Oilfield Services Sector: Outlook Negative

Halliburton, one of the biggest publicly-traded oilfield services company out there, warned investor on September 4, 2019 that “slowing growth in the maturing U.S. shale industry and spending cuts by oil and gas customers will lead to a consolidation of oilfield-service suppliers“.

A Reuters article confirmed the pessimism in a report quoting a Barclays survey that concluded “North American spending growth on oil and gas production will slow to a 2% this year…down from a January estimate of a 9% gain. Analysts for the bank expect spending in the second half of the year to be 15% below the first half“.

What’s more BDC portfolio company Liberty OilField Services admitted to slowing fracking activity at a Barclays sponsored energy conference.

“I think the fall off may be quicker and harder and earlier than a number of people expected,” Michael Stock, Liberty’s finance chief, told attendees”.

All this is bad news for the BDC sector which still has material exposure to the oilfield services sector. The BDC Credit Reporter’s database shows there are 19 BDC portfolio companies in this sector, 12 of whom are already under-performing. Total exposure at cost is $560mn, of which $393mn are to companies rated 3-5 in our 5 point rating system.

We count 26 different public and non-traded BDCs involved in the sector. Unfortunately, our records are still being added to so the actual exposure may be even higher. It may be time for investors to dust off their portfolio holdings lists and see what exposure to the oilfield sector their favorite BDCs have. A downturn is unlikely to be as impactful as back in 2014-2015 when oil dropped from $100 a barrel but could still hurt 2019 and 2020 results in a meaningful way.