valuation on these shares.

The ongoing recession may take even more steam out of natural gas prices and push E&P companies to cut budgets even further, but this too shall pass. So, potential BJ Services owners should steel themselves for some downside risk, but realize that it's tough to imagine that these shares don't have some upside from here.

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