In my last rig roundup, I suggested that oil and gas producers might be putting the screws to service companies. Oilfield supplies got tight during the boom, allowing contractors to ratchet up rates regardless of the service quality. Now that we've got a sharp slowdown in activity, the operators once more have the upper hand.
Back in February, XTO Energy (NYSE:XTO) predicted 25% across-the-board service cost declines by the end of the year. That's now looking conservative, as the downturn has been fiercer than practically anyone expected. We'll get a better sense of the concessions being made once companies start holding first-quarter conference calls, but in the meantime, we can look at drilling contractors' monthly fleet status reports to get some sense of the pressure being applied.
Taking a look at Pride International's (NYSE:PDE) April report, rates looked pretty steady, with one exception. Pemex managed to extract some significant rate concessions in exchange for longer-term contracts on a handful of jackup rigs working in Mexico. The most dramatic example is the Pride Louisiana accepting a 146-day extension, coupled with a roughly one-third decline in the dayrate.
Things are a bit bumpier over at Ensco (NYSE:ESV), which reported tons of tweaks in its fleet status report this week.
ConocoPhillips (NYSE:COP) looks to be playing a bit of hardball, taking the ENSCO 102's dayrate down from the high $280,000 range to the high $190,000s, with no change in term. At least with the ENSCO 104, Conoco is taking a three-month extension as it brings the rate down a peg.
In the U.S. Gulf of Mexico, several jackup rates moved lower. An ExxonMobil (NYSE:XOM) contract is on an indexed rate, so no surprises there. But somehow, Apache (NYSE:APA) managed to haggle its way down from the mid-$80s to the mid-$50s on a rig that's next slated to work for Pemex at double the latter rate.
This is just one small slice of the oilfield service space, but I think the 30%-plus declines seen in some of these rates is fairly representative of what we can expect across the industry this year. Now you see why I was so hesitant to recommend an oil services stock in our Best Stock for 2009 series. (Core Laboratories (NYSE:CLB) is up about 28% year-to-date, by the way.) It's possible that investor expectations are fully in step with the depressed realities of today's oil and gas market, but I would still remain cautious about committing too much capital to this space.
