What Basic Energy Services said at the Barclays CEO Energy Conference
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Basic Energy Services (NYSE: BAS) confirmed earlier commentary on weak business trends affecting some of its service areas and will continue to be acquisitive as it looks to grow its business through what the company believes is a temporary pause in the current drilling cycle. These and other comments were made by management at the Barclays CEO Energy conference last week in New York.
Basic Energy Services is a diversified oil services company with an extensive footprint in the United States, including the Permian Basin, Eagle Ford Shale, Bakken, Marcellus Shale and other domestic onshore areas. The company provides a wide spectrum of services to exploration and production operators including hydraulic fracturing and other pumping services, coiled tubing, fluid services and well servicing.
Basic Energy Services was founded in the Permian Basin in 1992 and remains levered to this region, which stretches across parts of West Texas and Eastern New Mexico. Basic Energy Services generates approximately 40% of its total company revenue from operations in the Permian Basin and currently operates 188 well servicing rigs and has 40% of its fluid services fleet here.
Other Permian Players
Concho Resources (NYSE: CXO) is one of the largest operators in the Permian Basin and operates exclusively in this area. The company has 750,000 net acres under lease in the Permian Basin and drilled 221 gross wells in the second quarter of 2012. Concho Resources has allocated $1.4 billion in capital spending here in 2012 and expects this level of spending to boost production this year to nearly 30,000 barrels of oil equivalent (BOE) per day.
Not every exploration and production company sees value in the Permian Basin. Noble Energy (NYSE: NBL) just completed the sale of oil and gas properties here and received proceeds of $309 million. The company believes that it has enough opportunities in other areas of its oil and gas portfolio, including the Eastern Mediterranean, West Africa, Gulf of Mexico and other onshore areas in the United States.
Basic Energy Services restated the business outlook made by the company in July 2012 and expects demand to be flat through the end of 2012 and into early 2013. The company said that this trend was caused by crude oil price volatility and lower natural gas liquids prices, which triggered a cautious posture by its customer base.
Basic Energy Services also saw its business affected by the decline in dry gas drilling in the United States as the industry shifted capacity away from these areas and into plays that produce oil and liquids. The Permian Basin was the recipient of some of this capacity and Basic Energy Services experienced lower utilization on its equipment here and lower pricing.
Basic Energy Services estimates that the reduced demand and pricing will cut margins by 200 basis point sequentially in the both the third and fourth quarters of 2012.
Basic Energy Services has traditionally grown through acquisitions and has completed approximately 70 acquisitions over the last ten years. The company plans to continue this strategy and made three acquisitions for $42 million in the first half of 2012. Basic Energy Services is targeting smaller companies with premium equipment that can be integrated efficiently into the company’s operations.
Another oil services company that made a recent acquisition was C&J Energy Services (NYSE: CJES), which closed on the purchase of a private oil services company for $272.5 million in June 2012. C&J Energy Services said that the purchase diversifies the company’s offerings on a geographic basis and adds a wireline business to offer to its customers.
Basic Energy Services has already reduced capital spending due to current conditions and estimates that it will spend from $175 million to $200 million in 2012. The company will restrict capital spending next year and plans limited spending on growth projects in 2013. Basic Energy Services estimates that sustaining or maintenance capital spending totals $110 million annually.
Other oil service companies are also seeing a slowdown in North America. Halliburton (NYSE: HAL) recently reported a further weakening in business conditions in the region and said that revenue in the current quarter may be down as much as a mid-single digit percentage from the second quarter of 2012. The company said that margins may be down as much as 300 basis points due to lower demand and pricing.
Basic Energy Services is dealing with the current slowdown in the drilling cycle by maintaining the company's historical acquisition based growth strategy and looking to reduce costs where possible.
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