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What Does Coronavirus-Hit Q1 Earnings Hold for Oil Service?
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Investors will get a brief idea on how oilfield service firms have fared in the recently completed coronavirus-marred first quarter from Schlumberger Limited’s (SLB - Free Report) earnings announcement, scheduled for Apr 17.
Although a weak oil pricing scenario and reduced capital spending by U.S. explorers played spoilsport, rising rig count in international markets may have lent some support.
Oilfield Service Business Overview
Oilfield service players offer technologies to oil and natural gas drillers for efficient drilling and setting up of wells. Among the services offered are manufacturing and mending of equipment, which are utilized for extracting crude from wells.
Notably, drillers are now specializing in horizontal or angled drilling since explorers and producers are not finding it profitable to employ vertical drilling techniques on many wells. Oilfield service firms help explorers drill horizontal wells more efficiently.
Overall, the fate of all oil service firms is positively correlated to crude prices and also to the capital investment decisions of E&P operators.
Oil Price Plunges in Q1
Per the U.S. Energy Information Administration (EIA), average prices of West Texas intermediate (WTI) crude for the last two months of the March quarter were recorded at $50.54 per barrel and $29.21 per barrel, respectively. In comparison, average prices of the commodity were recorded significantly higher at $54.95 per barrel and $58.15 per barrel, respectively, in the last two months of first-quarter 2019. Only, the first month of the March quarter witnessed an increase in WTI oil price.
Weak global energy demand owing to the coronavirus outbreak mostly led oil prices to trade in the bearish territory, especially in the last two months of the quarter. The last month saw the lowest price in first-quarter 2020, since OPEC and Russia failed to agree on how much oil production to cut amid the pandemic.
U.S. Spending & Rig Count Tank
The weak commodity pricing scenario has primarily led U.S. drillers to remove rigs from the oil and gas resources. Per data provided by Baker Hughes Company (BKR - Free Report) , the average count of rigs for the months of January, February and March of 2020 were recorded at 791, 791 and 772, respectively.
In the respective months of first-quarter 2019, the count of rigs was reported at 1065, 1049 and 1023. The significant fall in year-over-year monthly rig tallies reflects a steep fall in spending by American drillers. This has likely hurt demand for oilfield services in the United States.
International Spending the Lone Bright Spot
Meanwhile, the count of oil drilling rigs in the international market has increased year over year in each of the three months of first-quarter 2020, per data provided by Baker Hughes Company. This implies improved oilfield service activities as well.
3 Oilfield Service Giants Unlikely to Beat Earnings Estimates
Despite a favorable international business scenario, the weak North American oilfield service operations have most likely offset the positive. In fact, our proven model does not conclusively predict an earnings beat for oilfield service bigwigs, Schlumberger Limited, Halliburton Company (HAL - Free Report) and Baker Hughes Company, this time around. Notably, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Based in Houston, TX, Schlumberger Limited is scheduled to report first-quarter 2020 earnings on Apr 17, before the opening bell. Although Schlumberger has a Zacks Rank of 3, its Earnings ESP of -10.00% makes surprise prediction difficult.
Halliburton Company is scheduled to report first-quarter earnings on Apr 20, before the opening bell. The earnings beat is unlikely as the Houston, TX-based oilfield service firm has an Earnings ESP of -2.00% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Baker Hughes Company is set to report first-quarter earnings on Apr 22, before the opening bell. The firm has a Zacks Rank #3 and an Earnings ESP of -30.45%.
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This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
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What Does Coronavirus-Hit Q1 Earnings Hold for Oil Service?
Investors will get a brief idea on how oilfield service firms have fared in the recently completed coronavirus-marred first quarter from Schlumberger Limited’s (SLB - Free Report) earnings announcement, scheduled for Apr 17.
Although a weak oil pricing scenario and reduced capital spending by U.S. explorers played spoilsport, rising rig count in international markets may have lent some support.
Oilfield Service Business Overview
Oilfield service players offer technologies to oil and natural gas drillers for efficient drilling and setting up of wells. Among the services offered are manufacturing and mending of equipment, which are utilized for extracting crude from wells.
Notably, drillers are now specializing in horizontal or angled drilling since explorers and producers are not finding it profitable to employ vertical drilling techniques on many wells. Oilfield service firms help explorers drill horizontal wells more efficiently.
Overall, the fate of all oil service firms is positively correlated to crude prices and also to the capital investment decisions of E&P operators.
Oil Price Plunges in Q1
Per the U.S. Energy Information Administration (EIA), average prices of West Texas intermediate (WTI) crude for the last two months of the March quarter were recorded at $50.54 per barrel and $29.21 per barrel, respectively. In comparison, average prices of the commodity were recorded significantly higher at $54.95 per barrel and $58.15 per barrel, respectively, in the last two months of first-quarter 2019. Only, the first month of the March quarter witnessed an increase in WTI oil price.
Weak global energy demand owing to the coronavirus outbreak mostly led oil prices to trade in the bearish territory, especially in the last two months of the quarter. The last month saw the lowest price in first-quarter 2020, since OPEC and Russia failed to agree on how much oil production to cut amid the pandemic.
U.S. Spending & Rig Count Tank
The weak commodity pricing scenario has primarily led U.S. drillers to remove rigs from the oil and gas resources. Per data provided by Baker Hughes Company (BKR - Free Report) , the average count of rigs for the months of January, February and March of 2020 were recorded at 791, 791 and 772, respectively.
In the respective months of first-quarter 2019, the count of rigs was reported at 1065, 1049 and 1023. The significant fall in year-over-year monthly rig tallies reflects a steep fall in spending by American drillers. This has likely hurt demand for oilfield services in the United States.
International Spending the Lone Bright Spot
Meanwhile, the count of oil drilling rigs in the international market has increased year over year in each of the three months of first-quarter 2020, per data provided by Baker Hughes Company. This implies improved oilfield service activities as well.
3 Oilfield Service Giants Unlikely to Beat Earnings Estimates
Despite a favorable international business scenario, the weak North American oilfield service operations have most likely offset the positive. In fact, our proven model does not conclusively predict an earnings beat for oilfield service bigwigs, Schlumberger Limited, Halliburton Company (HAL - Free Report) and Baker Hughes Company, this time around. Notably, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Based in Houston, TX, Schlumberger Limited is scheduled to report first-quarter 2020 earnings on Apr 17, before the opening bell. Although Schlumberger has a Zacks Rank of 3, its Earnings ESP of -10.00% makes surprise prediction difficult.
Halliburton Company is scheduled to report first-quarter earnings on Apr 20, before the opening bell. The earnings beat is unlikely as the Houston, TX-based oilfield service firm has an Earnings ESP of -2.00% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Baker Hughes Company is set to report first-quarter earnings on Apr 22, before the opening bell. The firm has a Zacks Rank #3 and an Earnings ESP of -30.45%.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
See their latest picks free >>