Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Onshore oilfield service provider Basic Energy Services, Inc (BAS +0.00%) stock is down 13% at noon today, and was down almost 15% earlier in trading. The stock is down more than 80% from the July 2014 peak when oil prices began falling, and is down almost 30% so far this year.
So what: Basic Energy Services is really feeling the pinch of falling drilling activity. On Friday, the company released selected operating data, and the numbers weren't good. Its utilization rates -- which measure the number of hours the company was actually working under a contract, versus available hours -- for both drilling and well servicing rigs, fell both sequentially and versus the year-ago period. In short, this means the company is getting less work compared to what it can take on. Factor in another drop in oil prices today, with both Brent and West Texas Intermediate crude down more than 3%, and Mister Market has a lot to be unhappy about.
Now what: The falling utilization rates is only part of the concern for Basic Energy Services right now, as the company also reported that it was having to give further price concessions to its customers for some services. This led to a further reduction in guidance for the first quarter, with revenue now expected to fall more than 30%, versus prior guidance of a 21%-26% drop. In fairness, the company did lose some operating days to severe winter weather, but that's far from the real concern for Basic Energy Services right now.
The company's services are important to its customers, especially once drilling activity stabilizes and producers must maximize production from existing wells. However, until U.S. onshore production stabilizes and prices begin to recover, Basic Energy will continue to get squeezed in an ultra-competitive environment with limited demand. The company could be a great turnaround opportunity at some point, but it's probably months or more before that happens. For now, there are a lot better places to invest new money. Check out the report in the link below for one of the best.
