It's that time of year again for pressure-pumper BJ Services
Analysts were understandably curious about BJ's market outlook, given the company's difficult current operating environment. The U.S./Mexico pressure-pumping segment was squeezed by intense competition for contracts, equipment, and labor among BJ, larger competitors Schlumberger
The real doozy was Canada. Because rig count is the greatest driver of demand for BJ's cementing and stimulation services, it seriously hurts when drilling activity gets sliced in half year over year. The Canadian segment is accustomed to operating at a modest loss in the seasonally weak spring quarter, but this year's weather was heinous enough to take operating margins from -3% last year to -61% this time around. On the call, management noted that 25% of its capacity has been taken out of Canada. It didn't break down what portion of that equipment was retired, but I imagine that it was time to send a fair amount of horsepower to the glue factory. Because the company doesn't even foresee this market bouncing back strongly in 2008, now seems like a great time to slim down the fixed-cost base up north.
Speaking of horsepower, the company is redirecting a fair amount to more promising international regions. One offshore stimulation vessel is leaving the North Sea for India, severing BJ's last tie to the old and tired North Sea region. Brazil is getting more firepower, and the company is seeing some traction in China's Bohai Bay as well. I've previously discussed the need for fracture stimulation of tight unconventional gas reservoirs in North America, but the company also sees a strong market for offshore stimulation in 2008 and beyond. So long as Transocean