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Re: What do "We" think of Penn West" ?
Tough stretch for several oil price and production derivative plays.
Below are some select excerpts from various Haliburton executive comments during the 3Q15 Earnings call, 10-19-2015.
Haliburton shares are down from ~$67 in June 2014 to ~$37 at present.
As expected, it was another very challenging quarter for theservices industry. Activity levels and pricing took another hit across the globe, as our customers respond to the impact of reduced commodity prices, and the pressure that their own shareholders are putting on them. Considering the difficult headwinds that were working against us, I'm actually very pleased with our overall financial results for the third quarter, especially for our Eastern Hemisphere operations.
As expected, North America revenue and operating income declined further as a result of lower activity levels and pricing pressure. However,relative to the overall market, I am pleased with our performance. From the peak that we saw last November, our completions related activity has declined approximately 18%, relative to a 58% reduction in the U.S. land rig count.
Now, turning to operations, in North America prices continue to erode during the third quarter, impacting the total services industry profitability, obviously including ourselves. We believe these prices are clearly unsustainable, but as we have been saying all along, pricing cannot stabilize until activity stabilizes.
Looking ahead to the fourth quarter, visibility is murky at best. Based on current feedback, we believe most operators have exhausted their 2015 budgets, and will take extended breaks, starting as early as thanksgiving. Therefore our activity levels could drop substantially in the last five weeks of the year.
In my 22 years in this business, I've never seen a market where we've had less near-term visibility. In reality, we are managing this business on a near real-time basis, customer-by-customer, district-by-district, product line-by-product line, and, yes, even crew-by-crew. But you know me, and you know our management team. Nobody knows the North America land market better than us. We are the execution company, and we know what leverage to pull to make this market work.
A comparison of our third quarter results to the second quarter of 2015. Total company revenue of 5.6 billion represented a 6% decline, while operating income declined 21% to 506 million. North America led the decline as a result of continued activity and pricing headwinds.
Moving to North America, revenue declined 7% with operating income at near break even levels. Reduced activity levels throughout U.S. land were accompanied by further price reductions across the business, especially in the pumping-related product lines.
Given the ongoing decline in activity levels, we are reducing our capital expenditure guidance by an additional 200 million to $2.4billion for the year. This represents a 27% year-over-year decline.
Finally, let me give you some comments on our operations outlook starting with our international business. We believe the typical seasonal uptick in year end sales will be minimal this year, as customer budgets are exhausted, and may not fully offset continued pricing pressures. As such, we expect fourth quarter revenue and margins to come in flat to modestly lower, compared to the third quarter.
In North America, the prospects of reduced borrowing capacity for operators, and a prolonged holiday season make the fourth quarter challenging and difficult to predict. So far, the average horizontal rig countis down a little less than 10% from the third quarter average. If these headwinds play out, we estimate that the fourth quarter average horizontal rigcount could drop about 15% to 20% sequentially. We expect our North America revenues and margins to decline, but we anticipate sequential decrementals to be only in the mid-teens due to our cost reduction efforts.
So let me give you a little more granularity on North America by division. Our drilling-related businesses have been much more resilient than our completions related businesses. In fact, drilling division margins increased this quarter to 10%, and this is including the 400 basis point impact of the added cost that we are carrying in anticipation of the Baker Hughes acquisition.
Obviously, the most stressed part of our business is pumping. Now, this is the business that we know the best. It’s the business that recovers the fastest. It’s the business that recovers the most sharply, and we know what that path looks like.
It looks like this. It looks like staying with the fairway players in the basins that we know. It does not mean chasing every stake. It looks like staying with the customers that are loyal, even if that means working at a price that we don’t like, collaborating on our path forward that lowers their costs per BOE to a place where we can both be successful, and it looks like staying with the overall strategy to focus on long-term returns; meaning, we see a path to profitability.
This is a very simple solution, but simple does not mean easy. So if you are looking for a silver lining here, the most competitive piece of the business, pumping, is the one that we know the best. It’s the business that recovers the fastest and the most sharply, and you can be confident that we have the team that gets it done.
Last time we reported earnings, oil was in the upper 50s, and the outlook was cautiously optimistic. Since then, we saw oil drop into the 30s, which I can tell you elicited an immediate and visceral reaction from our customer base. And as I described at a conference during the quarter, the rig count followed the oil price down soon thereafter.
Now, this has caused us to continue to look carefully and strategically at the business and how we're structured to execute. In the short-term, we further adjusted our operations. Recent actions we’ve taken include partnering with our suppliers to find better ways to work together in these tougher times. Leveraging our logistics infrastructure, including higher rate usage of unit trains, and stacking additional equipment during the quarter where we either were unable to make an acceptable return, or cannot see a path to acceptable returns, and finally, rightsizing the business to reflect current activity levels.
