Oilfield Services Notes: Transocean and Halliburton

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The oilfield services industry had a relatively news filled week, headlined by BP (NYSE:BP) settling remaining claims with Transocean (NYSE:RIG) and Halliburton (NYSE:HAL) relating to the 2010 Deepwater Horizon oil spill. In other news, Transocean published a rather lackluster monthly fleet status report, indicating that it had idled three more rigs and added a total of just $52 million in new contracts over the past month. Things also remained mixed on the macro front. U.S. benchmark WTI crude has seen a recovery over the last few weeks, rising to levels of around $60 per barrel, driven by inventory declines and projections of sequential monthly declines in output from the largest tight oil plays in the United States. However, despite the improved pricing environment, the U.S. oil rig count posted its 23rd straight weekly decline, as drillers continued to lay-down rigs amid tighter capital budgets. Here’s a quick look at the news that mattered in the oilfield services industry over the past week.

See Our Full Analysis For Oilfield Service Companies HalliburtonSchlumberger |Baker Hughes

U.S. Oil Rig Count Falls For 23rd Straight Week

Oil directed drilling activity in the United States declined for the 23rd straight week, falling by about 8 units since last week to 660 rigs,  as operators continued to lay down rigs as capital spending cuts continued to take effect amid volatile oil prices. [1] The oil rig count is down by about 55% since the beginning of this year and by about 59% from its mid-October 2014 highs. The gas rig count rose by 2 units over the week, coming in at 223 units. The horizontal rig count (oil and gas), an indicator of unconventional drilling activity, is down by about 49% year to date at about 685 rigs. The North American rig count has been a very closely watched metric in the oil markets over the last several months, as investors and traders try to gain a sense of direction for oil prices by examining supply side factors in the U.S. land drilling markets, which have been the primary cause of the oil glut.

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BP Settles Macondo-related Claims with Halliburton and Transocean

BP agreed to settle its remaining claims with oil-services firm Halliburton and offshore rig contractor Transocean over the 2010 Deepwater Horizon oil spill that resulted in the death of 11 workers and led to millions of barrels of oil spilling into the Gulf of Mexico. Both Halliburton and Transocean noted in press releases that they had settled all remaining claims with BP and were fully indemnified by BP against future court findings. [2] Transocean said that BP would pay it $125 million in compensation towards legal fees incurred, while adding that the companies will mutually release all claims against each other. Halliburton said it had reached an agreement with BP to settle all remaining claims and counterclaims between the companies, although it didn’t disclose the exact terms of the deal.

  • Trefis has a $50 price estimate for Halliburton, which is about 10% ahead of the current market price. We project the company’s FY 2015 revenues at $26 billion with an adjusted EPS of $1.51. This compares to a consensus estimate of $1.54 according to Reuters.

Transocean’s Lackluster Fleet Status Report

Transocean published its monthly fleet status report for the period ended May 18, indicating that it had added $52 million worth of contracts since its last report. The company’s GSF Development Driller II was awarded a contract extension for 100 days with Lukoil Romania at $315,000 per day (down from $355,000), while the GSF Rig 140 was awarded a contract extension for 120 days in with ONGC in India at a day rate of $156,000 (down from $260,000). The company also said that the Transocean Marianas, GSF Celtic Sea, and M.G. Hulme, Jr. are idle. [3] The market for offshore rig rentals remains challenging, to say the least, as low crude oil prices have made oil and gas companies more circumspect about committing more capital to higher-risk, longer-term offshore projects. While Transocean has been quite proactive about right-sizing its fleet, cutting operating costs and taking timely write downs, much of the company’s problems are industry-related and will ultimately hinge on improvements in rig demand. The company’s Q1 2014 earnings beat street estimates, but we believe that its poor contract coverage and the current market conditions will result in weaker results going forward.
  • Trefis has $21 price estimate for Transocean, which is slightly ahead of the current market price. We project the company’s 2015 revenues at about $7.45 billion with an adjusted EPS of about $1.47. This compares to a consensus range of between $1.2o to $3.39 according to Reuters.

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Notes:
  1. Baker Hughes Rig Count, May 15, 2015 []
  2. BP Settles Gulf Claims With Transocean, Halliburton, WSJ, May 2015 []
  3. Transocean Fleet Status Report []