BJ Services Company (BJS)

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	BJ Services is the largest supplier of casing and tubular services in the North Sea. However, [[Weatherford International (WFT)]] is the largest provider of casing and tubular services in the world.<ref>[http://www.bjservices.com/website/bjinvest.nsf/SECFrameset?openframeset| BJ Services 2007 10-K pg. 9-10]</ref>		BJ Services is the largest supplier of casing and tubular services in the North Sea. However, [[Weatherford International (WFT)]] is the largest provider of casing and tubular services in the world.<ref>[http://www.bjservices.com/website/bjinvest.nsf/SECFrameset?openframeset| BJ Services 2007 10-K pg. 9-10]</ref>
-	BJS is the largest pre-commission and leak detection services provider for pipelines and one of the largest pipeline inspectors. In the pipeline services business, BJS competes with Pipeline Integrity International (subsidiary of [[General Electric Company (GE)]]), Tuboscope (subsidiary of [[National-Oilwell (NOV)]]) and H. Rosen Engineering GmbH.<ref>[http://www.bjservices.com/website/bjinvest.nsf/SECFrameset?openframeset| BJ Services 2007 10-K pg. 9-10]</ref>	+	BJS is the largest pre-commission and leak detection services provider for pipelines and one of the largest pipeline inspectors. In the pipeline services business, BJS competes with Pipeline Integrity International (subsidiary of [[General Electric Company (GE)]]), Tuboscope (subsidiary of [[National-Oilwell (NOV)]] and H. Rosen Engineering GmbH).<ref>[http://www.bjservices.com/website/bjinvest.nsf/SECFrameset?openframeset| BJ Services 2007 10-K pg. 9-10]</ref>
	Completion Fluid Competition: [[Halliburton Company (HAL)]], Tetra Technologies and M-I LLC (joint venture of [[Schlumberger N.V. (SLB)]] and [[Smith International (SII)]]).<ref>[http://www.bjservices.com/website/bjinvest.nsf/SECFrameset?openframeset| BJ Services 2007 10-K pg. 9-10]</ref>		Completion Fluid Competition: [[Halliburton Company (HAL)]], Tetra Technologies and M-I LLC (joint venture of [[Schlumberger N.V. (SLB)]] and [[Smith International (SII)]]).<ref>[http://www.bjservices.com/website/bjinvest.nsf/SECFrameset?openframeset| BJ Services 2007 10-K pg. 9-10]</ref>

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Revision as of 13:24, June 25, 2008

Houston, Texas-based BJ Services Company (BJS) is an oilfield service company. BJS provides pressure pumping and other oilfield services to oil and gas exploration and production (E&P) companies all over the world. BJS's main concern is to help E&P companies optimize production and extract more value from existing and new wells. In order to do this, the company completes, restores and services wells.

BJS is divided into two main divisions: Pressure Pumping and the Oilfield Services Group. Pressure pumping, which comprises cementing and stimulation services used during the completion of new wells along with the restoration and repair of existing wells, is the larger division. Through its smaller Oilfield Services Group, the company provides tubular services, inspections of pipe connections, and specialty chemical treatments.

While most of BJ Services's business is in the domestic U.S., BJS has a growing international presence, especially in markets like Brazil. BJS has landed three offshore vessel servicing contracts in Brazil and increased revenue in that market by 43% quarter-over-quarter in Q1 2008.^[1] The Brazilian market is set to grow further, with the Brazilian Petroleum Corporation (PBR) indicating plans to build and contract 69 more deepwater drill-ships by 2017.^[2]

Higher oil and natural gas prices lead to more drilling because E&P companies can drill in areas previously considered too expensive. The feasibility of offshore deepwater drilling internationally and domestically is made possible by oil prices above $60. While drilling activity has increased to 10 year highs in the U.S. and internationally, there has been more competition in the pressure pumping industry.^[3] In both domestic and international markets, BJS competes directly with larger rivals Schlumberger N.V. (SLB) and Halliburton Company (HAL) in pressure pumping and oilfield services. Because of this competition, margins have trended lower from Q1 2007 to Q4 2007, hurting BJS's profitability.^[4] To counter this negative effect, BJS has grown in its Oilfield Services Group at a faster rate. That division's revenue grew by 16% quarter-over-quarter in Q1 2008, out-pacing overall revenue growth by 8%.^[5]