Unfortunately, since the beginning of the year, market conditions have forced us to reduce our global headcount by over 21%. Now,these are always tough decisions affecting great people, but they are simply decisions that we have to make.
We have a two-pronged strategy. The first part being to control what we control in the short-term. And the second is looking beyond the cycle and preparing for the recovery. Q10 is our great example. The cost savings we derive from these new generation fleets is substantial compared tolegacy equipment; 25% less capital on location, 30% less labor on site, and up to 50% less maintenance cost. Q10 spreads now represent close to 50% of our fleet, and we should be near 60% by the end of the year.
I think it's –- there's really actually, I think, a different way you need to think about the customer base in North America, especially the independent customer base. And that’s essentially with the high decline curves that exist on these unconventional plays. They are really are indrill or die mode.
So if you go a year without drilling a well, and your production starts to turnover, you are going to have to start drilling or you are going to have to take your infrastructure apart that you’ve built up as a company. So I think that as we get to the end of the year, if these guys have money, they are going to drill it up, and that’s just the fact that it is.
Now, oil is at 60, I think the banks will be more comfortable with extending lines of credit with the debt positions that are there, but I think that the real key is going to be the production declines you see, and when these companies get to the point where they have to start drilling or they have to start dismantling their companies, and they are not going to want to do that.
So, I think it really depends on what their bankers are going to let them do or whether their stock price has reasonably well held up in this market. Obviously, some of our customers had their share prices just crushed, and some have pulled back, but also to the point where they do believe that maybe they can go back in the market for equity if there is a more optimistic view of where WTI prices are. I think the customer discussions are really -- we’re going to wait and see right now, but we are going to reload our capital for next year.
Some of them are talking about getting back to work as early as January, coming off a Q4 lull, and some, I think, are going to take a bit ofa wait and see, but I think very, very few of them, and certainly I don’t think I’ve had a single discussion where the customer are going to let themselves get into a position of a meaningful decline in production before they figure out away to start drilling again.
And then there is another group of customers out there that really view that there is a subset of the customer base that will not get access to money, that will see a decline, that have good acreage, and they aregoing to be absolutely juicy takeover candidates at that point. So I think it's just we just got to wait and see the -- these re-determinations are going on, and it looks, generally to me, like it’s a sort of kick-the-can-down-a-road approach that's being taken at this point. But that really just pushes the day of reckoning into sort of the first quarter of next year. But the reality is that the strong customers are going to survive. They are going to have money,and they’re going to drill at some point next year.
Originally posted by touchring
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Tough stretch for several oil price and production derivative plays.
Below are some select excerpts from various Haliburton executive comments during the 3Q15 Earnings call, 10-19-2015.
As expected, it was another very challenging quarter for theservices industry. Activity levels and pricing took another hit across the globe, as our customers respond to the impact of reduced commodity prices, and the pressure that their own shareholders are putting on them. Considering the difficult headwinds that were working against us, I'm actually very pleased with our overall financial results for the third quarter, especially for our Eastern Hemisphere operations.
As expected, North America revenue and operating income declined further as a result of lower activity levels and pricing pressure. However,relative to the overall market, I am pleased with our performance. From the peak that we saw last November, our completions related activity has declined approximately 18%, relative to a 58% reduction in the U.S. land rig count.
Now, turning to operations, in North America prices continue to erode during the third quarter, impacting the total services industry profitability, obviously including ourselves. We believe these prices are clearly unsustainable, but as we have been saying all along, pricing cannot stabilize until activity stabilizes.
Looking ahead to the fourth quarter, visibility is murky at best. Based on current feedback, we believe most operators have exhausted their 2015 budgets, and will take extended breaks, starting as early as thanksgiving. Therefore our activity levels could drop substantially in the last five weeks of the year.
In my 22 years in this business, I've never seen a market where we've had less near-term visibility. In reality, we are managing this business on a near real-time basis, customer-by-customer, district-by-district, product line-by-product line, and, yes, even crew-by-crew. But you know me, and you know our management team. Nobody knows the North America land market better than us. We are the execution company, and we know what leverage to pull to make this market work.
A comparison of our third quarter results to the second quarter of 2015. Total company revenue of 5.6 billion represented a 6% decline, while operating income declined 21% to 506 million. North America led the decline as a result of continued activity and pricing headwinds.
Moving to North America, revenue declined 7% with operating income at near break even levels. Reduced activity levels throughout U.S. land were accompanied by further price reductions across the business, especially in the pumping-related product lines.
Given the ongoing decline in activity levels, we are reducing our capital expenditure guidance by an additional 200 million to $2.4billion for the year. This represents a 27% year-over-year decline.
Finally, let me give you some comments on our operations outlook starting with our international business. We believe the typical seasonal uptick in year end sales will be minimal this year, as customer budgets are exhausted, and may not fully offset continued pricing pressures. As such, we expect fourth quarter revenue and margins to come in flat to modestly lower, compared to the third quarter.
