Oilfield-Services Firms To Gain From Rush To Complete Wells
By Jason Womack, Of DOW JONES NEWSWIRES
HOUSTON -(Dow Jones)- A backlog of uncompleted natural gas wells could prove
to be a boon for oilfield-services companies -- and help keep natural gas prices
down should demand for the fuel improve.
The number of these uncompleted wells has grown, as producers have been
reluctant to bring more new production online in an already saturated natural
gas market, at least until they lock in prices for their 2010 natural gas
output. Producers have also drilled these incomplete wells to maintain their
rights to some natural gas leases, while waiting for natural gas prices to
rebound. Front month natural gas futures, which settled Tuesday at $5.161 a
million British thermal units on the New York Mercantile Exchange, are still
down more than 60% from their summer 2008 highs.
Halliburton Co. (HAL) Chief Executive David Lesar said last week that
producers have left between 1,300 and 1,500 wells unfinished in North America. "
This will be very positive for us when this completion backlog is worked off in
2010," he said in a conference call with analysts.
The rush to complete unfinished wells could boost service company activity, as
it is the most expensive stage in the drilling process, accounting for roughly
half the cost of a natural gas well. Completing thousands of wells could also
help pad natural gas supplies next year, even if the rig count remains low. The
North American rig count is often used as a measure of demand for oilfield
services and by commodity analysts as an indicator of where gas supplies are
headed. The number of rigs drilling for natural gas has fallen by more than half
over the last year.
The declining rig count has weighed heavily on service company earnings over
the last year. Both Halliburton and Weatherford International Ltd. (WFT) have
reported substantially lower third quarter earnings this year over last amid the
slump in North American drilling.
Companies that could benefit the most from a major industry-wide effort to
complete wells include Schlumberger Ltd. (SLB, SLBS.VI), Halliburton and Baker
Hughes Inc. (BHI), which recently agreed to acquire completion specialist BJ
Services (BJS), said Bill Herbert, an analyst with Simmons & Co.
While many analysts expect to see some recovery in natural gas prices next
year as production declines, the uncompleted wells could bolster gas supplies,
pumping more gas into the market and muting the impact an economic rebound would
have on prices.
"The real fear people have is that there will be a wall of gas supply," said
Dave Pursell, an analyst with the Houston-based investment bank Tudor Pickering
Holt & Co.
-By Jason Womack, Dow Jones Newswires; 713-547-9201; jason.womack@dowjones.com
(END) Dow Jones Newswires
10-20-091722ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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