Oil Field Services Firms' Earnings are Good Enough (DO, NE, HAL, WFT, SLB, RIG)

How investors view the oil field services business depends a lot on whether a company is heavily involved in offshore drilling. Onshore drillers have seen share prices rise steadily as production companies in the US have increased drilling in shale gas areas. Offshore drillers’ shares have taken a pounding due to the moratorium on drilling after the disaster in the Gulf of Mexico.
That may be about to turn around because the moratorium has been lifted and offshore drilling activity picks up and new onshore drilling levels off. Diamond Offshore Drilling Inc. (NYSE:DO) and Noble Corp. (NYSE:NE) reported decent earnings this morning, following good earnings earlier this week from Halliburton Co. (NYSE:HAL) and Weatherford International Ltd. (NYSE:WFT). Schlumberger Ltd. (NYSE:SLB), the largest oil field services firm by market cap, reports tomorrow, and Transocean Ltd. (NYSE:RIG) reports early next month.
Diamond reported an year-over-year EPS decline of 45%, from $2.62 to $1.43. Revenues were down 12% as well, from $908.4 million to $799.7 million. Analysts had been expecting EPS of $1.34 on revenue of $796.5 million. In essence, Diamond cleared a very low bar. To take some of the sting out, the company declared a special cash dividend of $0.75/share payable on December 1 to shareholders of record on November 1.
Noble Corp. saw its revenue fall 32% year-over-year for the quarter. The company posted EPS of $0.34, a penny below estimates, and revenue of $613 million, far below expectations of $635 million. Noble is the second-largest offshore driller in the world, and like Diamond, suffered from the Gulf drilling moratorium. The impact on Transocean is certain to be harsh as well.
Halliburton and Weatherford were much less exposed to the downturn in offshore activity, even though Halliburton was the cement contractor on the blown-out Gulf well. Weatherford’s international revenue fell off more than 6% in the quarter, and its Mexico operations were severely hit. The company’s rig count fell from 50 at the beginning of 2010 to just 3 at the end of the third quarter.
Schlumberger is expected to post third-quarter EPS of $0.70 on revenue of $6.83 billion when it reports earnings tomorrow. Like Halliburton, Schlumberger’s results are expected to be good due to its extensive onshore operations.
After rising in early trading, Diamond shares are down about 1% at noon, while Noble’s shares are off about -1.4%. Halliburton shares are up about 1%, Weatherford and Transocean shares are down about -0.5%, and Schlumberger shares are off about -0.25%.
Paul Ausick