Newpark Resources Loves Drilling Fluids

By Eric Fox | June 24, 2011 AAA

Newpark Resources (NYSE:NR) is heavily dependent on sale of drilling fluids and related services and competes in this business against some of the largest oil service companies in the industry. (To learn more, check out Unearth Profits In Oil Exploration And Production.)
TUTORIAL: Commodities

Summary
Newpark Resources reports in three business segments - fluids systems and engineering, mats and integrated services, and environmental services.

Fluids Systems and Engineering
The fluids systems and engineering business is the company's largest segment, with sales of $170.5 million in the first quarter of 2011. This represented approximately 83% of the company's total sales during the quarter.

Newpark Resources supplies drilling fluids and related services used during the drilling of a well. This market was estimated at $10.3 billion in 2010, and the company's market share was at 7.2%. This business is dominated by several large oil service companies with Schlumberger (NYSE:SLB) having the largest share of the market at 37.4%, followed by Halliburton (NYSE:HAL) at 22.8% and Baker Hughes (NYSE:BHI) at 10%.

Newpark Resources also has an industrial minerals business that grinds barite for use in its drilling fluids. The barite is obtained from sources overseas including China and India. The company also sells the barite to third parties for other uses.

NR has attempted to diversify its customer base in the Fluids Systems and Engineering business and has increased the level of business from National Oil Companies (NOC) and Integrated Oil Companies (IOC) over the last five years. In 2010, 35% of revenues came from these types of customers, up from 15% in 2006.

Newpark Resources favors the IOC's and NOC's because the company feels that these operators have a longer-term horizon when planning projects and therefore a more stable revenue stream. (For more information with investing with oil, read Oil: A Big Investment With Big Tax Breaks.)

International
Newpark Resources has also diversified geographically and is no longer completely dependent on business in North America. The company reported that 29% of its revenue in 2010 was from outside North America, compared to only 13% in 2006.

Newpark Resources most important international market is Brazil. In 2010, the company reported $61 million in sales here, up from $26 million in 2009. Other important international markets include Italy, Algeria, Libya and Tunisia.

Newpark Resources plans to continue this international diversification and recently purchased the drilling fluids business of Rheochem PLC. The acquisition gives the company exposure to the Australian, New Zealand and Indian markets.

Mats and Integrated Services
Newpark Resources also provides mat rentals and other related well site services, including portable roads to its customers. Mats and other products here are used to limit environmental damage during the drilling process. Revenues here have declined over the last five years from $101 million in 2006 to $69 million in 2010.

Environmental Services
Newpark Resources processes and disposes of non hazardous waste materials produced during the drilling process. The company owns several facilities in the Gulf Coast region and either recycles or injects the waste into disposal wells. Revenues here have also declined over the last five years, from $60 million in 2006 to $49 million in 2010.

Price Volatility
Newpark Resources is a small capitalization stock and can experience more price volatility that larger oil service companies. In October 2010, the stock lost 28% of its value after reporting financial results and commentary that disappointed investors.

The Bottom Line
Newpark Resources is dependent on revenue in the drilling fluids business and has to compete with the giants of the oil services industry. (For more information on oil, see Peak Oil: What To Do When The Wells Run Dry.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

comments powered by Disqus
Related Analysis
  1. Coffee Continues To Shine In The Commodities Market
    Chart Advisor

    Coffee Continues To Shine In The Commodities Market

  2. When To Buy Strongly Performing Stocks
    Chart Advisor

    When To Buy Strongly Performing Stocks

  3. The ADX Shows Strong Uptrends In These 4 Stocks
    Chart Advisor

    The ADX Shows Strong Uptrends In These 4 Stocks

  4. Falling Prices Are Dragging These Gold Stocks Down
    Chart Advisor

    Falling Prices Are Dragging These Gold Stocks Down

  5. Downward Trend Channels for the Market Correction
    Chart Advisor

    Downward Trend Channels for the Market Correction

Trading Center