J.P. 摩根-美股-石油服务与设备行业-美国陆上石油服务深度研究-2019.6.5-32页 (2).pdf

North America Equity Research05 June 2019 Oil Services Land Rig Deep DivePart I:Supply:Goldilocks Upgrade Cycle Has Legs;HP in Pole Position on Supply Curve,Most Dry Powder,Add to AFLOil Services and EquipmentSean C Meakim,CFA AC(1-212)622-Bloomberg JPMA MEAKIM Andrew P Herring,CFA(1-212)622-J.P.Morgan Securities LLCSee page 27 for analyst certification and important disclosures.J.P.Morgan does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment We are launching Land Rig Deep Dives,the latest in our Reshuffling the Deckseries in which we publish a set of deep dives on a topic or company.This round weve chosen perhaps the most enduring sub-sector in the Lower-48:land drilling.This group has been under heightened scrutiny in 2019 as the rig count has experienced a mild rollover(-7%YTD)amid the continued push for E&P capital austerity.We kick off our series focusing on supply and publishing an update to a set of reports we began in early 2016,just as the rig count was bottoming(-79%off 2014 peak,-59%from current levels)and the upgrade cycle was in its infancy.Since 2016,we estimate 400 rigs have been upgraded in the U.S.,at a collective capital cost of approximately$1.6bn.We believe that the upgrade cycle,while considerably higher on the cost curve two years in,still has plenty of room to run(up to 230 remain),and dont foresee a newbuild cycle through at least 2020(and likely well beyond).Upgrades offer superior economics to the drillers,providing a solid runway for moderate growth capital coupled with free cash generation that is hard to find in U.S.services.The Big Four drillers dominate todays super-spec inventory,holding 80%of industry total.HP,with the largest L-48 fleet,claims the leading super-spec count as well with 230 rigs(34%share).HP and PTEN have the highest mixes of super-spec rigs(66%and 61%,respectively),while NBR(55%)and PD(50%)lag some.Looking ahead,HP has the most rigs to upgrade at among the lowest average cost,with the most upside capacity to EBITDA(+14%2019e).Though we are maintaining our relative ratings(OW:HP,N:PTEN,PD,UW:NBR),we are adding HP to the J.P.Morgan U.S.Equity Analyst Focus List.At a 6%dividend yield supported by FCF,we viewa$50 entry point as attractive for one of the few blue-chips in the space.Super-spec upgrades officially past mid-cycle,but plenty of room to run even in a flat rig count world.Inside this report we have constructed an industry upgrade cost curve that plots the range of rig upgrades over the past two-plus years and the forward expectations for the balance of upgradeable rigs in the Lower-48.In our previous supply deep dives,we broke up the 1k AC rigs in the market into three categories:super-spec,super-spec capable,and AC limited,the latter of which represented rigs that were AC-powered but were considered uneconomic to convert to super-spec,typically due to smaller sub-structures.As is common in shale,a little money and engineering time can solve a lot of problems.As the industry worked through the“low hanging fruit”of rigs with$1-3mm upgrades,it not only found many of these limited”rigs could be upgraded(often at$8-10mm),but E&Ps were willing to contract them at rates that justified these more expensive augmentations.Today,we now count 675 super-spec rigs in the L-48,alongside another 175 AC super-spec capable;in other words,while not every rig will necessarily get the full capex makeover,we view the entire AC fleet as more/less on the upgrade supply curve.In addition,we count another 50-60 SCR rigs built in the last 10-15 years that could be candidates for conversions.These are admittedly more expensive(minimum$3mm each just for AC conversion),but they remain a viable source of supply before newbuilds would be required.Reshuffling the Deck Series:Please see below for links to compilations of our prior Reshuffling the Deck series reports:TechnipFMC Week(Feb 2017)Baker Hughes-GE Week(May 2017)Frac Week:A New Path Forward(April 2018)Halliburton Week(May 2018)2North America Equity Research05 June 2019Sean C Meakim,CFA(1-212)622- JPM proprietary super-spec upgrade unit economics model available.Similar to the unit economics model we built for pressure pumping during last years Frac Week,weve constructed a client-friendly model that allows the user to flex the main economic assumptions for an upgrade:1)capex to achieve super-spec status,2)dayrate and duration of initial contract,3)daycosts and maintenance capex,and 4)IRR/return hurdles.We estimate the lowest upgrades early in the cycle($1-3mm)were generating four year paybacks when dayrates were only$20k/day;todays more common$8-10mm upgrade is taking three-four years at$25k/day.With newbuilds likely to come in super-spec form($25mm),we estimate dayrates need to rise+40%further from recent capex-commitment contracts to$35k/day to justify four year paybacks.Of course even if the super-spec