Gross Profit Margin
Gross profit margin measures the percentage of revenue that exceeds the cost of goods sold (COGS)
Guide to Oil & Gas Equipment & Services Industry KPIs
This guide highlights the key performance indicators for the oil & gas equipment & services industry and where investors should look to find an investment edge. While this guide is not a fully integrated oil & gas equipment & services industry primer, as the market leader in granular consensus estimates data, Visible Alpha works with partners and clients to determine the key performance indicators in the industry. This guide will aid market participants in identifying industry trends and the potential future performance of oil & gas equipment & services companies, by region and service type.
Industry Business Model
Revenue
(Note: In this section, all key line items available on Visible Alpha Insights are called out through color-coding)
Geophysical methods are used to explore and understand the subsurface characteristics of potential oil and gas reservoirs. Geophysical services enable companies to make informed decisions from exploration to production optimization. Within the oil and gas equipment and services industry, companies provide a range of tools and services related to geophysics:
- Seismic data acquisition: Companies specialize in acquiring high-quality seismic data using advanced equipment such as seismic sensors, data recorders, and processing software.
- Interpretation services: Skilled geophysicists interpret the seismic data to create detailed subsurface maps, identify potential drilling locations, and provide insights into reservoir characteristics.
- Seismic imaging software: Software tools are developed to process, analyze, and visualize the vast amounts of seismic data collected during exploration and reservoir monitoring.
- Reservoir simulation: Advanced software simulations use geophysical data to model reservoir behavior, predict production rates, and optimize recovery strategies.
Backlog is a key parameter used to assess the performance and future prospects of geophysical services companies. Backlog represents the total contractual value of projects that have been awarded to the company but not yet completed or recognized as revenue.
Contract drilling is crucial in the OFSE industry. Drilling is the process of creating holes or wells in the Earth’s surface to extract hydrocarbons such as oil and natural gas. This is a crucial step in the exploration, development, and production of oil and gas resources. Our focus in contract drilling is specifically on onshore companies.
Contract drilling involves providing drilling services to oil and gas exploration and production (E&P) companies, also known as drilling operators, on a contractual basis. Contract drilling companies, also known as drilling contractors, typically own and operate drilling rigs, offering their services to energy companies looking to extract oil and gas from the ground. Alternatively, a small group of contract drilling companies may also pool their resources to operate drilling rigs together.
Contract drilling involves:
- Onshore/onsite or land drilling
- Offshore drilling
Onshore or land drilling involves drilling oil and gas wells on land instead of underwater. Rotary rigs are commonly used for this type of drilling. Land drilling usually has shorter construction times for wells, which means the rigs used tend to be smaller. Offshore drilling is a mechanical process of drilling wells below the seabed to explore and extract hydrocarbons. Contractors in offshore drilling specialize in various water depths: shallow water (less than 1,000 ft), midwater (1,000 ft to 4,000 ft), and deepwater (greater than 4,000 ft). Ultra-deepwater operations occur in water depths exceeding 7,500 ft.
Drilling contractors generate contract drilling revenue by entering into a contract with drilling operators to provide drilling services. Three main types of drilling contracts exist within contract drilling:
- Daywork contract: This is the most common contract type in the industry. In a daywork contract, the drilling contractor charges a fixed daily rate for both the rig and the workers, along with additional expenses, until the well is finished or abandoned. The overall cost of the well depends largely on the time taken for drilling and completion. This type of contract provides more flexibility but may pose financial risks to the operator if the drilling takes longer than expected.
- Footage (or depth) contract: Under this contract, the drilling contractor is paid based on the depth or footage drilled. The rate is agreed upon per foot or meter drilled. This type of contract provides cost certainty for the operator but may present challenges for the drilling contractor if unexpected drilling difficulties arise.
- Turnkey contract: In this contract, the drilling contractor agrees to deliver a completed well for a fixed, agreed-upon price. Here, the contractor assumes the risk of cost overruns and delays.
