Superior Energy Fights A Grim Battle, But Some Businesses Ignite Hope

Jul. 29, 2019 9:28 PM ETSuperior Energy Services, Inc. (SPNX)
Badsha Chowdhury profile picture
Badsha Chowdhury
1.17K Followers

Summary

  • SPN significantly reduced pressure pumping fleets in Q2 due to overcapacity in the frac market, which is unlikely to improve in the near term.
  • Recovery in international markets and offshore activity can benefit the company’s completion tools business in the medium-to-long term.
  • With a negative free cash flow generation and highly leveraged balance sheet, the company has significant financial risks.
  • Avoid the stock until the balance sheet cleans up.
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SPN’s Leveraged Balance Sheet Keeps The Shackles On

Superior Energy Services’ (SPN) offerings include drilling products and services, onshore completion and workover services, production services, and technical solutions. I do not think the company can produce positive returns in the short-term. In the medium-to-long-term, until it deleverages its balance sheet, I will not recommend buying into the stock.

The pricing pressure and lower pressure pumping utilization in North America has forced Superior Energy to reduce fleet size and divest the drilling rigs service line in Q2. To boost sales and margin, it has been concentrating on improving its international operations. The project in Kuwait, expected to come up in 2H 2019, would boost revenues. Also, a resurgent offshore market can improve the company’s outlook in North America. More importantly, it needs to boost cash flows and/or sell assets to deleverage the balance sheet. Until that happens, investment in the stock involves a significant risk factor.

DUC Wells Signal Slowdown, Pricing Weakness Persists

On average, the West Texas Intermediate (or WTI) crude oil price witnessed a 9% rise in Q2 2019 compared to the average WTI price in Q1. Despite that, the fall in the DUC (drilled but uncompleted) wells and drilled wells (both 3% down) far exceeded the completed wells decline (1% down) in the key U.S. unconventional energy resources in June compared to March. The fall in the DUCs indicates a slower recovery in the completions activities, while the lack of new drilling also suggests that the pricing pressure continues. Also, the exploration and production activity has not seen any adequate turnaround, because the upstream producers are reducing their capex spend.

The constraints in the upstream investment would affect the OFS companies’ growth adversely in 2019. With the excess supply of pressure pumping equipment in the market, prices and utilization of pressure

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This article was written by

Badsha Chowdhury profile picture
1.17K Followers
I have more than 14 years of experience in analyzing and writing on stocks. I write on both long and short sides in an unbiased manner. I have been covering the energy sectors for the past 7 years, with the primary focus on the oilfield equipment services sector. I also cover the Industrial Supply industry. I occasionally co-author with Seeking Alpha contributor Thomas Prescott.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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