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BJ Services Company (BJS)
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==Trends and Forces== ==Trends and Forces==
 +===Rising oil and natural gas prices spurring drilling activity===
 +As of the first quarter of 2008, [[natural gas]] prices were up 20% from 2007 while [[oil prices]] were up 69%.<ref>[http://www.bjservices.com/website/bjinvest.nsf/SECFrameset?openframeset BJS Q1 2008 pg. 19]</ref> Higher market prices for oil and natural gas create an incentive for [[E&P]] companies to drill new wells and maintain existing ones. In the same quarter, the total number of oilfield drilling rigs in operation reached a ten-year high in both the U.S. and internationally, with 1,770 rigs and 989 active rigs, respectively.<ref>[http://www.bjservices.com/website/bjinvest.nsf/SECFrameset?openframeset BJS Q1 2008 pg. 19]</ref> Increased demand for oil wells leads to higher demand for BJ Services' oilfield services as well; BJS' revenue in the first quarter of 2008 grew 8% over the previous quarter.
-===Higher [[Oil Prices]] and [[Natural gas]] Prices Increase Drilling Activity===+===Demand for natural gas from shale beds on the rise===
 +Natural gas reserves located in shale beds have largely been ignored in the past due to the high costs and difficulty of drilling through shale. With the rising price of natural gas, however, these shale reserves have become increasingly viable alternatives. In response to this trend, BJS has developed new technology for fracturing shale wells and improving production. In the [[Barnett Shale]] of North Texas, BJS has applied a new technique called ''simo fracs'', in which multiple wells are fractured simultaneously.<ref>[http://www.bjservices.com/website/bjinvest.nsf BJ Services 2007 Annual Report pg. 4]</ref> Additionally, BJS has developed a coiled tubing fracturing system called ''OptiFrac'' that boosts natural gas production in multi-zone reservoirs.<ref>[http://www.bjservices.com/website/bjinvest.nsf BJ Services 2007 Annual Report pg. 9]</ref> These technologies have already been implemented in shale reserves in Louisiana and Texas.
-Higher [[Oil Prices| oil]] and [[Natural gas| 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| natural gas]] prices were up 20% while oil was up 69% in Q1 2008.<ref>[http://www.bjservices.com/website/bjinvest.nsf/SECFrameset?openframeset BJS Q1 2008 pg. 19]</ref> 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 total number of rigs drilling in the U.S. and internationally has reached a ten year high of 1770 rigs and 989 rigs respectively.<ref>[http://www.bjservices.com/website/bjinvest.nsf/SECFrameset?openframeset BJS Q1 2008 pg. 19]</ref> 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.+===4,000 new offshore oil wells drilled in 2007===
 +In June 2008, President Bush pushed to lift the ban on offshore drilling in U.S. coastal waters in a plan also supported by presidential candidate [[Election 2008|John McCain]]. Even without President Bush's plan, offshore drilling is already on the rise, with nearly 4,000 offshore wells drilled in 2007, up 25% from the 3,200 drilled in 2003.<ref>[http://www.energyfiles.com/advertisingfiles/Offshore%20Drilling%202008-2012%20LEAFLET.pdf Douglas Westwood:The World Offshore Drilling Spend Forecast 2008-2012]</ref> From 2006 to 2007, BJS increased its revenue from [[Deepwater Oil Exploration|deepwater]] services by 50% and established itself as the second-largest provider of cementing units in the Gulf of Mexico.<ref>[http://www.bjservices.com/website/bjinvest.nsf BJ Services 2007 Annual Report pg. 8]</ref> In 2007, oil companies spent $18 billion on deepwater drilling; of this, just over $3.6 billion was spent on support services from companies like BJS.<ref>[http://www.energyfiles.com/advertisingfiles/Offshore%20Drilling%202008-2012%20LEAFLET.pdf Douglas Westwood:The World Offshore Drilling Spend Forecast 2008-2012]</ref>
-===Emerging Shale [[Natural gas| Natural Gas]] Plays Cater to BJS Fracturing Technology===+===Large oilfield discovered off Brazilian coast===
- +[[Petrobras (PBR)]] has outlined a plan to contract or build 69 deepwater drill-ships by 2017.<ref>[http://www.nytimes.com/2008/06/19/business/19drillship.html?partner=rssnyt NYTimes: Dearth of Ships Delays Drilling of Offshore Oil June 08]</ref> This came after the November 2007 discovery of a large oilfield 200 miles south of Rio de Janeiro.<ref>[http://www.nytimes.com/2008/06/19/business/19drillship.html?partner=rssnyt NYTimes: Dearth of Ships Delays Drilling of Offshore Oil June 08]</ref> By the end of 2007, BJS had signed contracts to provide services for three of Petrobras' offshore vessels.<ref>[http://www.bjservices.com/website/bjinvest.nsf BJ Services 2007 Annual Report pg. 4]</ref> As a result, BJS reported strong growth in its Latin American business, with revenue from the region up 43% quarter-over-quarter in Q1 2008.<ref>[http://www.bjservices.com/website/bjinvest.nsf/SECFrameset?openframeset BJS Q1 2008 pg. 22]</ref>
