Anyone Knowledgable About Oilfield Services?

[brewer12345]

I am getting some shares of newly-created Seventy Seven (SSE) as part of a spin-off. This is an oilfield services company that appears to be among the mid-sized players that are below the behemoths like Haliburton, Schlumberger, and Baker Hughes. I do not follow the services industry, although I have a decided view on oil and gas. Since spin-offs often get ruthlessly sold down by the investors who suddenly get spin-off shares they never bought/wanted, I suspect I will have to decide quickly on whether and where to catch this falling knife. Anyone follow this industry? Have views on the onshore oilfield services industry or SSE in particular?

 

[Ally]

I don't know much about the investment end of this, but living in West Texas, I have been through a couple of oil booms. The first was in the 70's and my husband and I moved to Odessa. He was paid extremely well, but it sure was difficult to find a place to live. The bust was really hard on that region and we moved more north.

Now the oil boom is on again. Drilling is moving our way and they have been taking some of our employees for much better paying office jobs in oil transport businesses. My daughter and husband don't own the mineral rights on their ranch, so the oil companies just come on the ranch and drill when they want. They have to pay them about $5000 for an access fee, but so far haven't found oil on their ranch, like they did across the road. However, it's annoying to try and sleep with them working just a ways from their home 24 hours a day with super bright lights.

She knows some young people who started businesses to support the oil industry and who have sold them already for 2-4 million. Our friends were approached by an oil company for an oil lease on their land and were able to retire early due to the income. It's a really boon for many young families, but then my daughter also knows two young dads who died in oil work related accidents.

This is not really answering your question. All I can tell is that it is a business that seems to go full force, making people lots of money, then it can bust and everyone who is still in it really hurts.

 

[heeyy_joe]

Hang on, will probably pay a decent dividend.

 

[Ed_The_Gypsy]

Brewer, I have a similar interest in O&G, but I prefer companies with a track record. Spin-offs are not start-up IPOs (which IMHO should be avoided like the plague), so there should be some info on it.

If you have this because you owned the parent company, why not hang onto it? If it drops, consider buying more. But check the fundamentals.

 

[brewer12345]

Brewer, I have a similar interest in O&G, but I prefer companies with a track record. Spin-offs are not start-up IPOs (which IMHO should be avoided like the plague), so there should be some info on it.

If you have this because you owned the parent company, why not hang onto it? If it drops, consider buying more. But check the fundamentals.

Oh, I will be keeping the shares I get. The question is more at what point will I buy more/load the boat?

 

[haha]

Oh, I will be keeping the shares I get. The question is more at what point will I buy more/load the boat?

Drilling is commodity business. Unless you can get very good information as to what advantages this particular driller might have in its zone of operation, Not sure I would ever load the boat-except perhaps in a trough when O&G prices and day rates are way down, survival is in question for many in the industry, and you feel secure that this particular driller is secure. They can surely fly though!

Ha

 

[JPatrick]

SSE is a little new to have any kind of track record, but the oil service sector (OIH) has been very hot for the last 6 months.
My fav in the sector has been FTK. Bought it about 3 years ago a bit below $10, traded it, wrote calls on it many times and finally sold it after a triple. Best stock ever for me.
I think the sector will keep on thriving, but what SSE gets into remains to be seen.
I do know CHK pulled a few dirty deals in the Bakken and walked away with less than a sterling reputation.

 

[brewer12345]

Drilling is commodity business. Unless you can get very good information as to what advantages this particular driller might have in its zone of operation, Not sure I would ever load the boat-except perhaps in a trough when O&G prices and day rates are way down, survival is in question for many in the industry, and you feel secure that this particular driller is secure. They can surely fly though!

Ha

My interest is chiefly based on the discount that spin-offs usually attract, and I imagine that given the, um, colorful nature of the parent's history many investors will immediately dump the shares of SSE when they notice them in their account. I am no expert in this industry, so I can only measure with a stick and cut with an axe when it comes to valuation.

 

[JPatrick]

I had a similar oil biz situation about 2 years ago when my COP spun off PSX. I was sitting there wondering if I should add to the new shares and after a week or so the smart guys had figured out what this new company was all about and it went up like a rocket, doubled very quickly and today it is soon to be a triple. I never did add any
I think with these spin offs youi just have to let the market tell you what the true value is and then leap or don't.

 

[brewer12345]

I had a similar oil biz situation about 2 years ago when my COP spun off PSX. I was sitting there wondering if I should add to the new shares and after a week or so the smart guys had figured out what this new company was all about and it went up like a rocket, doubled very quickly and today it is soon to be a triple. I never did add any
I think with these spin offs youi just have to let the market tell you what the true value is and then leap or don't.

PSX was a heart-breaker. I knew it was worth way more than the spin-off price but figured it would have the usual post-spin dip. Nope. The smart money knew it was valuable too and started scarfing up shares immediately. Ah, well.

