What happened 

Shares of oil and gas compression services company Archrock (NYSE:AROC) declined 13.6% in May, falling primarily due to the company reporting earnings that failed to meet Wall Street's expectations. 

So what 

With oil and gas production picking back up in the U.S. over the past several months, analysts were expecting better results from Archrock and its subsidiary partnership Archrock Partners (NASDAQ:APLP). For the first quarter, Archrock reported a normalized loss of $0.11 per share compared to analyst consensus estimates of a $0.06-per-share loss. 

Gas compression units

Image source: Getty Images.

According to management, it expects business to pick up in the coming quarters. One thing about compression services is that is a late-stage service. Companies don't need compression services until wells are drilled and gathering pipelines start to fill up in earnest. 

On the other side of the coin, one does have to wonder how much better results can get. The combined utilization rate of Archrock's and Archrock Partners' fleet of compression horsepower was 87%. That leaves some room for improvement, but not much unless contract rates increase significantly. Also, the parent company can't expect higher distributions from Archrock Partners until the latter can chip away at its debt load. 

AROC Chart

AROC data by YCharts.

Now what

Archrock and Archrock Partners have the appearance of an interesting way to play the rebound in U.S. oil and gas production. It delivers a must-have service to the industry and has an immense opportunity to expand into the Marcellus and Utica shale formations. For that to happen, though, we need to start seeing some improving results to fund that expansion. It will be much easier to make that call once we see second-quarter results, as we should be far enough along in the oil and gas rebound to see a material improvement in Archrock's results.

Tyler Crowe has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.