-Shale [[Natural gas| 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| natural gas]] prices and improved fracturing technology. In the U.S. alone, they are estimated to contain 780 trillion cubic feet of [[Natural gas| natural gas]].<ref>[http://www.slb.com/media/services/solutions/reservoir/shale_gas.pdf Schlumberger: Shale Gas Report]</ref> In comparison, the U.S. uses roughly 23 trillion cubic feet of [[Natural gas| natural gas]] a year and only produces 19 trillion cubic feet.<ref>[http://www.slb.com/media/services/solutions/reservoir/shale_gas.pdf Schlumberger: Shale Gas Report]</ref> 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,<ref>[http://www.slb.com/media/services/solutions/reservoir/shale_gas.pdf Schlumberger: Shale Gas Report]</ref> BJS has applied a new technique called “simo fracs.” This technique involves simultaneously fracturing multiple wells, creating greater [[Natural gas| natural gas]] flow.<ref>[http://www.bjservices.com/website/bjinvest.nsf BJ Services 2007 Annual Report pg. 4]</ref> 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.<ref>[http://www.bjservices.com/website/bjinvest.nsf BJ Services 2007 Annual Report pg. 9]</ref> 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| 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.<ref>[http://www.bjservices.com/website/bjinvest.nsf BJ Services 2007 Annual Report pg. 9]</ref>+
- +
-===BJS Positioned for Global Offshore [[Deepwater Oil Exploration| Deepwater Drilling Expansion]]===+
- +
-The main driver for increased [[Deepwater Oil Exploration| deepwater drilling]] is higher oil prices. [[Deepwater Oil Exploration| Deepwater drilling]] becomes profitable with oil at $60 a barrel.<ref>[http://www.cnn.com/2008/POLITICS/06/18/bush.offshore/index.html CNN News: Bush asks Congress to clear way for offshore oil drilling June 08]</ref> With oil trading well above $100 a barrel, experts foresee profits and thus activity in offshore drilling.<ref>[http://www.cnn.com/2008/POLITICS/06/18/bush.offshore/index.html CNN News: Bush asks Congress to clear way for offshore oil drilling June 08]</ref>+
- +
-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 [[Election 2008| John McCain]]. However, even without this new plan, which would open up an estimated 16 billion barrels of oil (Energy Information Administration) for drilling,<ref>[http://www.nytimes.com/2008/06/18/washington/18drill.html NYTimes: Bush Will Seek to End Offshore Oil Drilling Ban June 08]</ref> 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.<ref>[http://www.energyfiles.com/advertisingfiles/Offshore%20Drilling%202008-2012%20LEAFLET.pdf Douglas Westwood:The World Offshore Drilling Spend Forecast 2008-2012]</ref> Total expenditure on [[Deepwater Oil Exploration| deepwater drilling]] was $18 billion, of which just over a fifth was for support services provided by companies such as BJS.<ref>[http://www.energyfiles.com/advertisingfiles/Offshore%20Drilling%202008-2012%20LEAFLET.pdf Douglas Westwood:The World Offshore Drilling Spend Forecast 2008-2012]</ref> Furthermore, [[Deepwater Oil Exploration| deepwater drilling]] expenditures is expected to grow to be 31% (by 2012) of total offshore expenditures up from 27% in 2007.<ref>[http://www.energyfiles.com/advertisingfiles/Offshore%20Drilling%202008-2012%20LEAFLET.pdf Douglas Westwood:The World Offshore Drilling Spend Forecast 2008-2012]</ref> To position itself for the growth in [[Deepwater Oil Exploration| deepwater drilling]], BJS has placed dozens of its Seahawk cement mixing units on rigs and drillships.<ref>[http://www.bjservices.com/website/bjinvest.nsf BJ Services 2007 Annual Report pg. 8]</ref> BJS has increased its activity in deepwater services by 50%, positioning itself as the second largest cement service provider in the Gulf of Mexico.<ref>[http://www.bjservices.com/website/bjinvest.nsf BJ Services 2007 Annual Report pg. 8]</ref>+
- +
-===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.<ref>[http://www.nytimes.com/2008/06/19/business/19drillship.html?partner=rssnyt NYTimes: Dearth of Ships Delays Drilling of Offshore Oil June 08]</ref> This comes after a discovery of an oil field 200 miles south of Rio de Janeiro in November 2007.<ref>[http://www.nytimes.com/2008/06/19/business/19drillship.html?partner=rssnyt NYTimes: Dearth of Ships Delays Drilling of Offshore Oil June 08]</ref> The oilfield is estimated to contain 33 billion barrels of oil, making it one of the largest oil discoveries.<ref>[http://www.boston.com/news/world/latinamerica/articles/2008/04/14/brazil_oil_field_could_be_huge_find/ Boston Globe: Brazil oil field could be huge find Apr. 2008]</ref> 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 leading fracturing companies in that market.<ref>[http://www.bjservices.com/website/bjinvest.nsf BJ Services 2007 Annual Report pg. 4]</ref> As a result, the company has reported strong growth in the Latin America division, with revenue up 43% quarter-over-quarter in Q1 2008.<ref>[http://www.bjservices.com/website/bjinvest.nsf/SECFrameset?openframeset BJS Q1 2008 pg. 22]</ref> The company sees further growth of 5% in the number of rigs operating in that region from Q2 to Q3.<ref>[http://www.bjservices.com/website/bjinvest.nsf/SECFrameset?openframeset BJS Q1 2008 pg. 23]</ref>+
==Competition== ==Competition==

