Who is/are the best driller(s) to short if you think US land rig counts will fall over 50%?

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Who is/are the best driller(s) to short if you think US land rig counts will fall over 50%?

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nabors?

Nabors and some of the silica and other frac service companies. If RC drops 50%+, it'll mostly be vertical vs. horizontal that remains active.

SLCA is down almost 50% in a month

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Look for producers with total leverage of less than 3.0x, lots of liquidity, and an ability to generate free cash flow by reining in CAPEX. There are several out there.

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Any suggestions on where to start?

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I probably shouldn't name any since most are clients of my institution. This has most E&P's listed in an easy to read format though:

http://www.rbcrichardsonbarr.com/

(I do not work for RBC)

What is the thought some some of the larger independents that have lost 25% or more in the last few months? ie SWN, NBL, MRO, HES, PXD

I know that Continental sold all of their hedges and Hamm is loosing his fortune. EOG has been holding fairly steady but I hadn't seen much discussion on some of these other larger independents.

Liquidity is king. There will be a strong correlation between liquidity and survival.

Sorry to hear that man.

third coast what did they do with the sack fulls of money they've made before the recent down turn? Already cutting 401K?

Some of a these companies appear to have way too many employees

XOM $417 Billion revenue - 75,000 employees
BP $337 Billion revenue - 83,900 employees
CVX $212 Billion revenue - 64,600 employees
RDS $450 Billion revenue - 90,000 employees
TOT $227 Billion revenue - 98,000 employees

Using XOM has a benchmark, some of these companies appear to have too many employees. There might be other factors involved but those with cash flow problems like BP and CVX can easily cut some people. Hopefully none of you guys.

Like golferag said, liquidity is king so let's take a look at free cash flow in 2014 through Q3

XOM $9 Billion
CVX ($.8 Billion)
BP $9 Billion
RDS $10 Billion
EOG $.4 Billion
PXD ($.8 Billion)
CXO ($.5 Billion)

This doesn't paint the whole picture but Id say CVX doesnt look good. They already had negative FCF because of increased investment which made them borrow to pay their dividend. That FCF will take a bigger hit with low oil prices.

Good info Dan.

CVX is pretty top heavy with a lot of senior folks making a lot of cash that might just get the gentle nudge out the door. We've done a good job of bridging the generational gap over the past few years but still have a bit to go. Decent stock price compared to what they were faced with about 5-6 years ago...I've heard of a few folks hanging out to see if they get a deal.

Hiring has been all but frozen, and we're now getting the "there aren't any planned ROMs" speak. I find it hard to believe CVX won't have any more layoffs aside from AMBU and UK that have already been announced.

Thankfully I'm in base-business which helps feed the rest of the company, but it's not an easy time that's for sure.

We REALLY need our Australian projects to wrap up. Like yesterday.

Sub $55

Europeans screwing these up. The futures coming off the highs

BKag, I just started with cvx up in ambu a little over a year ago it's not looking good. I'm in the horizons program (D&C engineer) so hopefully they can find a spot for me somewhere else domestically worst case....

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I wouldn't be too worried about any technicals at this point. Pretty much irrelevant in this type of slide.

On a positive note, $1.75 gas by New Years?

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Agreed, you are grasping at straws if you are leaning on technicals here. You need some solid sustained rally attempts to rely more on those and oil has been in an absolute free fall. One thing is certain, oil is in a sustained downtrend now. There will be rallies but this is a bear market in oil and other commodity prices. Will be interesting if stock market plays catch up. Commodities typically lead the stock market.

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The market does typically follow commodities when it is a demand issue. Demand is barely down from the previous years, but supply is up. Stock market should do well with lower commodity prices.

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The movement on the 10 year is incredible

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Not really, most of the developed world is sub 1% on 10 year government bonds, Germany is under 0.8%. I think we are going much lower on the 10 year.

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And the bond market disagrees with you at this point. Right now, they are suggesting rates to increase about 3% over the next five years and long term for rates to remain below average.

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BKag, I just started with cvx up in ambu a little over a year ago it's not looking good. I'm in the horizons program (D&C engineer) so hopefully they can find a spot for me somewhere else domestically worst case....

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A young driller such as yourself shouldn't have as much to worry about. It's still unsettling of course, but you drilling guys will most likely get plucked for other jobs before folks with non-technical backgrounds do. The company wants to retain as much young technical talent as possible, and D&C engineers can easily transition back to drilling from other roles when things pick back up again.

