The U.S. Energy Boom Isn't Helping These Companies

A few weeks ago oil-field services company Nabors Industries (NYSE: NBR  ) warned that its upcoming second-quarter earnings wouldn't be so great. That made me wonder if its oil-field services peers might also be in for a rough quarter. With results now out for peers Schlumberger (NYSE: SLB  ) and Baker Hughes (NYSE: BHI  ) , one thing is clear: The U.S. oil and gas boom isn't fueling the earnings at oil-field services companies.

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Instead, the real growth is being found both overseas and offshore. That means one thing: that the company most levered to those types of growth had the best quarter. That company was none other than Schlumberger, which also happens to be the world's largest oil-field services company.

In the quarter, Schlumberger reported revenue of $11.18 billion, which was up 8% year over year, and income from operations of $1.54 billion, up 14% year over year. The company pointed to significantly higher international activity, which more than offset slow growth in North America. Specifically, the company saw strength in its Middle East and Asian operations, which was up 11%. Schlumberger doesn't see the trend changing anytime soon.

The sluggish market in North America on the other hand, which Nabors' had forecasted, really weighed down Baker Hughes results in the quarter. While its revenue was up about 3% year over year, profits plunged as the weak market in North America combined with a big decline in its Latin American business. The only real good news in the quarter is that the company enjoyed robust demand in its deepwater markets as well as in the rest of its international business.

What's most intriguing is that not one oil-field services company expects great things from the North American market. Remember, this is the same market that's seeing oil and natural gas production growth so robust that it has many wondering if U.S. energy independence might someday be a reality. The problem for oil-field services companies is two-fold -- competition is stiff and multi-well-pad drilling is really cutting into profits.

Consider this: According to Baker Hughes, international rig counts are expected to increase by 7% while U.S. rig counts will drop by 8%. However, the number of wells the industry is drilling in the U.S. has increased by more than 20% (producers are drilling more wells with fewer rigs). Further, the industry is making a concerted effort to get well costs down, which is great for producers' profits, but doesn't help the bottom line for oil-field services companies.

The key takeaway for investors is pretty clear: Right now oil-field services money is either offshore or overseas. That puts both Nabors and Baker Hughes at a bit of a disadvantage, while Schlumberger emerges as the clear victor this quarter. If there is a ray of hope, it's that Baker Hughes has a great position in the Gulf of Mexico, which delivered record revenue for the company last quarter. With the Gulf now three years removed from the Macondo disaster, the industry is poised to deliver outstanding growth from the region, which should provide a nice lift to Baker Hughes results over the coming years.

That doesn't mean that Baker Hughes is the best way to play the growth in the Gulf. Instead, investors might want to look closer at a company that The Motley Fool's analysts have uncovered, which is an under-the-radar company that's dominating its industry. This company is a leading provider of equipment and components used in drilling and production operations, and poised to profit in a big way from it. To get the name and detailed analysis of this company that will prosper for years to come, check out the special free report: "The Only Energy Stock You'll Ever Need". Don't miss out on this limited-time offer and your opportunity to discover this under-the-radar company before the market does. Click here to access your report -- it's totally free.


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