Respirate

Baker Hughes Plus BJ Services: Doing Some Simple Math

Tom, I kind of expected that you'd have an article on this acquisition. Thanks for the timely and well written opinion!

I agree with you that the deal is a good fit for both companies. When the market threw a minor tantrum when the deal was announced, it provided a better opportunity (by nearly 10%) to those of us with cash in hand.

I've been holding onto the opposite end of the deal, namely BHI. Hopefully the addition of BJ Services will integrate some significant earnings potential before the next spike in oil.

For another SA take on the BHI-BJS deal:
seekingalpha.com/artic...

Thanks again.

Why I'm Still Drawn to BJS Services

Thanks for the relevant update, Tom. I'm surprised that new wells account for that large a fraction of production. That fact taken alone may support the conclusion that the current drop in drilling activity could lead to an inordinate decline in 2009-10 production.

Taking another look at the chart data shows that the 2001 NG price spike correlates well with the marked decrease in the number of producing wells, and was preceded by a drastic cut in rig count. The current drop in rig count is even more significant than 2001 on a percentage basis, but it also looks like we have a higher base to work off before the slack is taken up.

However, there's one more item that may or not be a factor: capped "new" wells. The huge drilling activity from 2006-08 created a corresponding increase in new high productivity wells, but many of those were taken out of production, where they presumably wouldn't show up in the "producing" well numbers. If that's the case, there will be an additional lag of a least a year between work-off of surplus supply and a pickup in drilling activity, with a softer rise when it does ramp up. My thought is that the current slowdown for land drillers, field service providers, and well equipment & supply manufacturers could lag much longer than we (investors) would like -- well into mid-2011.

If you can snag a chart for the 2008 "producing wells" data, thanks in advance. I was unable to find the 30 June 09 data, and would like to compare the extent of increase in producing wells.

Regards -- R

Carbo Ceramics: Value Plus Volatility

Tom, there's an excellent discussion of well rock pressures in horizontal wells at the link below.

"Now, if instead of just drilling the well vertically I turned and drilled it out horizontally through the rock, then the hole would now have the 10,000 psi squeezing down vertically, and the 3,000 psi coming in from the side. So the first thought that we have is that the casing (the lining that we put into the hole to make sure that it stays open) has to be a bit stronger. Life gets, however, a bit more complicated than that. "
bittooth.blogspot.com/...

The increasing use of horizontal drilling through the huge shale formations (Barnett, Bakken, Marcellus, Haynesville) likely increases the use of high strength ceramic premium proppants -- that bodes well for Carbo.

That Halliburton locked in multiyear supplies presumably at current discounted prices tells us that they expect the proppant price to increase in the future -- late 2010- 2011 is my estimate.

Best -- R

Carbo Ceramics: Value Plus Volatility

Tom, kudos on the excellent analysis of Carbo Ceramics. Your thorough treatment without hyperbole plus a logical writing style always makes your columns an enjoyable read.

CRR looks like an attractive play on the depressed NG prices and the prospect of future increases in drilling, hence well services, in shale formations. I'd be concerned about the 3@78% customer base concentration, but the long term agreement with HAL helps that, along with limited competition.

Frankly I have very limited understanding of options trading, so I'll place an initial position order to go long the stock at what I consider an attractive price.

Thanks again. --R

Why I'm Still Drawn to BJS Services

Tom, fine comprehensive article. I appreciate that you don't speculate to give answers that you don't have.

Like you, I look to invest in areas that are currently depressed but have a very strong future. If you don't mind, a couple of questions:

Are you also positive regarding competitors like Weatherford (or others)? WFT seems to maintain better margins and efficiency during the industry's up cycle.

In anticipation of an eventual NG recovery, what's your opinion of suppliers such as Baker Hughes, or well consumables makers like Carbo?

Many thanks. --R