BJ Services Company (BJS)

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-	Houston, Texas-based BJ Services Company (BJS) is an [[Oilfield services| oilfield services]] company. BJS provides pressure pumping and other [[Oilfield services| oilfield services]] to [[Oil & Gas Drilling & Exploration| oil and natural gas exploration and production (E&P) companies]] all over the world. BJS's main concern is to help [[Oil & Gas Drilling & Exploration| 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.	+	[[Image:BJLogo90x65.gif|left]] '''BJ Services Company ([[NYSE]]:BJS)''' provides pressure pumping and other [[oilfield services]] to [[Oil & Gas Drilling & Exploration|oil and natural gas exploration and production (E&P)]] companies. BJS makes products, such as chemicals and special tools, used in the process of finding and extracting [[oil]] and [[natural gas]]. BJS' services include maintaining and repairing customers' wells and using special techniques to boost well output.
-	BJS is divided into two main divisions: Pressure Pumping and the [[Oilfield services| 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| Oilfield Services]] Group, the company provides tubular services, inspections of pipe connections, and specialty chemical treatments.	+	While BJ Services earned 60% of its fiscal 2007 [[revenue]] in the U.S.,<ref>[http://www.bjservices.com/website/bjinvest.nsf/Website/2007AnnualReport/$file/2007AnnualRpt.pdf?OpenElement BJS 2007 10-K Part 1, Item 1, pg.3]</ref> it has a growing international presence. In 2007, BJS landed three major contracts with [[Petrobras (PBR)]] to provide pressure pumping services for three of its new [[deepwater]] drill-ships, leading to a 43% quarter-over-quarter increase in Q1 revenue from Latin America.<ref>[http://www.bjservices.com/website/bjinvest.nsf/SECFrameset?openframeset BJS Q1 2008 pg. 22]</ref> After discovering what is estimated to be the world's third-largest oil reserve, Petrobras also announced plans to build or contract 69 more 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>
-	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.<ref>[http://www.bjservices.com/website/bjinvest.nsf/SECFrameset?openframeset BJS Q1 2008 pg. 22]</ref> 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.<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>	+	Higher oil and natural gas prices lead to more drilling, since E&P companies can drill in areas previously considered too expensive. With crude oil and natural gas prices up 69% and 20%, respectively, in the second quarter of fiscal 2008,<ref>[http://www.bjservices.com/website/bjinvest.nsf/SECFrameset?openframeset BJS Q2 2008 pg. 19]</ref> drilling activity has increased to ten-year highs in the U.S. and internationally.<ref>[http://www.energyfiles.com/advertisingfiles/Offshore%20Drilling%202008-2012%20LEAFLET.pdf Douglas Westwood:The World Offshore Drilling Spend Forecast 2008-2012]</ref> 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.
-		+
-	Higher [[Oil Prices| oil]] and [[Natural gas| natural gas]] prices lead to more drilling because [[Oil & Gas Drilling & Exploration| E&P]] companies can drill in areas previously considered too expensive. The feasibility of offshore [[Deepwater Oil Exploration| 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.<ref>[http://www.energyfiles.com/advertisingfiles/Offshore%20Drilling%202008-2012%20LEAFLET.pdf Douglas Westwood:The World Offshore Drilling Spend Forecast 2008-2012]</ref> 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.<ref>Credit Suisse BJS Report Jan. 2008 pg. 5</ref> To counter this negative effect, BJS has grown in its [[Oilfield services| 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%.<ref>[http://www.bjservices.com/website/bjinvest.nsf/SECFrameset?openframeset BJS Q1 2008 pg. 24]</ref>	+
	==Business Segments==		==Business Segments==
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	==Trends and Forces==		==Trends and Forces==
	===Rising oil and natural gas prices spurring drilling activity===		===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.	+	As of the second quarter of FY2008, [[natural gas]] prices were up 20% over the same quarter in 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.
	===Demand for natural gas from shale beds on the rise===		===Demand for natural gas from shale beds on the rise===

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Revision as of 11:24, July 23, 2008

BJ Services Company (NYSE:BJS) provides pressure pumping and other oilfield services to oil and natural gas exploration and production (E&P) companies. BJS makes products, such as chemicals and special tools, used in the process of finding and extracting oil and natural gas. BJS' services include maintaining and repairing customers' wells and using special techniques to boost well output.

While BJ Services earned 60% of its fiscal 2007 revenue in the U.S.,^[1] it has a growing international presence. In 2007, BJS landed three major contracts with Petrobras (PBR) to provide pressure pumping services for three of its new deepwater drill-ships, leading to a 43% quarter-over-quarter increase in Q1 revenue from Latin America.^[2] After discovering what is estimated to be the world's third-largest oil reserve, Petrobras also announced plans to build or contract 69 more deepwater drill-ships by 2017.^[3]

Higher oil and natural gas prices lead to more drilling, since E&P companies can drill in areas previously considered too expensive. With crude oil and natural gas prices up 69% and 20%, respectively, in the second quarter of fiscal 2008,^[4] drilling activity has increased to ten-year highs in the U.S. and internationally.^[5] 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.

Business Segments

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]

Trends and Forces

Rising oil and natural gas prices spurring drilling activity

As of the second quarter of FY2008, natural gas prices were up 20% over the same quarter in 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 (estimated to be the third-largest known reserve in the world) 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

• Schlumberger N.V. (SLB)
• Halliburton Company (HAL)

Other, smaller firms are also direct competitors to BJS' pressure pumping division:^[26]

• Weatherford International (WFT)
• Calfrac Well Service Ltd.
• Trican Well Service Ltd.

Oilfield Services

• Weatherford International (WFT) is the largest provider of casing and tubular services in the world.^[27]

In the pipeline services business, BJS competes with:^[28]

• Pipeline Integrity International (a subsidiary of General Electric Company (GE))
• Tuboscope (a subsidiary of National-Oilwell (NOV) and H. Rosen Engineering GmbH)

Oilfield Services Gross Revenue ($ Millions)

	2005 Revenue	2006 Revenue	2007 Revenue
BJ Services[29]	3,243	4,368	4,802
Schlumberger N.V. (SLB)[30]	14,717	19,517	23,708
Halliburton[31]	10,100	12,955	15,264
Baker Hughes[32]	7,186	9,027	10,428
Weatherford International[33]	4,333	6,579	7,832

Oilfield Services Net Income ($ Millions)

	2005 Net Income	2006 Net Income	2007 Net Income
BJ Services[34]	453	805	754
Schlumberger N.V. (SLB)[35]	2,207	3,710	5,177
Halliburton[36]	2,358	2,348	3,499
Baker Hughes[37]	878	2,419	1,514
Weatherford International[38]	467	896	1,071

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References

1. ↑ BJS 2007 10-K Part 1, Item 1, pg.3
2. ↑ BJS Q1 2008 pg. 22
3. ↑ NYTimes: Dearth of Ships Delays Drilling of Offshore Oil June 08
4. ↑ BJS Q2 2008 pg. 19
5. ↑ Douglas Westwood:The World Offshore Drilling Spend Forecast 2008-2012
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. ↑ Google Finance: BJS Income Statement
30. ↑ Google Finance: SLB Income Statement
31. ↑ Google Finance: HAL Income Statement
32. ↑ Google Finance: BHI Income Statement
33. ↑ Google Finance: WFT Income Statement
34. ↑ Google Finance: BJS Income Statement
35. ↑ Google Finance: SLB Income Statement
36. ↑ Google Finance: HAL Income Statement
37. ↑ Google Finance: BHI Income Statement
38. ↑ Google Finance: WFT Income Statement

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