Speaking to delegates at Pennyhill Park, CFO Klaus Mader highlighted that Schoeller-Bleckmann will continue to benefit from shale oil/gas drilling and fracking activity in North America, while the international markets remain tough. Mr Mader added that in 9M 2017, Schoeller was “nearly back at pre-crisis” profitability levels.

Lower exposure: The move into well-completion following the acquisition of US company Downhole Technology has significantly reduced Schoeller’s dependency on big oil services companies. Mr Mader mentioned a drop from 75% to 40% of sales. However, he also confirmed that the majority of sales are still made in North America and are thus in the highly cyclical shale business. The strong Q3 order growth (+120% yoy) seems driven almost entirely by organic growth and not by M&A, with Mr Mader saying that “Downhole’s sales were very low last year”. Also, re-stocking by clients seems to be making only a small positive contribution, with most components “being ordered to be used straight away”. This is good news. 

Downhole acquisition a success: Mr Mader confirmed that Downhole’s EBITDA margin is currently “much higher than 24%”, which is Schoeller’s mid-cycle margin and shows the high demand for fracking equipment in the US. Mr Mader also confirmed that competitor Schlumberger’s new fracking technology, such as degradable fracking plugs, will not pose much of a threat to Downhole, with Downhole still gaining market share.

OPEC: Mr Mader believes that OPEC’s commitment to limiting oil supply is a positive for the sector, adding that he finally sees a global balance of oil supply/demand in 2017. However, the recovery of global drilling is currently only driven only by North America, with international drilling at unchanged, low levels. Pricing has reached a trough with prices for selected products showing signs of recovery “on a contract-by-contract basis”.

Outlook: Schoeller has a positive outlook for North America and believes there are signs of improved momentum in international markets, although 2018 will be another transition year. Also, the precision components business, which used to make up 50% of group sales, remains tough, with destocking for measurement while drilling (MWD)/logging while drilling (LWD) still continuing.

Readacross: The positive momentum for the oil services sector appears to be continuing, especially for names related to US onshore drilling, such as Schlumberger, while market conditions remain tough in OPEC and offshore for companies such as Transocean and Diamond Offshore.