The Driving Force Behind the US Oil Boom

[oilguy]

The shale revolution’s sweet spot is oilfield services, the lower-risk backbone of the American oil and gas boom that pays off regardless of a play’s economics.

Behind the stardom of the explorers and producers who have put themselves on the revolutionary shale map and absorb most of the risk—are the service providers who make up a highly lucrative market segment.

The US land-based rig count rose 3% over the last quarter, reaching a two-year high of 1,870 active rigs. A major factor in this growth has been an uptick in horizontal drilling in the Permian Basin, Texas’ revived giant, where the rig count was up 21% year-on-year.

And while oil prices slumped in October, drilling activity continues to rise, according to Baker Hughes, the third-largest oil services company. Baker Hughes (NYSE: BHI) rig count is up 3.8% in the fourth quarter of this year, compared to the third quarter.

RBC Capital Markets estimates that 20,061 horizontal wells will be drilled in the United States alone this year, with that number increasing by well over 1,000 in 2015. Overall, analysts are projecting a 5% increase in the US land rig count next year, with horizontal drilling rigs—already up 24% over last year--being the real movers here.

Oil prices are “no longer the only driver of that bus because continued efficiencies from pad drilling, hydraulic fracturing and increased stages per well continue to increase recoveries and lower costs per unit of oil and gas produced”, Natural Gas Intel quoted analysts as saying.
All the drilling poises the oil and gas services industry for big gains. For potential investors, it’s a good time, too, because the past couple of weeks have seen oil services oversold after West Texas Intermediate and Brent crude prices took a dive coming off their summer highs.

The Q3 conference calls from industry giants Baker Hughes Inc. and Schlumberger Ltd. (NYSE: SLB) were very positive—they see no changes in overall spending outlook from their customers.

Baker Hughes’ third-quarter profit rose 10% on higher revenue across all segments.

And even though oil services giants such as Halliburton (NYSE: HAL) are low risk and aren’t experiencing any downturn whatsoever as a result of the oil price slump, their stocks have been crushed.

Small cap services stocks have fared even worse. But business continues to boom for these operators as well.

Dave Werklund is Chairman of Calgary-based Aveda Transportation and Energy Services —whose stock has gone from $5.85-$4 in the last two months, despite no downturn in business.

At over $100 million revenue, Aveda is the largest pure-play drill rig mover in the United States. Today its footprint covers over 80% of the rig-moving market, from Alberta all the way down to Texas.

“With over 2,000 active rigs operating across North America today, and an average rig being moved approximately 17 times per year, the rig-moving industry is set for phenomenal gains,” Dave Werklund, Executive Chairman of Calgary-based Aveda Transportation and Energy Services (AVE-TSXv), told Oilprice.com.

This little known segment is actually a $2-billion niche in the services sector.

Once horizontal wells are drilled from a pad, the fully constructed rig has to be dismantled, moved to the next location using hydraulic walking or skidding systems, and then put back together.

Producers are demanding this work be done faster and safer than ever before. It’s a service that continues to be in high demand.

The advent of pad drilling, which allows the drilling of multiple wells from a single pad, is also transforming the services industry from equipment design and leasing to the task of moving the larger loads from pad to pad.

“With the conversion to pad drilling in the US, the size and weight of the rigs have increased exponentially,” says Werklund. That was a lucky break for Aveda, as they already had much bigger trucks in their fleet because of the bigger rigs their original Canadian customers used. As soon as they came down to the US, producers began using their services.

The general consensus is that American producers will not stop drilling even with an oil price of $80 per barrel. Instead, they’re digging in.

The lesson for investors? While energy service stocks have seen a crushing six weeks—in tandem with oil prices—activity levels have not slowed.

Source: http://oilprice.com/Energy/Energy-Gener ... -Boom.html

By. James Stafford of Oilprice.com

[PS_RalphW]

Putting a shale oil drilling services adds on a web site trumpeting the imminent collapse of drilling rates in shale oil strikes me as an act of desperatition.

[frayne]

That is why Saudi Arabia cut their oil price, but I doubt that they will cut their oil price forever.

[Little John]

I wonder if the cut in oil prices by the Arabs and the consequent temporary fall in oil prices elsewhere in the world, is apart of a US led strategy to break the Rouble and, by extension, the Russian state.

[biffvernon]

The general consensus is that American producers will not stop drilling even with an oil price of $80 per barrel. Instead, they’re digging in.

The lesson for investors? While energy service stocks have seen a crushing six weeks—in tandem with oil prices—activity levels have not slowed.

I guess so long as investors believe there are profits to be made in the future they will continue to invest in the services industry. That allows the services industry to keep paying themselves out of incoming investment money rather than hydrocarbon sales.
What's a Ponzi scheme?

[raspberry-blower]

I wonder if the cut in oil prices by the Arabs and the consequent temporary fall in oil prices elsewhere in the world, is apart of a US led strategy to break the Rouble and, by extension, the Russian state.

Here's a timely article from William Engdahl:

By now even the New York Times is openly talking about the secret Obama Administration strategy of trying to bankrupt Russia by using its oil-bloated Bedouin bosom buddy, Saudi Arabia, to collapse the world price of oil. However, it’s beginning to look like the neo-conservative Russia-haters and Cold war wanna-be hawks around Barack Obama may have just shot themselves in their oily foot. As I referred to it in an earlier article, their oil price strategy is basically stupid. Stupid, as all consequences have not been taken into account. Take now the impact on US oil production as prices plummet.

The collapse in US oil prices since September may very soon collapse the US shale oil bubble and tear away the illusion that the United States will surpass Saudi Arabia and Russia as the world’s largest oil producer. That illusion, fostered by faked resource estimates issued by the US Department of Energy, has been a lynchpin of Obama geopolitical strategy.

Now the financial Ponzi scheme behind the increase of US domestic oil output the past several years is about to evaporate in a cloud of fictitious smoke. The basic economics of shale oil production are being ravaged by the 23% oil price drop since John Kerry and Saudi King Abdullah had their secret meeting near the Red Sea in early September to agree on the Saudi oil price war against Russia.

Has Washington just shot itself in the oily foot?

It's all part of an ill advised strategy to try and protect the Petrodollar - mainly because the Russians are moving to other currencies. It will backfire badly...

[raspberry-blower]

What's a Ponzi scheme?

I do hope that's a rhetorical question, Biff

For the hard of comprehending Charles Ponzi

It's worth keeping an eye on the financial news to see what the energy companies are doing with their profits. The current trend in the corporate world is spending more and more on share buybacks - in some instances up to 95% of their profits
If the oil companies can't make shale oil profitable with 0% interest rates on a mountain of debt and with an oil price in excess of $100+ - what chance if one of those is longer true? Are they just going to buy back their own shares instead? Watch this space..