Again, I'm comfortable speculating that our generational gap will be shortened by forcing older employees to retire early rather than cut young employees if a higher number of layoffs occur. Those that are forced to retire most likely have 2-5 years in them at most before retirement anyhow (I can think of 5 such people that have stated as much on my floor alone), and it's much easier to hire them back as "consultants" if necessary than fight your competition for younger talent when the ball gets rolling again.

But in the meantime, buddy up to your PDC Rep and make sure all supervisory parties are aware of your willingness to adapt with the environment. Some of the top leaders in the company didn't start out in the field they're currently working in, and the common theme among them is that they were open and willing to try different fields in lean times.

Bkag, thanks for the encouraging words. If it's not too much to ask, could I shoot you an email? I'd like to get your perspective on things a bit more but don't wait to derail the thread.

WTI in the $40s by the new year?

http://www.marketwatch.com/story/3-reasons-to-stop-betting-that-oil-will-continue-to-plunge-2014-12-15?siteid=rss

Email removed.

Our CEO (we are a global oilfield products company) just sent an email to all of our 4,000 or so employees regarding the price of oil drop. Considering the current business climate I thought it was fairly positive.

Some key parts:

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Fortunately we are in a very strong financial position. We will realize good cash flow from our backlog, we have a great deal of borrowing capacity, and we are in no danger of default on our debt. This means that as long as we take the necessary steps now we will not only be able to weather this downturn but we will also be able to improve our position for the next upturn. We will look to acquire companies that fill strategic niches for us, and continue to develop new products, improve our processes and restructure our organization. Some of our initiatives will be put on hold and others will be slowed, but we will continue to move forward.

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I think the point has been made on this board is that companies with cash and borrowing capacity will survive. Usually our company will give a boost in salary every Mar/Apr time and we have already been told that that has been put on hold. Im sure everyone would gladly put off a pay increase in order to keep a job.

We just got similar comments at our morning meeting, a large independent E&P, TBL. Basically, low debt, decreases in certain budget items (mostly CAPEX) should free up some more cash flow, and we will be in a stronger position after all is said and done.

Dan,

Other than using XOM as a benchmark, what kind of revenue / employee would you expect from integrated international O&G companies? My math says XOM was the highest at $5.6 MM / person with Total the lowest at $2.3 MM. I'm not saying that these companies have the optimal employee head counts, but had never looked at the revenue / employee comparison to have a basis for knowing what is a good figure. Structurally I think the majority of the work forces from the companies listed are international non white collar jobs.

Unfortunately, I'm not at liberty to discuss FCF's.

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The sand companies have already taken major hits. EMES and HCLP are way down. Don't know about SLCA but I assume it's down too.

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All the sand companies our down despite record earnings last quarter. FMSA just went public and probably at the worst possible time. Their stock is under $7 right now, despite them being the largest public supplier. They are also diversified into other non oil and gas businesses that Hi-Crush and Emerge aren't.

Most of these sand companies are completely sold out and have contracts that make up about 80% of their capacity. All of the wells that have been drilled will be completed, but when the decreased rig count starts to take effect and new capacity is coming on is when the sand companies will really start to worry. The companies that aren't diversified will take the hardest hit, that's why I'm bullish on FMSA.

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BKag, I just started with cvx up in ambu a little over a year ago it's not looking good. I'm in the horizons program (D&C engineer) so hopefully they can find a spot for me somewhere else domestically worst case....

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IF we learned ANY lessons in the 80's massacre it was not to decimate the younger staff. We didn't have a lot of 60ish to retire early so we kept mostly "experienced " 50ish and wiped out the younger guys. Result was a HUGE gap in all of the surviving companies. Those 50ish from the 80's are gone. We now have few 50ish seasoned guys ( they were the new hires in 82 and were let go..never to return)) and tons of 27 year olds.
I am sure that us 60ish will get canned if it gets to be a crash vs a slowdown but I hope the powers that be retain the experienced mid level and good new hires that they will need in 10 years for the next boom.

Dirt,

It's not really scientific. Employees are a huge expense so I was looking to see which companies have room to cut to save money.

As for FCF I went through the financials and took cash flow from operations and subtracted capital expenditures.