saturation of the existing fleet is only 50-60%,drillers out of viable upgrades may take more aggressive stances on rates and T&Cs to build new,but we think these would be relatively rare.The Big Four(yes,four)control 80%of the U.S.super-spec fleet and 65%of the upgradeable fleet.Collectively,we estimate the four largest public drillers control 535 super-spec rigs(v.675 total super-spec rigs).We estimate 150 rigs left for the Big Four to upgrade(190 among all publics and 230 total market).By share of super-spec,the order is:HP/PTEN/NBR/PD(34%/22%/15%/8%),with other publics garnering 11%and privates making up the balance 10%.Land drilling has retained one of the more constructive supply dynamics within oil services with some of the most rational capital deployment over the past two cycles.Within the U.S.fleets,HP has the highest mix of super-specs while NBR has the highest%of available upgradeable rigs.We estimate PTEN and NBR each have capacity to expand their super-spec fleets by another 20%,more than HP(13%)and PD(12%).However,both are currently operating a sizable portion of their upgradeable fleets(25%/23%),as is PD(50%).Conversely,HP was most recently operating only eight of its 47 upgradable rigs(17%),suggesting the company has more to gain from incremental demand for upgraded rigs and corresponding term contracts.We interpret this to mean the incremental benefit H&P stands to realize by upgrading more rigs and committing them to new contracts well exceeds the peer group.HP has capacity to grow its annual EBITDA base by$125mm(+14%v.2019 JPMe)through its upgrade program alone.Conversely,we estimate that Precision,with only 12 rigs to upgrade and half of them currently in use,has only+8%EBITDA upside to gain by upgrading its remaining rigs.NBR has the most upside capacity in terms of units(+21%),but the companys rigs sit on the upper end of the cost curve($12mm v.$8-9mm industry avg.),further inhibited by the most levered balance sheet in the group(+3.6x ND/EBITDA v.1.7x peer avg.).Backlog not nearly as robust a defense for the next downturn,but better than we thought a few years ago.After a stout newbuild cycle through 2014,revenue backlog peaked in late 2014 as incremental term commitments evaporated.With a declining contracted rig count,backlog dwindled from 2015-2017 as the market shifted towards spot work.Upgrades have allowed for some reflation(backlogs perhaps 30-40%of prior peak)and roughly 60%of active rigs are under contracts with at least 6-months duration.While backlogs have risen modestly in 2018 and 2019 thanks to additional interest in term contracts,the support offered is still a far cry from prior peaks.3North America Equity Research05 June 2019Sean C Meakim,CFA(1-212)622- Helmerich&Payne:best positioned on the upgrade supply curve with an advantaged mix of low-cost upgrades and plentiful dry powder;reiterate OW and add to the J.P.Morgan US Equity Analyst Focus List.With the largest fleet,no surprise H&P has led in total upgrades(168).Early in the cycle,we underrated HPs ability to reinvent its fleet in such a capital-efficient manner.Today HP also retains the second-most dry powder(47 upgradeable rigs remaining or 21%/13%of its active/total L-48 fleet)at the second-lowest average cost($7-7.5mm,assuming 75%mix towards walking systems).We estimate H&P has the most earnings upside from the rig upgrade cycle(capacity for+15%above 2019e EBITDA).With a robust balance sheet,disciplined approach to allocating capital and a long memory of competitors acting more aggressively,we believe H&P is incentivized to keep its rigs relatively scarce,allowing for the“Goldilocks”upgrade cycle to endure well beyond 2020.Nabors:high cost of upgrades,balance sheet limitations,and scale of L-48 business negate benefits from NBRs super-spec upside.NBR has the most upside to its super-spec fleet on a percentage basis among the Big Four,with 40 upgradeable rigs,or 35%/21%of its active/total L-48 fleet.However,the company also has the highest average cost per remaining upgrade,at nearly$12mmm,with the most levered balance sheet(3.5x).As such,NBR may require customer aid(i.e.E&Ps sign a term contract and help pay for an upgrade in exchange for a lower dayrate)in order complete these upgrades,which combined with the higher threshold makes EBITDA upside from expanding the super-spec fleet limited,in our view.Additionally,L-48 drilling is a relatively smaller business for Nabors than peers(50%of global rigs).We remain UW.Patterson-UTI:48 upgradeable rigs give PTEN ample room for expansion,but high cost of upgrades makes return profile,lack of visibility less compelling.PTENs large cadre of upgradeable rigs(48)leaves solid upside to its super-spec supply(30%/20%of its active/total L-48).PTEN has a full range of upgradeable rigs,with some units estimated to cost only$3mm,but the bulk are in the higher-cost categories,resulting in an average cost to upgrade