Business Overview

BJ Services is organized into two major service categories and four business divisions:

Pressure Pumping

Business Divisions:

• U.S./Mexico Pressure Pumping
• Canada Pressure Pumping
• International Pressure Pumping

Pressure pumping was the company's larger division, accounting for 84% of fiscal 2007 revenues.^[8] BJS's pressure pumping services include cementing services and stimulations services, which help enhance production at wells. BJS provides these services to E&P companies, both onshore and offshore. BJS helps its customers complete, maintain and enhance production at wells.^[9] Cementing is generally used to provide structural support and prevent corrosion of the casing pipe in a well..^[10] Fracturing and acidizing services enhance the flow of oil/gas.^[11].

Oilfield Service

Business Division:

• Oilfield Services Group

The Oilfield Services Group accounted for 16% of total revenue in fiscal 2007.^[12] The Oilfield Services Group is responsible for casing services, pipe services, chemical products, design tools and completion fluids. Through these services, BJS provides structural integrity for the well, test pipelines and enhance production by reducing corrosion and contaminants at wells.^[13]

2007 Performance

Driven by growth in international markets, BJS's revenues were up 10% to a record high in fiscal 2007. BJS's Latin America and Asia Pacific pressure pumping businesses grew by over 20%.^[14] However, lower margins in the U.S./Mexico region and declining activity in Canada led to an overall 6% decline in net income.^[15] Because BJS receives over 50%^[16] of its revenue from the U.S. market, price pressure there has had a larger impact on its operating income. Canada and Russia were weak points in BJS's international growth. The company is moving out of Canadian and Russian markets in response to decreasing drilling. Canadian drilling activity was down 27% in 2007. BJS also reduced personnel in Russia by 38% in 2007.^[17]

Trends and Forces

Higher Oil Prices and Natural gas Prices Increase Drilling Activity

Higher oil and natural gas prices creates an incentive for Oil Exploration and Production companies to drill more wells as well as maintain older ones. Quarter over quarter, natural gas prices were up 20% while oil was up 69% in Q1 2008.^[18] As a result, BJS has more business opportunities to service older wells and complete new ones. In Q1 2008, with oil hitting record prices, the number of rigs drilling in the U.S. and internationally has reached a ten year high of 1770 rigs and 989 rigs respectively.^[19] The number of rigs in operation is a good measure of the number of wells being drilled, and thus hints at a favorable market environment for oilfield services. In fact, BJ Services's revenue increased 8% quarter-over-quarter in Q1 2008.

Emerging Shale Natural Gas Plays Cater to BJS Fracturing Technology

Shale natural gas reservoirs were ignored in the past largely due to cost and technological shortcomings. Shale has low porosity and shale wells are thus difficult to complete, making production inefficient. However, these shale reserves have emerged as a viable avenue for production because of higher natural gas prices and improved fracturing technology. In the U.S. alone, they are estimated to contain 780 trillion cubic feet of natural gas.^[20] In comparison, the U.S. uses roughly 23 trillion cubic feet of natural gas a year and only produces 19 trillion cubic feet.^[21] BJS has pioneered new techniques and technology for fracturing shale wells to improve production. In the Barnett Shale of North Texas, considered the most active shale play,^[22] BJS has applied a new technique called “simo fracs.” This technique involves simultaneously fracturing multiple wells, creating greater natural gas flow.^[23] Furthermore, BJ Services has developed a coiled tubing fracturing system called OptiFrac. Coiled tubing fracturing has become an effective and economical method for stimulating production from multi-zone reservoirs.^[24] BJ Services is at the forefront of this technological trend, placing it strategically for servicing deeper, tighter wells commonly found in these shale natural gas reserves. BJS has demonstrated the efficacy of its technology by servicing and extending the life of new deeper wells in east Texas and Louisiana by years.^[25]