Revision as of 07:01, July 23, 2008

Houston, Texas-based BJ Services Company (BJS) is an oilfield services company. BJS provides pressure pumping and other oilfield services to oil and natural 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 decreased every quarter from Q1 2007 to Q4 2007, hurting BJS's net income.[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]

Contents

Business Segments

FY2007 revenue by segment and geography
FY2007 revenue by segment and geography[6]

BJ Services is organized into two major divisions:

Pressure Pumping (84%)

Pressure Pumping is the larger of BJS' two divisions, accounting for 84% of revenue in fiscal 2007.[7] This segment's services include cementing (to support the physical structure of oil wells) and stimulation services such as fracturing and acidizing, which help make it easier for oil to flow through the well during pumping.[8] The Pressure Pumping division's clients include both onshore and offshore oil exploration and production (E&P) companies.

Oilfield Services (16%)

The Oilfield Services division accounted for 16% of revenue in fiscal 2007.[9] This division produces chemicals and special tools used by E&P companies. It also provides diagnostic tests and maintenance services for companies' oilfields.[10]

Business Financials

Driven by growth in international markets, BJS' revenue in fiscal 2007 increased 10% from 2006, hitting a record high. In the same year, revenue from BJS' pressure pumping businesses in Latin America and Asia Pacific both grew by more than 20%.[11] Despite this, lower gross margins in the U.S./Mexico region and a 27% decline in drilling activity in Canada led to an overall 6% decline in net income for the year.[12][13]

Revenue and operating income, 2003-2007
Revenue and operating income, 2003-2007[14]

Trends and Forces

Rising oil and natural gas prices spurring drilling activity

As of the first quarter of 2008, natural gas prices were up 20% from 2007 while oil prices were up 69%.[15] Higher market prices for oil and natural gas create an incentive for E&P companies to drill new wells and maintain existing ones. In the same quarter, the total number of oilfield drilling rigs in operation reached a ten-year high in both the U.S. and internationally, with 1,770 rigs and 989 active rigs, respectively.[16] Increased demand for oil wells leads to higher demand for BJ Services' oilfield services as well; BJS' revenue in the first quarter of 2008 grew 8% over the previous quarter.

Demand for natural gas from shale beds on the rise

Natural gas reserves located in shale beds have largely been ignored in the past due to the high costs and difficulty of drilling through shale. With the rising price of natural gas, however, these shale reserves have become increasingly viable alternatives. In response to this trend, BJS has developed new technology for fracturing shale wells and improving production. In the Barnett Shale of North Texas, BJS has applied a new technique called simo fracs, in which multiple wells are fractured simultaneously.[17] Additionally, BJS has developed a coiled tubing fracturing system called OptiFrac that boosts natural gas production in multi-zone reservoirs.[18] These technologies have already been implemented in shale reserves in Louisiana and Texas.