Contract drilling revenue is a function of the rig days also known as actual operating days and the average day rate. The revenue generated from contract drilling can be calculated by multiplying the actual operating days by the average day rate. Here, actual operating days are the number of days the drilling rig is actively engaged in drilling operations. The average day rate is the average daily fee charged by the drilling contractor for the use of the drilling rig and associated services. The average day rate is also referred to as the average revenue per day and is a function of the location, depth, and complexity of the well to be drilled, operating conditions, duration of the contract, and the competitive forces of the market.
The calculation of rig days in the oil and gas industry can be approached in two ways:
- The Number of Active Rigs x Number of Days in a Quarter
- Potential Operating Days x Utilization Rate
Here, active rigs are the number of rigs actively drilling for oil or gas during a given period. The number of active rigs is typically calculated by applying the utilization rate to the total rig fleet. The formula is as follows: Number of Active Rigs=Rig Fleet × (Utilization Rate /100). Rig fleet is the total number of rigs available in the fleet, while utilization rate is the percentage of rigs actively drilling.
Typically, a quarter consists of 3 months, so the number of days in a quarter would be either 90 or 91 days, depending on whether you’re using a standard or a fiscal quarter.
Potential operating days are the total number of days in the quarter, assuming all rigs are active daily. Potential operating days can be calculated as rig fleet multiplied by the number of days in a quarter. This approach assumes that all rigs in the fleet are operational every day, and it provides an estimate of the maximum possible operating days given the total number of rigs in the fleet and the duration of the quarter.
And lastly, the utilization rate is the percentage of time that rigs are actively drilling out of the potential operating days.
Completion & production (C&P) is another critical segment within the OFSE industry. It focuses on activities that occur after the exploration and drilling phases, specifically in bringing a well into production, also known as well completion, and maximizing its output.
Well completion encompasses the last stages of drilling to ready the well for production. This includes installing casing, perforating the casing to allow oil or gas to flow into the wellbore, and setting up production tubing. C&P companies provide various technologies and services for well completion, such as hydraulic fracturing, also known as fracking or pressure pumping, cementing, sand control, and well stimulation.
Completion & production revenue is typically calculated as the sum of revenue generated from pressure pumping or hydraulic fracturing services and revenue from other services. Hydraulic fracturing, commonly known as ‘fracking,’ involves injecting a high-pressure fluid mixture, typically consisting of water, sand, and chemicals, into a wellbore to create fractures in the rock formations deep underground. These fractures allow for the extraction of oil or natural gas that would otherwise be difficult or uneconomical to recover using conventional drilling methods.
Hydraulic fracturing revenue comprises the income generated specifically from providing hydraulic fracturing services, including fees for designing, executing, and monitoring hydraulic fracturing operations, as well as any revenue from equipment rental, chemical sales, proppant sales, and other related activities directly tied to hydraulic fracturing operations.
Hydraulic fracturing revenue is calculated by multiplying the average number of active fleets by the revenue per active fleet. Here, the average active fleet refers to the average number of hydraulic fracturing fleets a company has deployed and operated during a specific period, such as a quarter or a year. A hydraulic fracturing fleet typically consists of multiple fracturing units, including pumps, trucks, and other equipment necessary for fracturing operations. Further, average active fleet is calculated as the total fleet multiplied by the utilization rate. Here, the total fleet is the total number of hydraulic fracturing fleets that a company owns or operates, while the utilization rate represents the percentage of the total fleet that is actively deployed and in use at any given time.
Revenue per active fleet is the average revenue generated by each active hydraulic fracturing fleet over the same period. It includes all revenue sources associated with hydraulic fracturing operations, such as service fees, equipment rental fees, chemical sales, proppant sales, and other related revenue streams.
An alternative approach to calculating hydraulic fracturing revenue is via horsepower. This method involves quantifying the revenue generated per unit of horsepower deployed in hydraulic fracturing operations. To calculate hydraulic fracturing revenue based on horsepower, you multiply the average active horsepower by the revenue generated per horsepower.
