Pritchard's Morning Intelligence: Oil Services

Pritchard Morning Intelligence Oil Services Key Energy Services, Inc

– August Update Slightly Positive – U.S. rig hours totaled 142,118 or 6,460 per day, slightly better than estimates of 141,062 and 6,412 respectively. International rig hours were 31,461 or 1,015 per day, slightly less than estimates of 32,000 and 1,032. Trucking hours totaled 190,599 versus estimate of 173,506. U.S. rig utilization reached 65%, up from 63% in July. Overall activity is improving as mix continues to shift toward higher value services. This is consistent with Pritchard's observations in the Permian Basin last week. Pricing is increasing unevenly. KEG received a commitment for a third rig in Columbia. All three rigs are slated to commence operations in October. At this point, our September-quarter EPS estimate remains ($0.05); that figure excludes both the pressure pumping business, which is classified as discontinued since its is being sold to Patterson-UTI Energy, Inc.

($16.50-B-$19), and the acquisition of coiled tubing assets from OFS. KEG's results are likely positive for Nabors Industries, Ltd.

($17.62-B-$24). Competitor Basic Energy Services, Inc.

($8.43-B-$16) already reported its August update. Pritchard reiterates its Buy and $12 price target on KEG shares. Hercules Offshore, Inc.

– 65 Day Contract at $35k in GOM – Received a 65-day contract for two wells in the shallow water GOM for a private operator at $35k/d, finally getting work for a new well permit, only the 5th new development well (not work-over, sidetrack, etc.) issued since Macondo. The work for the 200' MC commenced yesterday. As the market is not dead and rates were increasing prior to the spill, Pritchard is maintaining its Buy rating and reducing price target to $3 from $4.50 based on 6x 2011 EV/EBITDA. ENSCO PLC

– Estimates Unchanged – Reports no material contract announcements, no resolution to the Nexen, Inc.

($20.10-NR) and ENSCO 8502 dilemma, and nothing to illicit estimate revisions (2010 / 2011: $3.61 / $4.50). The same trends are being seen from other drillers, with the fixtures in the weekly report declining each week, suggesting a flurry of awards that are likely (pent-up demand for 1H11 startups (>180-days work) Pritchard calculates to be ~21 floaters and ~32 jackups)...and given the lack of headlines outside of Rowan Companies, Inc.

's ($30.13-B-$31) Aramco awards, which excited investors/caused short covering, should give the group some momentum.