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Basic Energy Still Cutting Prices, Stacking Equipment as Completions Slump

Basic Energy Services Inc., which provides pressure pumping services across the U.S. onshore, has slashed prices across all of its business lines to protect market share "as much as possible," said CEO Roe Patterson.

The Fort Worth, TX-based operator works in more than 100 service points in Texas, Louisiana, Oklahoma, New Mexico, Arkansas and Kansas, as well as the Rocky Mountain and Appalachian regions.

"Completion activity in our completion and remedial segment continues to be impacted by the lower drilling rig count and volatile oil price environment," Patterson said. "As a result of the continued weakness in commodity prices, pricing in all of our markets and lines of business is being lowered in order to maintain activity levels and protect market share as much as possible."

In a "few selected markets, stimulation pricing has fallen to levels where cash margins at the field level do not support regular maintenance capital expenditures on equipment." In those cases, equipment has been temporarily stacked equipment or fracture spreads have been relocated to other markets.

Drilling rig days actually rose slightly in September to 27% from 23% in August, but the rig day count was sharply below the year-ago rate of 91%. The well servicing rig count in September remained unchanged at 421, the same since June (see Shale DailyAug. 13). However, rig hours slumped to 46,800, resulting in a utilization rate of 46%, versus 53% in August and 71% a year ago. Rig utilization rates are based based on the weighted average number of rigs owned, a 55-hour work week/rig and the number of weekdays in the period.

Basic's fluid service truck count was flat month/month at 1,015, but again, it was the hours that slumped, to 183,400 in September from 188,100 in August and 215,800 a year ago.

Part of the decline in hours and utilization resulted from the Labor Day holiday, but "competitive market conditions" also were to blame, said the CEO.

"Pricing in our production-related businesses remains competitive but we have seen more stable utilization rates," Patterson said. "Of these lines of business, our fluid services business has been the most resilient because of our saltwater disposal well network, especially in markets like the Permian Basin. Concentrating our produced water hauls on our company-owned disposal facilities allows us to keep costs low and efficiencies high."

Basic expects "seasonal impacts and low commodity prices" to weigh on production-related businesses in the near term, "but we expect them to perform better than drilling and completion-related businesses until the drilling rig count rebounds."

Based on the September numbers, the operator is expecting 3Q2015 revenues to be in line with previous guidance, which is 4-5% lower than in 2Q2015.

Small-cap pressure pumpers like Basic (BAS) are "scraping against bone to keep equipment working," said analysts with Tudor, Pickering, Holt & Co. The "tough operating environment is not getting any easier for BAS as recent activity retrenchment/oil price weakness now leading to further pricing erosion across all service lines."

Completions are "most affected, as stimulation pricing in some markets is no longer supportive," which has forced equipment to be stacked or relocated," said analysts. This trend will be the focus through the end of the year, "as the potential to cut costs via cannibalization of equipment becomes more commonplace the longer these low activity levels persist...Fourth quarter activity levels remain a big question mark as holiday season nears."

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