Missy Parker is one of our favorite analysts here at Spears & Associates because she doesn’t come from a multiple generation oil & gas family, and, therefore, she doesn’t think in the box like most the rest of us.
For example, several years ago she was using Evernote to store favorite recipes and simply adapted her recipe storing technique to include keeping track of the anecdotes and interviews associated with the thousands of oilfield service companies she tracks throughout the year. We thought it was a great idea (why didn’t I think of it?) and adopted that simple, cheap tool as a way to keep track of reams of disparate market research data/opinions/comments.
And because she doesn’t come from a classic oilfield background, she has been building rules of thumb for the industry that she uses to quickly size up things. For example, what kind of revenue can you expect an active coiled tubing unit to generate in a quarter in North America? $0.7M - $2M. How much revenue can a compressor out on contract expect to generate each quarter? $52-62 per horsepower. How much revenue can a frac spread generate each quarter in the summer of 2019? $130-400 per HHP.
Missy is closing in on 300 rules of thumb. I look at this resource every day because the data’s elegance is in its simplicity. But now that she has everything in a single place — with each rule of thumb tagged with the source of that rule of thumb — the bifurcation of the oilfield services sector becomes more and more apparent to me. In most market categories there is a subgroup of companies who make X dollars using their equipment, and another subgroup who makes 2X dollars using their equipment over the same period of time.
For example, in US land contract drilling there is a class of contractor who generates $4-5M per year running a rig and another class of contractor who generates $7-9M per year.
Here’s another example: In frac there are a bunch of frac service companies who generate $30-40M per frac spread per year and another bunch who generate $60-80M.
Same in well servicing rigs: $0.7M per year versus $1.4M per year.
There are hundreds of reasons behind this bifurcation seen in just about every segment of the oilfield – big drilling rigs versus little, high spec workover rigs versus conventional, frac contracts that include sand versus those that don’t – but here’s the important takeaway: As an investor, go with big every time. That’s where the profits are found.