Basic Energy Services (NYSE:BAS) is seeing a large decline in its business activity and hit a new low for utilization of its rig fleet in January. Investors should exercise caution and wait until the company reports its fourth-quarter earnings at the end of February before plunging in.

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Basic Energy is an oil services company with a diversified mix of businesses. The company operates a contract-drilling fleet of nine rigs and has a well-servicing fleet to perform workover operations. Basic Energy also has a fluid services division that transports, stores and disposes of fluids used in drilling. Its final business is completion and remedial services, which conducts pressure pumping and other services.

Diversified Revenues
Its revenue breakdown for the last 12 months ending September 30, 2008 was:

Service % of Revenue
Contract Drilling 4%
Well Servicing 36%
Completion and Remedial 30%
Fluid Services 30%

Basic Energy's revenues are diversified in other ways, with an even 50% based on oil drilling and 50% based on gas drilling. It has a large geographical spread with operations in 11 states. The company serves six oil service lines.

Well Services
The well-servicing business is dependent on the absolute number of wells, which totaled 600,000 in the region where Basic Energy has its 414 rigs. Most of the work here is maintenance related and consists of servicing downhole equipment. The balance of the work is in well completion, workover, and plugging and abandonment. Currently, the industry has 3,600 workover rigs, and Basic Energy has a market share of 11%. This leaves a lot of room for consolidation, as 141 companies control 32% of these rigs. The two largest fleets of well-servicing rigs are owned by Nabors Industries (NYSE:NBR) and Key Energy Services (NYSE:KEG), which have a 16% and 27% market share, respectively, of the 3,600 well-servicing rig fleets industrywide.

Complete Production Services (NYSE:CPX), which also owns a large fleet of well-servicing rigs, just reported a loss in its Q4 and cut its capital expenditures by 50% in 2009 to cope with the downturn.

Basic Energy has grown mostly through multiple acquisitions made in the last several years. Currently the company says it is unable to find any suitable candidates to purchase. Also, it's possible that the credit crunch may limit access to financing to make further acquisitions. (Learn how to use this information; see Mergers And Acquisitions - Another Tool For Traders.)

Rig utilization is an important measure in the well-servicing area, and the company has seen a steady slide in its utilization rate from 72% in October, 59% in November and 49% in January, the last month reported. It's unclear where this metric will bottom.

The company had $81 million in cash and $472 million in total debt on September 30, 2008. Its debt is in two main pieces. The first is its bank revolver, which has $180 million outstanding and is due in December 2010. The other piece is a $225 million senior note issue due April 2016. Its Q4 and full-year earnings release is scheduled for February 26 after markets close.

Bottom Line
Although Basic Energy has a diversified mix of businesses that operate in a wide geographical area, its well-servicing business is contracting rapidly, and investors may want to wait until the company reports its Q4 earnings at the end of the month.

Before that happens you might want to read The Flow Of Company Information.