BJS Positioned for Global Offshore Deepwater Drilling Expansion

The main driver for increased deepwater drilling is higher oil prices. Deepwater drilling becomes profitable with oil at $60 a barrel.^[26] With oil trading well above $100 a barrel, experts foresee profits and thus activity in offshore drilling.^[27]

In June 2008, President Bush pushed to lift the ban on offshore drilling in U.S. coastal waters, a plan also supported by Presidential candidate John McCain. However, even without this new plan, which would open up an estimated 16 billion barrels of oil (Energy Information Administration) for drilling,^[28] BJ Services foresees an influx of new offshore rigs in 2007/2008. Nearly 4,000 offshore wells were drilled in 2007, up 25% from the 3,200 or so drilled in the years before 2003.^[29] Total expenditure on deepwater drilling was $18 billion, of which just over a fifth was for support services provided by companies such as BJS.^[30] Furthermore, deepwater drilling expenditures is expected to grow to be 31% (by 2012) of total offshore expenditures up from 27% in 2007.^[31] To position itself for the growth in deepwater drilling, BJS has placed dozens of its Seahawk cement mixing units on rigs and drillships.^[32] BJS has increased its activity in deepwater services by 50%, positioning itself as the second largest cement service provider in the Gulf of Mexico.^[33]

BJS Servicing Brazil's Growing Oil Production Industry

Brazilian Petroleum Corporation (PBR) has outlined a plan to contract or build 69 deepwater drill-ships by 2017.^[34] This comes after a discovery of an oil field 200 miles south of Rio de Janeiro in November 2007.^[35] The oilfield is estimated to contain 33 billion barrels of oil, making it one of the largest oil discoveries.^[36] As of year end 2007, BJS has contracts to provide services for three offshore vessels in Brazil for Brazilian Petroleum Corporation (PBR), making BJS one of the major fracturing companies in that market.^[37] As a result, the company has reported strong growth in the Latin America division, with revenue up 43% quarter-over-quarter in Q1 2008.^[38] The company sees further growth of 5% in the number of rigs operating in that region from Q2 to Q3.^[39]

Competition

Pressure Pumping

BJ Services competes mainly with Schlumberger N.V. (SLB) and Halliburton Company (HAL), which have larger overall revenues in pressure pumping. Weatherford International (WFT), Calfrac Well Services, Trican Wel Services, San Antonio and Frac Technologies are smaller, but also direct competitors.^[40]

Oilfield Services

BJ Services is the largest supplier of casing and tubular services in the North Sea. However, Weatherford International (WFT) is the largest provider of casing and tubular services in the world.^[41]

BJS is the largest pre-commission and leak detection services provider for pipelines and one of the largest pipeline inspectors. In the pipeline services business, BJS competes with Pipeline Integrity International (subsidiary of General Electric Company (GE)), Tuboscope (subsidiary of National-Oilwell (NOV) and H. Rosen Engineering GmbH).^[42]

Completion Fluid Competition: Halliburton Company (HAL), Tetra Technologies and M-I LLC (joint venture of Schlumberger N.V. (SLB) and Smith International (SII)).^[43]

Completion Tools Competition: Halliburton Company (HAL), Schlumberger N.V. (SLB), Baker Hughes (BHI), and Weatherford International (WFT).^[44]

Oilfield Services Gross Revenue ($ Millions)

	2005 Revenue	2006 Revenue	2007 Revenue
BJ Services[45]	3,243	4,368	4,802
Schlumberger N.V. (SLB)[46]	14,717	19,517	23,708
Halliburton[47]	10,100	12,955	15,264
Baker Hughes[48]	7,186	9,027	10,428
Weatherford International[49]	4,333	6,579	7,832

Oilfield Services Net Income ($ Millions)

