Wednesday, September 16, 2015

Cowen Cuts Oil Service Companies, Calling the Current Downturn 'The Worst Ever' (SLB; HAL; OIH)

Piggybacking on today's 5.6% move in WTI, the Market Vectors Oil Services ETF (OIH) is up 4.28%.
Following up on yesterday's "Oil Field Services: Just How Far Will Oil Patch Spending Fall?" (SLB; HAL OIH).
From Barron's Stocks to Watch:

Oil Services: The Worst Ever?
Cowen’s James Crandell argues that this could be the worst oil cycle ever for services companies like Baker Hughes (BHI), Cameron International (CAM), Halliburton (HAL), and Schlumberger (SLB). He explains why:

Many observers of the oil service industry believe that the current downcycle is the worst ever in terms of magnitude of the decline in E&P spending. While the downcycle through most of the 1980s had a much more severe impact on the industry, there were two distinct parts of that cycle: 1) the 1982-1983 downturn, and then 2) the 1986-1987 collapse. While these downturns brought significant consolidation, there was little change in the way business was done. Oil Service companies waited until oil and gas prices improved, and as they ultimately did companies raised prices and improved earnings. We believe that the cycle we are in now will be different.

The 2015-2016 cycle will see a substantial decline in exploration and production capital spending (exceeding that of 2002-2003 or 2006-2007 downcycles). We estimate that when all is said and done, the 2015-2016 downcycle will see a decline in global exploration and production spending of about 35-40%, with a drop internationally of 30% and in North America of 50%