4,000 new offshore oil wells drilled in 2007

In June 2008, President Bush pushed to lift the ban on offshore drilling in U.S. coastal waters in a plan also supported by presidential candidate John McCain. Even without President Bush's plan, offshore drilling is already on the rise, with nearly 4,000 offshore wells drilled in 2007, up 25% from the 3,200 drilled in 2003.[19] From 2006 to 2007, BJS increased its revenue from deepwater services by 50% and established itself as the second-largest provider of cementing units in the Gulf of Mexico.[20] In 2007, oil companies spent $18 billion on deepwater drilling; of this, just over $3.6 billion was spent on support services from companies like BJS.[21]

Large oilfield discovered off Brazilian coast

Petrobras (PBR) has outlined a plan to contract or build 69 deepwater drill-ships by 2017.[22] This came after the November 2007 discovery of a large oilfield 200 miles south of Rio de Janeiro.[23] By the end of 2007, BJS had signed contracts to provide services for three of Petrobras' offshore vessels.[24] As a result, BJS reported strong growth in its Latin American business, with revenue from the region up 43% quarter-over-quarter in Q1 2008.[25]

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.[26]

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.[27]

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).[28]

Completion Fluid Competition: Halliburton Company (HAL), Tetra Technologies and M-I LLC (joint venture of Schlumberger N.V. (SLB) and Smith International (SII)).[29]

Completion Tools Competition: Halliburton Company (HAL), Schlumberger N.V. (SLB), Baker Hughes (BHI), and Weatherford International (WFT).[30]


Oilfield Services Gross Revenue ($ Millions)
2005 Revenue 2006 Revenue 2007 Revenue
BJ Services[31] 3,243 4,368 4,802
Schlumberger N.V. (SLB)[32] 14,717 19,517 23,708
Halliburton[33] 10,100 12,955 15,264
Baker Hughes[34] 7,186 9,027 10,428
Weatherford International[35] 4,333 6,579 7,832


Oilfield Services Net Income ($ Millions)
2005 Net Income 2006 Net Income 2007 Net Income
BJ Services[36] 453 805 754
Schlumberger N.V. (SLB)[37] 2,207 3,710 5,177
Halliburton[38] 2,358 2,348 3,499
Baker Hughes[39] 878 2,419 1,514
Weatherford International[40] 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. ↑ DB Global Markets Research BJS Report 2008 pg. 4
  7. ↑ BJ Services 2007 10-K pg. 3
  8. ↑ BJ Services 2007 10-K pg. 5
  9. ↑ BJ Services 2007 10-K pg. 3
  10. ↑ BJ Services 2007 10-K pg. 6
  11. ↑ BJ Services 2007 Annual Report pg. 4
  12. ↑ BJ Services 2007 Annual Report pg. 2
  13. ↑ BJ Services 2007 Annual Report pg. 4
  14. ↑ Google Finance: BJS Income Statement
  15. ↑ BJS Q1 2008 pg. 19
  16. ↑ BJS Q1 2008 pg. 19
  17. ↑ BJ Services 2007 Annual Report pg. 4
  18. ↑ BJ Services 2007 Annual Report pg. 9
  19. ↑ Douglas Westwood:The World Offshore Drilling Spend Forecast 2008-2012
  20. ↑ BJ Services 2007 Annual Report pg. 8
  21. ↑ Douglas Westwood:The World Offshore Drilling Spend Forecast 2008-2012
  22. ↑ NYTimes: Dearth of Ships Delays Drilling of Offshore Oil June 08
  23. ↑ NYTimes: Dearth of Ships Delays Drilling of Offshore Oil June 08
  24. ↑ BJ Services 2007 Annual Report pg. 4
  25. ↑ BJS Q1 2008 pg. 22
  26. ↑ BJ Services 2007 10-K pg. 9-10
  27. ↑ BJ Services 2007 10-K pg. 9-10
  28. ↑ BJ Services 2007 10-K pg. 9-10
  29. ↑ BJ Services 2007 10-K pg. 9-10
  30. ↑ BJ Services 2007 10-K pg. 9-10
  31. ↑ Google Finance: BJS Income Statement
  32. ↑ Google Finance: SLB Income Statement
  33. ↑ Google Finance: HAL Income Statement
  34. ↑ Google Finance: BHI Income Statement
  35. ↑ Google Finance: WFT Income Statement
  36. ↑ Google Finance: BJS Income Statement
  37. ↑ Google Finance: SLB Income Statement
  38. ↑ Google Finance: HAL Income Statement
  39. ↑ Google Finance: BHI Income Statement
  40. ↑ Google Finance: WFT Income Statement
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