Oct 21- The contrast in fortunes between offshore rig contractors struggling to get new business and land drillers betting on the shale-fueled drilling boom will get more stark over the next few weeks as they report third-quarter results.
Revenue at onshore rig contractors such as Nabors Industries Ltd is expected to jump, suggesting that the sudden slump in crude oil prices is not enough to slacken the frantic pace of shale drilling.
But offshore drillers such as Transocean Ltd are expected to post lackluster quarterly sales as new rigs ordered in boomtime hit the seas, creating overcapacity in an already crowded market.
Shares of offshore drillers fell by a third on average this year through Sept. 30, and the worst might not be over yet for investors.
Day rates for offshore rigs are expected to drop further over the next few quarters as oil companies shy away from expensive offshore production.
“The basic problem is there is a lot of excess capacity that is trying to make a home in the market. Too many rigs chasing too few jobs,” S&P Capital IQ analyst Stewart Glickman said.
Revenue at Transocean, the second-biggest global offshore driller by market value, is expected to fall 15 percent – its steepest in three years – according to Thomson Reuters I/B/E/S.
Noble Corp’s revenue is expected to plunge 24 percent, while Ensco Plc’s is expected to fall 3 percent – the first decline in over three years for both the offshore drillers.
Still, analysts expect most offshore drillers to beat profit expectations as they accelerate cost cutting in response to the slump in day rates and shorter contracts.
Day rates for the most advanced ultra-deepwater rigs peaked at around $650,000 last year and are now down in a range of $375,000-$500,000, executives have said.
On the other hand, rig rates for onshore drillers have risen sharply. For example, Precision Drilling Corp’s , average day rate for the second quarter ended June 30 was about C$22,000 ($19,585). Rates were slightly more than C$16,000 four years ago. (http://bit.ly/1opYaIt)
U.S. onshore rig count rose 8 percent to 1,842 rigs in the third quarter, according to Baker Hughes Inc.
This underscores strong demand for onshore rig contractors as oil producers continue to shift investments toward lucrative shale fields such as Texas’ Permian Basin and North Dakota’s Bakken.
“We look for (onshore) companies to report strong revenues … as evidenced by the recent two-year highs of the rig count,” Wunderlich Securities analyst Jason Wangler wrote in a note on Tuesday.
“(We) expect solid utilizations that could also support some pricing gains.”
Revenue at Nabors, owner of the world’s largest land-drilling rig fleet, is expected to rise 11 percent – the biggest jump in two years – when it reports results after the markets close on Tuesday.
Revenue at Patterson-UTI Energy Inc is expected to rise about 25 percent. Precision Drilling, Canada’s largest oil and gas drilling contractor, is expected to report a 23 percent rise in revenue.
Land-drillers’ shares were up 23 percent on average this year through Sept. 30, outperforming the 6.7 percent rise in the S&P 500 index.
Despite the surge, some of these stocks are still trading well below their historical average price-to-earnings ratio, suggesting that there is room for the stocks to rise.
(1 US dollar = 1.1233 Canadian dollar) (Writing by Sayantani Ghosh in Bangalore; Editing by Savio D’Souza and Saumyadeb Chakrabarty)