Baker Hughes Ramps Up Oil Fracking on Low Natural Gas Prices
Low natural gas prices in the U.S. may have forced cuts in gas production from shale, but oilfield services firms like Baker Hughes (NYSE:BHI) and Halliburton (NYSE:HAL) are making up for the fall in gas rigs by focusing on oil rich plays in North Dakota.
Fracturing activity in North Dakota has seen a boost in the past few months as high oil prices make oil exploration in the region increasingly attractive from a financial perspective. [1] Exploration efforts in the region have also been held up because of the mild winter, which has helped reduce the number of idle wells in the Midwest state by lowering the number of workers who generally leave the place because of the cold weather. Lower gas exploration is helping ease the shortage of fracturing equipment as well as skilled personnel in the region.
We have a $66.14 price estimate for Baker Hughes, which is at a 35% premium to its current market price.
- Fed Rate Hike Causes Oil Prices To Hit Their Lowest Level For The Year
- Baker Hughes Exceeds 1Q’17 Earnings Expectations; Continues To Focus On Product Innovation
- Baker Hughes To Report A Subdued Recovery In 1Q’17 Compared To Its Peers
- Baker Hughes Is On The Path To Recovery, Despite Weak 4Q’16 Earnings
- Baker Hughes’ Fourth Quarter Earnings To Witness A Rise Driven By An Improvement In Oil Prices
- Baker Hughes’ 2016 In Review: Halliburton’s Loss Is GE’s Gain
Click here for our full analysis of Baker Hughes.
Equipment shortfalls
Strong activity in the Bakken shale is set to boost North Dakota to overtake Alaska as the second largest producer of oil in the U.S. over the next few months. [1] As gas producers cut down on exploration because of low prices, players like Baker Hughes are set top move their equipment used for fracturing along with trained crews to oil rich North Dakota, where shale exploration is increasing at a brisk pace because of high oil prices.
The influx of fracturing capacity is finally helping oil companies to increase production from wells that have already been drilled. Wells in shale plays have to undergo a process known as fracturing to boost the porosity of the rock and to make oil and gas flow to the well head. Limited fracturing capacity had resulted in a number of wells being drilled and left idle.
With equipment and crew constraints being resolved because of a decline in gas production, drilling activity in North Dakota is set to rise even further. Although relocation costs for crews and equipment are expected to eat into the margin in North America in Q1 2012, the shift will help companies boost revenues in the long term by riding on the oil boom in the Bakken shale. Rising rig counts in oil rich plays is expected to offset the lower activity in gas. More hydraulic fracturing capacity in North Dakota will help boost rig count because of fewer idle wells.
Understand how a company’s products impact its stock price on Trefis.
Related articles
- Low Gas Prices Will Weigh on Baker Hughes’ Pricing in North America (trefis.com)
- U.S. Oil Rig Count Reaches 25 Year High on Jump in Oil Prices (trefis.com)