A Look At Basic Energy Services

By Eric Fox | July 11, 2011 AAA

Basic Energy Services (NYSE:BAS) is an oil service company focused on the United States, with core operations in a domestic oil and gas basin, which has seen a surge of recent interest and activity from the industry.

TUTORIAL: Stock Basics

Permian Basin
Basic Energy Services has a significant presence in the Permian Basin in Texas, and the company has benefited from the rising rig count here over the last few years. Baker Hughes (NYSE:BHI) reported that 440 rigs were operating in this basin in the week ending June 11, up from around 300 rigs a year earlier.

Oil and gas operators have accelerated activity here because of the high price of oil and the availability of new technology to enable development. Public companies operating more than 20 rigs in the Permian Basin include Pioneer Natural Resources (NYSE:PXD) and Apache Corp. (NYSE:APA).

Basic Energy Services invested $65 million in capital to expand its operations in the Permian Basin during the first quarter of 2011. These funds were used for additional pressure pumping capacity, well servicing rigs, frac tanks and fluid service trucks.

Business Summary
Basic Energy Services reports results in four business segments - completion and remedial services, fluid services, well servicing and contract drilling.

Completion and Remedial Services
The completion and remedial services segment consists mostly of cementing, acidizing and fracturing services performed by the company's pressure-pumping units. The company focuses on lower-horsepower, single-truck operations in this area.

Basic Energy Services had 174,000 horsepower of pressure pumping capacity as of March 31. This was an increase from 142,000 horsepower at the end of 2010 and 140,000 horsepower a year earlier.

The company reported $97.5 million in revenues here in Q1 2011 and an operating margin of 44%.

Fluid Services
Basic Energy Services owns a fleet of more than 800 trucks that engage in the transportation, disposal and storage of fluids produced or needed during the drilling of oil and gas wells. The company also provides well site construction services including road and foundation construction.

The company operated an average of 838 fluid service trucks during June. This activity level was flat with May, although the company reported an increase in truck hours operated.

Basic Energy Services reported $72.3 million in revenues in fluid services in Q1 2011 and an operating margin of 33%.

Well Servicing
Basic Energy Services owns and operates a fleet of well servicing rigs that conducts maintenance, workover and recompletions on producing oil and gas wells. The company also provides plugging and abandonment services on wells that are no longer productive.

The company operated an average of 412 well servicing rigs in June for a utilization rate of 74%. This was a sequential increase from the 68% utilization reported in May.

Basic Energy Services reported an operating margin of 30%, on $69.1 million of well-servicing revenues in Q1 2011.

Contract Drilling
Contract drilling is the company's smallest business segment, and Basic Energy Services reported $7.1 million in revenues here in Q1 2011. The company reported a weighted average of six rigs operating during the quarter.

Caveat
Although Basic Energy Services has benefited from the growth in activity in the Permian Basin, some indications suggest that activity may have reached a short-term peak. Well servicing and other related operations are very sensitive to oil prices, and the recent drop may have caused some operators to defer activity.

The Bottom Line
Basic Energy Services offers a range of oil services to operators in the United States, and the company has seen extra growth as it has core operations in the Permian Basin. (We look at three widely used valuation methods and figure out how companies justify spending. Check out An Introduction To Corporate Valuation Methods.)

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