	2005 Net Income	2006 Net Income	2007 Net Income
BJ Services[50]	453	805	754
Schlumberger N.V. (SLB)[51]	2,207	3,710	5,177
Halliburton[52]	2,358	2,348	3,499
Baker Hughes[53]	878	2,419	1,514
Weatherford International[54]	467	896	1,071

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References

1. ↑ BJS Q1 2008 pg. 22
2. ↑ NYTimes: Dearth of Ships Delays Drilling of Offshore Oil June 08
3. ↑ Douglas Westwood:The World Offshore Drilling Spend Forecast 2008-2012
4. ↑ Credit Suisse BJS Report Jan. 2008 pg. 5
5. ↑ BJS Q1 2008 pg. 24
6. ↑ Finance: BJS Income Statement
7. ↑ DB Global Markets Research BJS Report 2008 pg. 4
8. ↑ BJ Services 2007 10-K pg. 3
9. ↑ BJ Services 2007 10-K pg. 3
10. ↑ BJ Services 2007 10-K pg. 4
11. ↑ BJ Services 2007 10-K pg. 5
12. ↑ BJ Services 2007 10-K pg. 3
13. ↑ BJ Services 2007 10-K pg. 6
14. ↑ BJ Services 2007 Annual Report pg. 4
15. ↑ BJ Services 2007 Annual Report pg. 2
16. ↑ DB Global Markets Research BJS Report 2008 pg. 4
17. ↑ BJ Services 2007 Annual Report pg. 4
18. ↑ BJS Q1 2008 pg. 19
19. ↑ BJS Q1 2008 pg. 19
20. ↑ Schlumberger: Shale Gas Report
21. ↑ Schlumberger: Shale Gas Report
22. ↑ Schlumberger: Shale Gas Report
23. ↑ BJ Services 2007 Annual Report pg. 4
24. ↑ BJ Services 2007 Annual Report pg. 9
25. ↑ BJ Services 2007 Annual Report pg. 9
26. ↑ CNN News: Bush asks Congress to clear way for offshore oil drilling June 08
27. ↑ CNN News: Bush asks Congress to clear way for offshore oil drilling June 08
28. ↑ NYTimes: Bush Will Seek to End Offshore Oil Drilling Ban June 08
29. ↑ Douglas Westwood:The World Offshore Drilling Spend Forecast 2008-2012
30. ↑ Douglas Westwood:The World Offshore Drilling Spend Forecast 2008-2012
31. ↑ Douglas Westwood:The World Offshore Drilling Spend Forecast 2008-2012
32. ↑ BJ Services 2007 Annual Report pg. 8
33. ↑ BJ Services 2007 Annual Report pg. 8
34. ↑ NYTimes: Dearth of Ships Delays Drilling of Offshore Oil June 08
35. ↑ NYTimes: Dearth of Ships Delays Drilling of Offshore Oil June 08
36. ↑ Boston Globe: Brazil oil field could be huge find Apr. 2008
37. ↑ BJ Services 2007 Annual Report pg. 4
38. ↑ BJS Q1 2008 pg. 22
39. ↑ BJS Q1 2008 pg. 23
40. ↑ BJ Services 2007 10-K pg. 9-10
41. ↑ BJ Services 2007 10-K pg. 9-10
42. ↑ BJ Services 2007 10-K pg. 9-10
43. ↑ BJ Services 2007 10-K pg. 9-10
44. ↑ BJ Services 2007 10-K pg. 9-10
45. ↑ Google Finance: BJS Income Statement
46. ↑ Google Finance: SLB Income Statement
47. ↑ Google Finance: HAL Income Statement
48. ↑ Google Finance: BHI Income Statement
49. ↑ Google Finance: WFT Income Statement
50. ↑ Google Finance: BJS Income Statement
51. ↑ Google Finance: SLB Income Statement
52. ↑ Google Finance: HAL Income Statement
53. ↑ Google Finance: BHI Income Statement
54. ↑ Google Finance: WFT Income Statement

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