BJ Services Company (NYSE:BJS)

Don't bet on BJ yet

Demand for BJ's services and products depends primarily upon the number of oil and natural gas wells being drilled, the depth and drilling conditions of such wells, the number of well completions and the level of work over activity worldwide. With the exception of the Canadian spring break-up, BJ is not significantly impacted by seasonality. Spring break-up is the period during which snow and ice begin to melt and heavy equipment is not permitted on the roads, resulting in lower drilling activity. The company's customers consist of major and independent oil and natural gas producing companies, as well as national oil companies. During fiscal 2007, thousands of customers were serviced, none of which accounted for more than 5% of consolidated revenue.

For BJ the United States is the largest single pressure pumping market in the world. U.S. customers are taken care of through a network of more than 50 locations throughout the country, a majority of which offer both cementing and stimulation services. Demand for pressure pumping services in the U.S. is primarily driven by oil and natural gas drilling activity, which tends to be extremely volatile depending on the current and anticipated prices of oil and natural gas. During the last 10 years, the lowest U.S. rig count averaged 601 in fiscal 1999 and the highest U.S. rig count averaged 1,749 in fiscal 2007, a 10% increase over the fiscal 2006 average U.S. rig count of 1,587. In fiscal 2006, the average U.S. rig count was 20% higher than the fiscal 2005 U.S. rig count average of 1,323.

BJ Services Company is a leading provider of pressure pumping and other oilfield services serving the petroleum industry worldwide. The Company's pressure pumping services consist of well stimulation, cementing, sand control, coiled tubing and down hole tools services used in the completion of new oil and natural gas wells and in remedial work on existing wells, both onshore and offshore. These services are provided through domestic and international locations to customers in most of the major oil and natural gas producing regions of the United States, Canada, Latin America, Europe, Asia, Africa and the Middle East.

The Company is one of the largest suppliers of casing and tubular services in the U.K. North Sea and is continuing to expand these services into several of the major oil and natural gas producing regions. The Company provides commissioning, leak detection and inspection services to refineries, pipelines and offshore platforms and also provides specialty chemical services to the oil, gas refining and petrochemical industries in the United States. During the fiscal year ended September 30, 2006 (fiscal 2006), the Company generated approximately 85% of its revenue from pressure pumping services and 15% from the oilfield services group.

James W. Stewart is the Chief Executive Officer. He joined Hughes Tool Company in 1969 as Project Engineer and served as Vice President--Legal and Secretary of Hughes Tool Company and as the Vice President--Operations for a predecessor of BJ Services Co. All this prior to his elevation to the current role.

Jeffrey E. Smith is the Chief Financial Officer  He joined BJ Services Co. in 1990 as Financial Reporting Manager. Prior to joining BJ Services, he held various positions with Baker Hughes Incorporated.

BJ's pressure pumping services compete with Halliburton Energy Services, a division of Halliburton Company, Schlumberger Ltd, Weatherford International, Inc., Calfrac Well Services Ltd., Trican Well Service Ltd., San Antonio and Frac Tech Services, Ltd. Oil services group competes with Weatherford International, Inc., Frank’s International Inc., Pipeline Integrity International Ltd. (a division of General Electric), Tuboscope (a subsidiary of National Oilwell Varco) and H. Rosen Engineering GmbH.

All of BJ's markets, except Canada, contributed to the increase in revenue for fiscal 2007 when compared to fiscal 2006. The increase was due to higher activity in all major markets except Canada, where depressed market conditions were present throughout fiscal 2007. Worldwide average active drilling rigs for fiscal 2007 increased 4% compared to the prior year. Fiscal 2007 consolidated operating income was 24%, a 2% decrease compared to fiscal 2006. Operating income margin was negatively impacted by a 68% decline in operating income from Canada as well as price reductions in the U.S. market.

Shares of oilfield service companies reversed early gains Friday, 30th Nov, as crude prices tumbled to their lowest levels in a month. The Philadelphia Oil Service Sector index declined 0.4 percent to 284.77, although gains by most contract drilling companies kept the sector from falling further. The Dow Jones Industrial Average rose half a percentage point to 13,372.29. Crude prices, which only days ago seemed on a relentless march to $100 a barrel, fell below $90 for the first time since late October. On the New York Mercantile Exchange, light, sweet crude for January delivery declined $2.08 to $88.93 a barrel more than $10 below Monday's high of $99.11. Falling prices dragged much of the sector lower. The declines put a damper on what had been a strong showing in recent days. However this not the onset of a trend. Traders continue to invest in this industry segment. But Individual investors should stay away from this stock for the time being.