of$10mm.This higher hurdle means many conversions will have less favorable returns and may take years to materialize(if at all);we rate PTEN Neutral.Precision:least upside to super-spec supply and high utilization of upgradeable rigs constrain EBITDA uplift chances.With only 12 upgrades feasible(15%/12%of active/total L-48 fleet),PD has the least room to expand its U.S.super-spec fleet.It does have the most advantaged average upgrade cost($7mm),however,(relatively)high utilization of upgradeable rigs(50%)and their current high-spec ratings means incremental EBITDA potential from these upgrades looks limited.Furthermore,with a near-term(successful)focus on debt reduction and FCF generation,PD may have limited capex available,constraining upgrades even if opportunities present themselves.PD rating:N.More JPM land rig content on the come.In the coming months we plan to address rig demand drivers as well;while the L-48 count is roughly half 2014speak,the horizontal count is only-37%and,critically,footage drilled has topped last cycle,though E&P discipline is undermining urgency.Dayrates in the mid-$20ks have not returned to prior peak but are well within the“normalized”band of last cycle,a rarity in our coverage during a period of secular deflation.We will also hit technology;beyond hardware upgrades,the next battle is already being waged,in which software is enabling smarter/more effective steel.Of course well also slice/dice the fleets while distilling how our conclusions translate into relative financial performance and valuation.4North America Equity Research05 June 2019Sean C Meakim,CFA(1-212)622- Table of ContentsSuper-Spec Upgrades Passing Mid-Cycle;Where Do We Stand?.5Super-Spec Rigs Now Dominate the AC Fleet with 675 Rigs Following Extensive Upgrade Efforts.5Approaching Late Cycle for Upgrades on a Unit Basis.6Big Four Exposure Outside of the L-48.7The Upgrade Cycle:Whats Left?.8Industry SS Upside to 900 Possible With Existing Fleet.8But the Upgrade Cost Curve Suggests Further Growth Will Be More Expensive.9Unit Economics:Unpacking Rig Upgrade Decisions.12Unit Economics Model Explores Returns Under Multiple Upgrade Scenarios.122016/17:Low cost improvements dominated early portion of the upgrade cycle.132018:Moving Up the Curve to Medium Cost Upgrades.142019 and Beyond:Viability of High Cost Upgrades.15Next Newbuild Cycle Unnecessary Thru at Least 2020(And Likely Beyond).16Dayrates to Motivate Newbuilds Out of Reach Near-Term.16Contract Status:Backlog Offers Less Downturn Defense.17Rigs Committed to Term Contracts Still Shy of Prior Cycle.17Backlog Revenue by Driller.18Non Super-Spec Rigs Still Have a(Shrinking)Role to Play in the L-48.19What Does the Rest of the Industry Fleet Look Like?.19Land Drilling Appendix.21Super-Spec Definition What is Needed?Could it Change?.21Distinguishing Between Types of Rigs.22AC Rigs:Which Features Drive Differentiated Performance?.235North America Equity Research05 June 2019Sean C Meakim,CFA(1-212)622- Super-Spec Upgrades Passing Mid-Cycle;Where Do We Stand?Super-Spec Rigs Now Dominate the AC Fleet with 675 Rigs Following Extensive Upgrade Efforts The Big Four drillers hold 535 super-spec rigs,80%of the industry totalThe Big Four drillers dominate todays super-spec inventory,accounting for 535 of the 675 total rigs(80%of industry total).HP,with the largest total land drilling fleet of the group at 350 marketed rigs,commensurately claims the largest super-spec count as well with 230 rigs within the category,or 34%of the industry super-spec fleet.Following HP are PTEN(150 rigs,22%of industry),NBR(104,15%)and PD(52,8%).Within each individual drillers fleet,HP and PTEN claim the highest mixes of super-spec rigs(66%and 61%,respectively),while NBR(55%)and PD(50%)are slightly lower but still around the overall L-48 fleet level of 52%.Figure 1:U.S Total Rig Fleet BreakdownSource:Company reports and J.P.Morgan estimates.Figure 2:U.S Super-Spec and Upgradeable Rig Fleet BreakdownSource:Company reports and J.P.Morgan estimates.Super-spec ex-Big Four remainder split 50/50 public/privateOutside of the Big Four,we estimate that roughly half of the remaining 140 super-spec rigs are controlled by the other public land drillers.Ensign accounts for the next largest super-spec fleet with a total of 29,buoyed by its acquisition of Trinidad in 1Q19 in which the company picked up 12 super-spec rigs.After ESI comes ICD,with a smaller overall fleet of only 34 rigs but a heavy weighting towards the super-spec category(28 rigs).ICDs position in the market is also the result of M&A,with 14 super-spec rigs added to its fleet after acquiring Sidewinder in 4Q18.Finally,Pioneer also runs a small but high-spec fleet,with 15 of its 17 marketed rigs classified as super-spec.The remaining super-spec supply is split between a collection of smaller private contractors,making the task of tallying and categorizing these rigs a challenge.We err on a sli