The stabilization of crude oil prices above $50 per barrel (bbl) for West Texas Intermediate, increasing capital spending by exploration & production (E&P) companies and rising rig counts have meaningfully improved the pricing and profit outlook for the oilfield services industry. Oil service companies that provide drilling equipment, completions technology, specialized labor and other services should be direct beneficiaries of a more than 85% increase in U.S. rig counts from their 2016 trough (Exhibit 1). Oilfield service companies have endured negative profit margins through the downturn as they subsidized E&P customers’ returns with price concessions (Exhibit 2). However, as activity increases, service margins should begin to normalize as these companies claim their fair share of the economic rent of oil and gas production.
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