In North America, the prospects of reduced borrowing capacity for operators, and a prolonged holiday season make the fourth quarter challenging and difficult to predict. So far, the average horizontal rig countis down a little less than 10% from the third quarter average. If these headwinds play out, we estimate that the fourth quarter average horizontal rigcount could drop about 15% to 20% sequentially. We expect our North America revenues and margins to decline, but we anticipate sequential decrementals to be only in the mid-teens due to our cost reduction efforts.
So let me give you a little more granularity on North America by division. Our drilling-related businesses have been much more resilient than our completions related businesses. In fact, drilling division margins increased this quarter to 10%, and this is including the 400 basis point impact of the added cost that we are carrying in anticipation of the Baker Hughes acquisition.
Obviously, the most stressed part of our business is pumping. Now, this is the business that we know the best. It’s the business that recovers the fastest. It’s the business that recovers the most sharply, and we know what that path looks like.
It looks like this. It looks like staying with the fairway players in the basins that we know. It does not mean chasing every stake. It looks like staying with the customers that are loyal, even if that means working at a price that we don’t like, collaborating on our path forward that lowers their costs per BOE to a place where we can both be successful, and it looks like staying with the overall strategy to focus on long-term returns; meaning, we see a path to profitability.
This is a very simple solution, but simple does not mean easy. So if you are looking for a silver lining here, the most competitive piece of the business, pumping, is the one that we know the best. It’s the business that recovers the fastest and the most sharply, and you can be confident that we have the team that gets it done.
Last time we reported earnings, oil was in the upper 50s, and the outlook was cautiously optimistic. Since then, we saw oil drop into the 30s, which I can tell you elicited an immediate and visceral reaction from our customer base. And as I described at a conference during the quarter, the rig count followed the oil price down soon thereafter.
Now, this has caused us to continue to look carefully and strategically at the business and how we're structured to execute. In the short-term, we further adjusted our operations. Recent actions we’ve taken include partnering with our suppliers to find better ways to work together in these tougher times. Leveraging our logistics infrastructure, including higher rate usage of unit trains, and stacking additional equipment during the quarter where we either were unable to make an acceptable return, or cannot see a path to acceptable returns, and finally, rightsizing the business to reflect current activity levels.
Unfortunately, since the beginning of the year, market conditions have forced us to reduce our global headcount by over 21%. Now,these are always tough decisions affecting great people, but they are simply decisions that we have to make.
We have a two-pronged strategy. The first part being to control what we control in the short-term. And the second is looking beyond the cycle and preparing for the recovery. Q10 is our great example. The cost savings we derive from these new generation fleets is substantial compared tolegacy equipment; 25% less capital on location, 30% less labor on site, and up to 50% less maintenance cost. Q10 spreads now represent close to 50% of our fleet, and we should be near 60% by the end of the year.
I think it's –- there's really actually, I think, a different way you need to think about the customer base in North America, especially the independent customer base. And that’s essentially with the high decline curves that exist on these unconventional plays. They are really are indrill or die mode.
So if you go a year without drilling a well, and your production starts to turnover, you are going to have to start drilling or you are going to have to take your infrastructure apart that you’ve built up as a company. So I think that as we get to the end of the year, if these guys have money, they are going to drill it up, and that’s just the fact that it is.
Now, oil is at 60, I think the banks will be more comfortable with extending lines of credit with the debt positions that are there, but I think that the real key is going to be the production declines you see, and when these companies get to the point where they have to start drilling or they have to start dismantling their companies, and they are not going to want to do that.
So, I think it really depends on what their bankers are going to let them do or whether their stock price has reasonably well held up in this market. Obviously, some of our customers had their share prices just crushed, and some have pulled back, but also to the point where they do believe that maybe they can go back in the market for equity if there is a more optimistic view of where WTI prices are. I think the customer discussions are really -- we’re going to wait and see right now, but we are going to reload our capital for next year.
Some of them are talking about getting back to work as early as January, coming off a Q4 lull, and some, I think, are going to take a bit ofa wait and see, but I think very, very few of them, and certainly I don’t think I’ve had a single discussion where the customer are going to let themselves get into a position of a meaningful decline in production before they figure out away to start drilling again.
And then there is another group of customers out there that really view that there is a subset of the customer base that will not get access to money, that will see a decline, that have good acreage, and they aregoing to be absolutely juicy takeover candidates at that point. So I think it's just we just got to wait and see the -- these re-determinations are going on, and it looks, generally to me, like it’s a sort of kick-the-can-down-a-road approach that's being taken at this point. But that really just pushes the day of reckoning into sort of the first quarter of next year. But the reality is that the strong customers are going to survive. They are going to have money,and they’re going to drill at some point next year.
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