 

[2B]

There should be enough information in the parents' annual report to estimate how well the spinoff should do. One thing that may artificially depresss its pre-spin off performance is any corporate fees that was paid. The one risk I've seen in spinoffs is the new CEO looks at the income and lifestyle of the parents' CEO and decides they need the same along with all the corporate fluff in the original company. That seldom works well for anyone but the CEO and then only in the short run.

In one of my past lives I was a reservoir engineer for a no longer existing mega oil company. I've had dealings with oil service firms but like most majors we liked to use the larger service companies. Your firm will start with the same customer base they have now. The more they are plugged in with the majors the more stable their business will be. The startups/independents are the last ones in and the first ones out when a boom happens. Even if the customers are all majors, the oil business is very cyclical. The boom is certainly on now. No telling how long it will last.

Always remember that the only reason it was spun off is because the parent didn't want it for some reason.

I no longer hold individual stocks and recommend the same to everyone unless trapped by a 401k or bonus program that awards restricted stock.

 

[Totoro]

There should be enough information in the parents' annual report to estimate how well the spinoff should do.

There will be more than enough to be compliant, but usually there isn't the right information. Plenty of data though, and many disclaimers.

Keep in mind that more people than usual are focused on promoting the newly minted company and associated shares.

Treat it as any other IPO. Pro-forma statements, underlying contracts and agreements which may expire after a certain period, insider knowledge, change of control clauses, reaction of the customers and suppliers in the medium term, .. it's all a very big risk.

Unless you actually work for the company in question as a high ranking executive, don't buy shares.

Or go to a casino, at least in that case you aren't kidding yourself about what game you are playing

 

[Senator]

The average money manager cannot beat the S&P. The average home investor, cannot beat inflation.

There was a pretty good study on that.

 

[brewer12345]

The average money manager cannot beat the S&P. The average home investor, cannot beat inflation.

There was a pretty good study on that.

Who said I was average?

 

[JPatrick]

The average money manager cannot beat the S&P. The average home investor, cannot beat inflation.

There was a pretty good study on that.

Never, ever, do anything average.....
Unless....you want to be ..."average."

 

[wingfooted]

Of course SSE was the 'internal' service co. for Chesapeake.

A lot depends on SSE retaining the link with Chesapeake and how well they can expand their market base to the other operators.

I would comment that the skills to expanding market base versus functioning as a an internal support function - are very different. As such - I would class SSE as a sell.

 

[brewer12345]

Of course SSE was the 'internal' service co. for Chesapeake.

A lot depends on SSE retaining the link with Chesapeake and how well they can expand their market base to the other operators.

I would comment that the skills to expanding market base versus functioning as a an internal support function - are very different. As such - I would class SSE as a sell.

The business with CHK will be subject to contractual agreements. Business with other players will obviously be a work in progress, but then again this is a spin-off.

More importantly, at what price is this a sell? At what price is this a buy?

 

[JPatrick]

Current article about SSE. Author says buy, me, I'm still with "show me."

Chesapeake's Oil Services Spin-Off Has A Lot Of Upside Potential - Seventy Seven Energy Inc. (Pending:SSE) | Seeking Alpha

 

[brewer12345]

Current article about SSE. Author says buy, me, I'm still with "show me."

Chesapeake's Oil Services Spin-Off Has A Lot Of Upside Potential - Seventy Seven Energy Inc. (Pending:SSE) | Seeking Alpha

That article looks like a second year B school paper, and not a good one.

I think that if CHK holders get SSE shares in their account on 6/30 and start dumping (common with spin offs) I would be a buyer in the teens. This is a very volatile industry and SSE starts at a disadvantage to its larger, better diversified peers.

 

[aja8888]

*subscribed*

 

[brewer12345]

*subscribed*

Don't get too excited. I am a confirmed dirty bottom-fisher. With all the [-]stupid[/-] loose money sloshing around it seems like every would-be value opportunity gets bid up well beyond what I would ever be willing to pay as an entry price.

 

[aja8888]

Don't get too excited. I am a confirmed dirty bottom-fisher. With all the [-]stupid[/-] loose money sloshing around it seems like every would-be value opportunity gets bid up well beyond what I would ever be willing to pay as an entry price.

I'm just tagging along for the view.

I still work (part time) in the industry and have heard nothing of these guys. One of my long term associates (a personal friend) is at CHK OK City and he is keeping his "head down and thinning the cabbage", so to say.

 

[brewer12345]

I'm just tagging along for the view.

I still work (part time) in the industry and have heard nothing of these guys. One of my long term associates (a personal friend) is at CHK OK City and he is keeping his "head down and thinning the cabbage", so to say.

He is wise. The old CHK had one of the most corpulently bloated overhead levels I have ever seen in a public company. This is a shop where when the activists finally chucked out Mr. McClendon found that they had to lay off multiple company chaplains (only in Oklahoma) and a company beekeeper. I could easily see those running the guillotine getting a little too enthusiastic.

 

[Htown Harry]

No personal knowledge or insight, but I found this 2012 M&A analysis for the oilfield services sector. It wouldn't be bad news for your investment if the spin-off gets established then gets gobbled up.
http://www.ey.com/Publication/vwLUA...ilfield_services/$File/Dynamic_Dealmaking.pdf