BJ Services: Not Just a Cyclical Stock

| About: BJ Services (BJS)

For several quarters now, BJ Services' (BJS) plight has been the subject of much discussion – even gnashing of teeth – in financial circles as the company's stock price remained stagnant while the benchmark Philadelphia Oil Service Index [OSX] soared over the same time period. Nagging overcapacity issues underlying the company's core domestic pressure pumping business have apparently just been too much for investors to swallow.

While the quarterly financial results announced by BJS this week seem to suggest the company is benefiting from renewed strength in demand for its domestic pressure pumping services, its customer satisfaction scores in EnergyPoint Research's latest independent survey suggest the company is likely benefiting from something more than just a cyclical jump in demand.

What we believe has been lost in past analyses of BJS is the underlying strength of the company's appeal with customers. Indeed, in EnergyPoint's independent surveys conducted since 2004, BJS has rated second globally as a provider of oilfield services among the "big six" integrated players, trailing only perennial leader Smith International (SII) in terms of respondents' willingness to recommend the company to others (an excellent proxy for measuring word-of-mouth promotion as well as customer loyalty).

Furthermore, BJS' strong standing appears to have been confirmed in our first look at customer satisfaction in 2008. We note the company pulled down especially strong marks in the areas of job quality, service and professionalism, and tight-sand and shale applications in our 2Q 2008 survey.

The latest customer satisfaction measures also seem to indicate improvements on the products side of BJS' business. While the company has a ways to go before it garners the kinds of customer accolades enjoyed by its mainstay pressure pumping offerings, the good news is that the gaps between the company's services and product ratings look to be shrinking. And appeal with customers across segments could come in handy should it act on recent statements to opportunistically pursue acquisitions; the company is now well positioned to offer customer experience upgrades to clients of acquired companies. In the dog-eat-dog world of oilfield services, such unique advantages deserve noting.

Stock Position: None.