BJ Services' Home Front Problems

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The good news is that BJ Services (NYSE: BJS) is a sizable member of the oilfield services contingent, a group for whom it's difficult to predict anything short of frenetic activity for about as far as the eye can see. The less-good news is that, no matter how you slice it, the bulk of the company's business comes from the stagnant markets in the U.S.

The result in the most recent quarter was an earnings decline from the prior year and a shortfall vs. expectations. For the quarter, the company's net income was $172.2 million, down nearly 17% from the same quarter a year ago. The diluted per-share line was $0.58, vs. $0.70 in the same quarter last year. Apparently, analysts following the company had been looking for per-share earnings to come in about a penny higher.

More than 80% of BJ Service's revenues result from its pressure pumping operations, and fully 60% of pressure pumping revenues are generated in the U.S. and Mexico. Throwing in Canada gets North America's cut of pressure pumping revenues up to about 73%.

The difficulty from BJ Services' perspective is that pressure pumping pricing has retreated in the U.S. and Canada. And looking ahead, projections of flat drilling activity at home don't bode well for a reversal of that trend in the U.S., while the company's Canadian operations may benefit from the emergence of winter drilling season. All in all, management expects the current quarter to come in at about $0.55 to $0.57, a meaningful dip from the comparable $0.64.

This is, I suppose, a laboratory example of the steady movement of energy exploration and production from the U.S. to other, more prolific venues. I'd include Brazil, the Middle East, and the former Soviet states here.

It's also indicative of the logic behind Halliburton's (NYSE: HAL) opening of a headquarters office in Dubai last year, of Baker Hughes' (NYSE: BHI) "West to East" strategy, and of Schlumberger's (NYSE: SLB) relatively minor dependence on the U.S. And it's the reason offshore drillers -- including Diamond Offshore (NYSE: DO) -- have been dragging their units from Gulf of Mexico waters to other active horizons.

As to BJ specifically, I'm inclined to take a pass until its prospects brighten. This well-managed company will have its day, but that day is too far out for my money.

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