money to maintain and operate these rigs once they’re built. The pressure-pumping equipment that’s used in fracking is expensive, too. E&P companies don’t want the costs associated with having crews on call to maintain these operations 24 hours a day, 365 days a year. Instead, if a drilling or well-completion operation hits a snag or specialized operations are needed, E&P firms want to call on an oilfield-services company that can quickly fix the problem... a business that controls a large emergency staff with the needed technical expertise and experience to get the job done. Plus, since these companies design and manufacture much of the equipment to drill, complete, and equip the wells, it makes sense that they also operate and supply those services. You can think of an oilfield-services company as the guy who comes to fix your office printer when it’s broken. You might spend hours trying to repair it yourself, but it’s a lot more efficient to call in the expert who makes a living doing it for hundreds of other customers. Today, the oilfield-services business is separated into many different segments... Some companies own and operate just the drilling rigs and supporting machinery. Others focus on maintaining the pressure-pumping equipment and cementing the well casings. Other companies only operate ships to haul large platforms of drilling equipment around the world. And some firms focus exclusively on providing helicopters and housing for
This group is responsible for much of the modern technology that's used in oil and gas production today.
seasonal crews. These companies all fall under the umbrella of oilfield services. Few companies have the breadth and depth to provide virtually all the services that qualify. So before you invest in this cycle, you have to understand...
THE BAROMETER FOR OILFIELD-SERVICES COMPANIES
To measure drilling activity and get an idea of what’s currently happening in the industry, we can look at the official rig count from oilfield- services firm Baker Hughes (BHGE), which just merged with conglomerate General Electric (GE) this week. This count tells us how many drilling rigs are actively running at any given time. Right now, 940 oil and gas rigs are operating in the U.S. That’s up from about 430 at this time last year. That means production is clearly ramping up across the sector today. Looking at the trends in rig activity can tell us a lot about the overall health of the oil and gas sector in general. As you can see on the following charts, it’s highly correlated.
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