Jefferies' Oil Services & Equipment Houston Bus Tour

Jefferies recently completed a Houston bus tour and hosting of investor meetings with several Oil Servcies and Equipment companies.

The companies included Schlumberger Limited. SLB, Halliburton Company HAL, Patterson-UTI Energy, Inc. PTEN, Diamond Offshore Drilling Inc DO, Forum Energy Technologies Inc FET and Technip TEC.

Analysts led by Brad Handler felt that the overarching theme was that there is no sign yet of a recovery and none of the companies were prepared to call a bottom.

“We did hear some better-than-expected commentary on the leverage in completions (fracking) when a recovery does come. HAL highlighted that DUCs could matter somewhat more than we had been thinking, with its cited 4,000 DUCs comparing to a normal level of 1000-1500 and more DUCs coming 2Q15,” according to Handler.

Patterson-UTI Energy discussed why "1,500 hp AC rig utilization should retighten (over time) and thus allow strong day rate recovery.”

The company noted that there were 650 1,500 hp AC rigs industry wide, which would grow to 730 by the end of 2015. Handler noted that peak utilization, or rig count, of this rig class was 695 in 2014 and, “given the functionality of this rig, it seems logical that the class remains in tight supply.”

It seemed that PTEN thought that smaller AC rigs would not have “as bright a longer-term outlook” and that the company was “willing to relegate most mechanical rigs to disuse," although it believed cost versus efficiency tradeoffs for some smaller operators might drive modest demand for mechanical rigs.

The analysts also became “somewhat more positive on SLB’ refracs” after learning more about how SLB’s Broadband “chemistry forms blockages on better flowing completion stages (which are the stages with more successful fracs initially), thereby building pressure in the wellbore and allowing a frac job on previously under-fracked zones.”

Overall, the companies said that greater discounts were needed to spur M&A activity.

Diamond Offshore Drilling “stressed that it would let the market come to it” while the company expected it could acquire attractive assets at a considerable discount.

Patterson-UTI Energy “noted the likely capital needed to be invested into used frac equipment,” which would drive “the need for significant discounts to newbuild cost.”

Lastly, Handler said that Forum Energy Technologies expected “more deals to develop as sellers get stressed financially, but has yet to see a change in asking prices.”