Second quarter earnings season for the oil services industry is almost here, giving investors an opportunity to hear management commentary on current business trends in various service lines in both North America and internationally.
TUTORIAL: Five Minute Investing
In the current environment, this is especially important to help determine if the recent slowdown in economic growth and fall in oil prices have impacted spending plans by any of the exploration and production companies. Here are some items to watch out for:
Schlumberger (NYSE:SLB) is the largest oil services company in the market, and CEO Andrew Gould typically spends the first part of the earnings conference call giving an overview of the trends in various markets and service lines, and his outlook going forward.
Q2 Earnings Conference Call
During the Q2 2011 earnings conference call in April, Gould was encouraged by recent permitting activity in the deepwater Gulf of Mexico, and he anticipated an increase in activity during the balance of the year.
He was also positive about oil-directed activity in the North American land market, as rising oil prices supported increased drilling in that area.
Since he made these comments, oil prices have come down by more than $20 per barrel, and it will be interesting to see if management optimism has changed at all in these two markets.
Pricing trends are very important, and the company reported "very strong pricing momentum" in North America in the first part of 2011. Schlumberger indicated that this was particularly true in Drilling and Wireline, two of the company's technology-based product lines within the oilfield services segment.
Halliburton (NYSE:HAL) made similar comments on pricing trends in North America during its Q1 2011 conference call, with the company citing "improved pricing across most basins".
Weatherford International (NYSE:WFT) also cited considerable strength in North America, driven by the company's position in various unconventional resource basins. The company cited a "catch up in the volume and pricing" in certain oil service lines.
Another area that investors typically obsess about when reviewing earnings results is the issue of operating margins in the international oil services area, which were below margins reported in North America in the Q1 2011.
This is due to recent civil unrest in North Africa and other areas, as well as a more pronounced up cycle in North American drilling activity.
Baker Hughes (NYSE:BHI) reported international margins of 12.2% in Q1 2011, an improvement sequentially, bringing the company closer to its goal of mid-teen margins in this area by the end of 2011.
The Bottom Line
Investors should look for commentary on business trends during Q2 earnings calls to determine the strength and trajectory of the North American and international drilling cycle. (For more, 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!