The 'Great Deflate' In The Oilfield Services Sector

B. Chase Mulvehill of SunTrust Robinson Humphrey commented in a note on Sunday that his new US onshore hz rig count of 530 marks a 31 percent drop from a year ago and forces him to downgrade a handful of oilfield service providers. Mulvehill continued that his new rig count projection assumes a 1MMbpd year over year decline in US onshore production next year while US E&P Drilling & Completion (D&C) spending will likely be down another 35 percent next year (after a 45-50 percent decline this year) which will further result in a 30 percent decline in wells fracked, 28 percent decline in stage count and 21 percent decline in frac sand demand. Mulvehill further noted that his revised projection could result in anywhere from 30 to 80 percent negative EBITDA revisions for oilfield service providers next year, with offshore levered stocks having the least revisions risks. "Thus, over the next couple of months, we think offshore stocks likely outperform US onshore, even on a beta adjusted basis," Mulvehill wrote. "Nonetheless, we do think US onshore will be the first to recovery from the downturn - thus, our longer-term preference remains US onshore...but it's just going to be real nasty in the near-term." Finally, Mulvehill noted that the sentiment surrounding the oil service companies is "probably the worst its been at any time during this multi-decade oil boom) and investors should stay away from the space for a while. In addition, investors hoping for an OPEC cut to "save the day" should understand that the analyst stated the probability of such a move happening is "very low" in 2015 and not expected to happen "anytime soon."