WSO Energy guys,
Does anyone know of the unit metrics that are used when valuing a oilfield services companies (rig count maybe)? If anyone has modeled oilfield services companies before please comment. In addition, obviously these are valued more like "normal companies" instead of your typical E&P upstream players.
Thanks!
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To answer your overarching question, yeah they are valued like ‘typical” companies. EBITDA multiples work fine. Some heavy asset base pure plays (offshore drillers, pressure pumpers) can get more specific (EBIT, EBITDA excl. fluid ends, etc.).
If you are looking for key drivers for forecasting, rig count is good for those companies with drilling services or drilling equipment. Some service companies are heavier completions or production focused, so hydraulic fracturing or well count would be useful respectively.
LeonTree,
Thanks, that's helpful. Have you ever seen or modeled out pumpers by operating/service hours? I found that metric used by an oilfield services company in their investor presentation and was curious as to if this is a standard industry metric.
I've never modeled a pumper, we tend to stray from the heavy capex stuff. Looked at a frac consumables business and we used hydraulic horsepower & utilization metrics. You can measure utilization at whatever granularity you need, we just used % utilization per month for our deal. Operating/service time per stage and # of stages is also commonly evaluated.
For pressure pumpers, EV/HHP (hydraulic horsepower) is a valuation metric often used.
Thanks guys, this is helpful. Would you be able to add any color as to why oilfield services companies are or not attractive investments?
Thanks
The sector as a whole is struggling with ROCE/ROIC due to pricing that never recovered after 2015/2016 collapse. I think it got priced in, especially at the end of 2018. But you’ll see the sector is still well below other periods of crude at $50-60.
It’s a buying opportunity in my opinion, especially NAM pure play (Permian pure play) if possible. The guys at PUMP know what they’re doing and have been rewarded for it.
Agree with above on EV/HHP being the primary pressure pumper specific multiple. Works best for the pureplay pumpers (PUMP, LBRT, etc.) but gets difficult to break out for the more diversified guys.
Revenue projection wise, you would likely project any expansion/retirement in HHP or fleet count (most 2019 capex guidance is just maintenance, so most likely flat). Then you would want to put together a bull, bear, base case for crude pricing in the projection period. That flows into estimating U.S. rig count/D&C activity, then specific pricing and utilization fluctuations.
Another wrinkle to consider for pressure pumpers is the impact of direct sourcing in-basin frac sand by operators. It’s been brought up in the 4Q earnings calls, with FRAC saying that 50% of their customers are buying the separately vs going through the pressure pumper as it’s usually been done. If I recal, they argued it just hit topline but didn’t effect margins. However, PUMP kind of bucked the trend with pessimism towards the direct sourcing and only having 20% of their fleets operating on external sand.
Thanks for the feedback. On another note, has anyone looked at LBRT? Curious if anyone has reservations about the companies control owner's riverstone/carlyle. I've never been able to get comfortable with PE's exiting investments via IPO early on... Any thoughts?
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