HOUSTON — Contractors hired to drill wells and fracture rock to raise crude and natural gas to the surface will have to lower prices by as much as 20 percent to help keep their cash-strapped customers working.
Ultimately, that could carve out more than $3 billion from the 2015 earnings outlined by analysts for the world’s four biggest oil-service companies: Schlumberger, Halliburton, Baker Hughes and Weatherford International.
The potential losses loom just as the service providers were looking ahead to higher rates after a glut in pressure-pumping gear dragged prices down in past years. Now, crude oil prices that have fallen more than 40 percent since June are squeezing them again.
As they look for ways to cut costs, oil producers will be pushing for discounts where they can.
“They’re already going to confront significant cash-flow pressures with the decline in oil prices,” said Bill Herbert, an analyst at Simmons & Co. in Houston. “They’re going to need all the help they can get.”
The price cuts may begin to take shape as early as this month, Herbert said. Hydraulic fracturing, or fracking, may see the biggest chunk of pricing discounts because it’s the largest part of the cost of drilling a new well.
Lower prices and lost business probably will reduce about $14.5 billion of net income estimated for the big four service companies in 2015 by as much as 25 percent, or about $3.6 billion, Wicklund said.
Dave Lesar, CEO of Halliburton, the top provider of fracking work, declared less than two months ago that better days were ahead.
Now, Halliburton is waiting on some customers, who are deferring their budget decisions until the first quarter next year, said Scott Danby, a manager of investor relations at the company.
Prices for fracking may drop as much as 15 percent to 20 percent if the price of West Texas Intermediate oil remains below $70 a barrel, said Luke Lemoine, an analyst at Capital One Southcoast. The U.S. benchmark closed at $63.05 a barrel Monday, the lowest settlement since July 16, 2009.
