Fourth-quarter results and 2017 guidance from the big four oil-field service companies—Schlumberger (NYSE: SLB), Halliburton (NYSE: BHI), Baker Hughes (NYSE: BHI) and Weatherford International (NYSE: WFT)—highlighted recovering drilling and completion activity in the US onshore market and ongoing challenges in international markets.
Once again, the prospect of increased upstream capital expenditures appears most robust in prolific US shale oil and gas fields, where exploration and production companies have taken advantage of the recovery in oil prices to hedge future output and ramp up spending.
The Permian Basin in West Texas may be the hottest area in terms of drilling activity, asset acquisitions and media coverage. That said, the recovery in the US rig count looks broader that one might expect, with the formerly out-of-favor Eagle Ford Shale and the Haynesville Shale posting surprisingly impressive gains.
In contrast, international capital expenditures are expected to remain flat to slightly down in 2017, with the Middle East and Russia regarded two markets with any upside.
Although we struggle to identify a compelling reason to buy any of the big four at current valuations, recent weakness in the energy sector—and questions from readers—have prompted us to delve into names that offer concentrated exposure to the US onshore market.
The bullish case for US oil-field services hinges on accelerating drilling and completion activity helping to relieve the capacity overhang built up during the boom years, potentially setting the stage for a recovery in pricing.
Industry survivors with superior scale and balance sheets may have an opportunity to take market share from smaller operators. Oil-field service companies have also slashed costs aggressively, providing earnings leverage to a recovery in volumes.
At the same time, investors must remember that many of these companies operate cyclical businesses and consider the extent to which current valuations have priced in any incremental upside in earnings.
We continue to expect short-cycle US shale plays to take market share in coming years, as underinvestment in deepwater plays and other complex developments manifests itself in the international decline rate. Chevron Corp (NYSE: CVX) and Exxon Mobil Corp’s (NYSE: XOM) plans to allocate a growing portion of their budgets to US shale development underscore this point.
The Energy Information Administration recently hiked its estimates for US oil production in 2017.
US natural-gas exports to Mexico will continue to grow over the next five years, creating opportunities for investors north and south of the border.
These emerging shale plays are driving the recent recovery in Midcontinent drilling activity.
Master limited partnerships issued significant amounts of debt and equity to build pipelines and other infrastructure needed to support the shale oil and gas revolution. The midstream construction boom has started to wind down, ushering in a period of consolidation when management teams focus on strengthening their balance sheets.
Enterprise Products Partners LP's acquisition of Azure Midstream Partners LP's gas-gathering and -processing assets marked the latest in a series of deals involving assets in the resurgent Haynesville Shale and the emerging Cotton Valley play. We explore what it all means and whether it's worth placing a bet.
While reading through transcripts of master limited partnerships' fourth-quarter earnings calls, we compiled a series of quotes from management teams that provide insight into some of the macro trends that will continue to drive returns and opportunities in the space.
We dig into the five master limited partnerships with the highest percentage of short interest.
The energy industry’s growing consumption of fresh water for hydraulic fracturing and approaches to disposing the resulting wastewater have created significant challenges. We highlight some of the solutions.
This week brought rush of third-quarter earnings and three acquisitions involving midstream MLPs. Here’s our take on this flurry of deal announcements.
Elliott and Roger on Mar. 30, 2017
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