UPDATE 3-National Oilwell to buy Robbins & Myers for $2.54 bln
* Deal must be approved by two-thirds of R&M shareholders
* Offshore rigs bright spot in tough quarter for oil and gas industry
* Declines in liquids prices add to US onshore natgas woes
* Noble Corp reports Wednesday, Schlumberger and Baker on Friday
By Braden Reddall
July 17 A brightening outlook for offshore drillers indicates they will emerge looking relatively healthy from what is set to be a tough round of quarterly earnings for companies serving the oil and gas business.
Brisk production and exploration activity at sea contrasts with the troubles facing U.S.-focused oilfield services companies. Halliburton (HAL.N) and Baker Hughes (BHI.N) face supply chain challenges and costlier materials, which have been flagged by analysts and companies for months.
They had little relief last quarter. The drilling outlook dimmed along with the price of oil and other liquids. While natural gas prices started inching up from a decade low, they were still about half the level of the same quarter in 2011.
Offshore rig contractors have benefited from a strong deepwater pricing trend. Noble Corp (NE.N), the sector no. 3 that kicks off with earnings on Wednesday, last week announced a three-year deal for a rig now being built, which will average $618,000 per day starting 2014.
Scott Gruber, oilfield services analyst at Sanford C. Bernstein, said his firm's analysis points to offshore pricing power for several years to come, and this relative strength was not fully reflected in the current share prices.
"There's poor sentiment towards energy in general, and that's weighing down on the offshore drillers," Gruber said.
All of the world's largest oil-related companies have seen their share prices lose ground in the past 90 days, excluding offshore outperformer Seadrill (SDRL.OL), which has long benefited from its many relatively new rigs.
Both Noble and Transocean (RIG.N), owner of the world's largest offshore rig fleet, have been burdened in the past year with rig downtime, which adds to costs and cuts revenue.
Transocean has made good progress on that front, reporting that 23 of its 27 active ultra-deepwater rigs now have had their well control equipment certified, up from 19 in May.
Meanwhile, the outlook for oilfield services companies, even the more diversified Schlumberger (SLB.N), has deteriorated in the past month. While the second half of 2012 had been expected to be tough, numbers for 2013 have started to come down as well. Company SLB HAL BHI RIG ESV NE Earnings date 20-Jul 23-Jul 20-Jul 1-Aug 26-Jul 18-Jul Mean Estimate 1.00 0.75 0.77 0.44 1.33 0.57 Earnings (Q2) Share Chng %, -4 -11 -5 -6 -7 -5 past 90 days Analysts 18 15 18 4 6 6 cutting 2013 est, past 30d Analysts 2 2 2 11 11 18 raising 2013 est, past 30d SmartEstimate -3.7 -5.5 -5.4 -0.1 0.2 1.1 Change % '13, past 30 days
On the other hand, Transocean, Ensco Plc (ESV.N) and Noble have seen their 2013 SmartEstimates -- which capture only those from top-rated analysts -- hold steady or rise over the past 30 days, according to figures compiled by Thomson Reuters StarMine.
"Service names have been punished on misses and even if drillers miss eps (earnings per share), we wouldn’t expect the same type of punishment," analysts at Tudor Pickering Holt said, explaining that offshore drillers had become better at managing investor expectations around their key quarterly variable costs.
The Houston-based analysts said offshore drillers were "favorite places to hide" for investors nervous about holding any services stocks going into the quarterly earnings season.
Especially worrying on land is the prospect of a drop in the number of U.S. rigs working next year. Activity has held steady nationwide at just shy of 2,000 rigs as those abandoning natural gas fields drill for liquids instead. But Raymond James recently cut its 2013 average rig count estimate by 22 percent to 1,696.
So even though North American land-drilling work has moved toward more long-term contracts, onshore players cannot hope to compete with the multi-year backlogs for deepwater rigs that run into billions of dollars. The contract Noble signed last week for just the one rig was worth $677 million over three years.
"I don't think it's just a relative shift," Gruber said of the rosier outlook for the seafaring drillers. "The fundamentals of offshore are clearly better - there's real fundamental support to the offshore rate structure."
Some better onshore news, at least for the hydraulic fracturing units of the diversified oilfield companies, is that the price of guar, an India-grown bean used heavily in fracking fluid, has come off its highs, UBS analyst Angie Sedita said.
Halliburton warned of a big second-quarter impact from guar costs in June. [ID:nL1E8H6B4Y] But Sedita predicted guar prices would fall in the second half, and so might even give fracking companies a slight profitability boost by the end of the year.
(Reporting by Braden Reddall in San Francisco; Editing by Patricia Kranz and Alden Bentley)
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* Deal must be approved by two-thirds of R&M shareholders
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