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BJ Services Company (BJS) |
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WIKI ANALYSIS
While BJS 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
Other, smaller firms are also direct competitors to BJS' pressure pumping division:[26]
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)
| 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 |
| 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
- ↑ BJS 2007 10-K Part 1, Item 1, pg.3
- ↑ BJS Q1 2008 pg. 22
- ↑ NYTimes: Dearth of Ships Delays Drilling of Offshore Oil June 08
- ↑ BJS Q2 2008 pg. 19
- ↑ Douglas Westwood:The World Offshore Drilling Spend Forecast 2008-2012
- ↑ DB Global Markets Research BJS Report 2008 pg. 4
- ↑ BJ Services 2007 10-K pg. 3
- ↑ BJ Services 2007 10-K pg. 5
- ↑ BJ Services 2007 10-K pg. 3
- ↑ BJ Services 2007 10-K pg. 6
- ↑ BJ Services 2007 Annual Report pg. 4
- ↑ BJ Services 2007 Annual Report pg. 2
- ↑ BJ Services 2007 Annual Report pg. 4
- ↑ Google Finance: BJS Income Statement
- ↑ BJS Q1 2008 pg. 19
- ↑ BJS Q1 2008 pg. 19
- ↑ BJ Services 2007 Annual Report pg. 4
- ↑ BJ Services 2007 Annual Report pg. 9
- ↑ Douglas Westwood:The World Offshore Drilling Spend Forecast 2008-2012
- ↑ BJ Services 2007 Annual Report pg. 8
- ↑ Douglas Westwood:The World Offshore Drilling Spend Forecast 2008-2012
- ↑ NYTimes: Dearth of Ships Delays Drilling of Offshore Oil June 08
- ↑ NYTimes: Dearth of Ships Delays Drilling of Offshore Oil June 08
- ↑ BJ Services 2007 Annual Report pg. 4
- ↑ BJS Q1 2008 pg. 22
- ↑ BJ Services 2007 10-K pg. 9-10
- ↑ BJ Services 2007 10-K pg. 9-10
- ↑ BJ Services 2007 10-K pg. 9-10
- ↑ Google Finance: BJS Income Statement
- ↑ Google Finance: SLB Income Statement
- ↑ Google Finance: HAL Income Statement
- ↑ Google Finance: BHI Income Statement
- ↑ Google Finance: WFT Income Statement
- ↑ Google Finance: BJS Income Statement
- ↑ Google Finance: SLB Income Statement
- ↑ Google Finance: HAL Income Statement
- ↑ Google Finance: BHI Income Statement
- ↑ Google Finance: WFT Income Statement
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