The first earnings reports from the oil services industry for the third quarter of 2012 hints at continued weak conditions in the North American land market, and investors should get used to even more price volatility than usual in this sector, as investors absorb further reports during earning season.
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Big Three Oil Service
Schlumberger (NYSE:SLB), Halliburton (NYSE:HAL) and Baker Hughes (NYSE:BHI) all reported earnings last week for the third quarter of 2012 and disclosed similar commentary on sluggish conditions in the onshore United States.
Schlumberger reported "weakness in the land hydraulic fracturing market" in North America due to oversupply of hydraulic horsepower, which led to pricing weakness. The company also said that the coiled tubing market was showing initial signs of a slowdown.
Halliburton saw revenue in North America drop 5% and blamed "pricing pressure in hydraulic fracturing." The company also said that customers "moderated activity" to keep spending within 2012 capital budgets.
Baker Hughes reported that lower margins were caused by the "well-known imbalance" in the hydraulic fracturing market in North America. The company also noted a more pronounced seasonal slowdown in Canadian activity.
SEE: A Guide To Investing In Oil Markets
United States Onshore
Despite these issues from the oil service companies, the industry continued to develop onshore shale gas and oil plays in the U.S. last week, with CONSOL Energy (NYSE:CNX) reporting an operations update for the Marcellus Shale. The company said that a well in central Pennsylvania produced at a peak rate of 23.7 million cubic feet per day, a record for CONSOL Energy in that area. Other record-breaking wells were reported in southwest Pennsylvania and West Virginia, with peak rates of 15.3 million and 9.2 million cubic feet of natural gas per day, respectively.
Range Resources (NYSE:RRC) also released its operations update, reporting 47% year over year and 10% sequential production growth for the third quarter of 2012. The production growth was above guidance with the company, attributing the strong performance to the aggressive development of the Marcellus Shale and Mississippian plays.
Exxon Mobil (NYSE:XOM) announced the purchase of Celtic Exploration (TSE:CLT.TO), a Canadian oil and gas company with exposure to the liquids-rich Montney and Duvernay Shale in Western Canada. Exxon Mobil will pick up 559,000 net acres prospective for these two wet gas plays, as the company looks to add to its North American portfolio.
SEE: Oil And Gas Industry Primer
Murphy Oil (NYSE:MUR) is following the industry trend of breaking apart and announced the separation of its downstream assets, including a large retail gas operation in the U.S. The company believes that greater strategic focus and financial flexibility will occur with two separate independent public companies.
Murphy Oil also delighted investors with several other actions including the payment of a $2.50 per share dividend and the authorization of a stock repurchase program of up to $1 billion.
The Bottom Line
The big three oil service companies reported results last week, reminding investors of the continued weak conditions in the North American land market. This issue will cause extra price volatility, as the industry reports earnings and should be watched by investors who are active here.
At the time of writing, Eric Fox did not own any shares in any company mentioned in this article.