Diversified oil & gas equipment & services companies are those that provide a wide range of products and services to the oil and gas industry. Diversified oil & gas equipment & services companies offer a full suite of integrated services and equipment to E&P companies. These companies often have operations across various segments of the oil and gas equipment & services value chain. Their services can include equipment manufacturing, drilling services, completion services, engineering and construction, and much more.
Diversified oil & gas equipment & services companies have a backlog of orders or contracts that have been secured but not yet completed. Analysts often use the backlog value to forecast future revenue. They track the value of the backlog, the expected completion timeline, and any new contract wins or cancellations to estimate revenue. Some other key metrics commonly used to evaluate these companies:
- Net order value
- Energy rigs
- Revenue per rig
- Book-to-bill ratio
Engineering & construction (E&C) companies within the OFSE industry play a crucial role in the development, maintenance, and expansion of infrastructure for oil and gas exploration, production, transportation, and refining. These companies provide various services and expertise, including designing oil and gas facilities such as refineries, pipelines, offshore platforms, and LNG terminals.
Engineering, procurement, and construction (EPC) contracts are one of the primary revenue sources for many E&C companies. These contracts involve the company taking responsibility for the entire project, from designing and engineering to procuring materials and constructing the facility. After the construction phase, E&C companies often secure contracts for the ongoing maintenance and operation of the facilities they have built. This provides a steady stream of recurring revenue over the life of the asset.
Often, E&C companies within larger conglomerates might have separate segment reporting. Revenue is typically calculated as a sum of the different revenue segments of an E&C company. Analysts look for the specific revenue figures related to the oil & gas sector within these segments.
Understanding certain key metrics such as beginning backlog, ending backlog, backlog value, and orders is crucial in analyzing the revenue flow of E&C companies. These metrics provide insights into the company’s project pipeline, the value of work to be completed, and future revenue expectations.
- Beginning backlog refers to the total value of projects that a company has already secured but has not yet started work on at the beginning of a specific period, such as a fiscal year. It represents the revenue that the company expects to earn from these projects as they progress and are completed.
- Ending backlog is the total value of projects that a company has secured but not yet completed at the end of a specific period. It includes projects that were in progress during the period and new projects that were secured but not yet started.
- Net order value refers to the value of new contracts or projects that a company has secured within a specific period.
- The book-to-bill ratio compares new orders (bookings) to billed revenue, indicating the health of the company’s order backlog and potential future revenue growth.
Compression equipment and services companies play a crucial role, particularly in the midstream and downstream sectors of the oil & gas industry. Compression equipment is used to increase the pressure of natural gas or other hydrocarbon gases as they move through pipelines or processing facilities. This is necessary for several reasons:
- Pipeline Transportation: Natural gas travels long distances through pipelines from production fields to end-users. Compression stations along the pipeline route help maintain pressure to keep the gas flowing efficiently.
- Gas Processing: During the processing of natural gas, compression is needed to move gas through various stages such as dehydration, sweetening, and liquefaction.
- Storage: In some cases, compressed gas is stored underground in depleted reservoirs or salt caverns. When needed, the gas can be released and recompressed for distribution.
Compression equipment and services revenue encompasses two main streams: compression services revenue and revenue from other equipment and services. Specifically, compression services revenue is determined by multiplying the active horsepower by revenue per horsepower per month.
Hotel REIT Industry Business Models
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Expenses
The OFSE industry can be capital-intensive, depending upon the type of equipment or services it offers. For example, contract drilling companies may own land rigs, jack-ups, submersible rigs, and drill ships, the cost of which can be substantial.
OFSE companies have a range of expense lines that are crucial to their operations. These expenses reflect the costs associated with providing equipment, services, and solutions to the oil and gas industry. Some key expense lines are:
- Cost of goods sold (COGS) such as:
- Manufacturing costs for equipment (e.g., drilling rigs, pumps, valves)
- Material costs for construction projects (e.g., pipes, casings, cement)
- Labor costs for field services (e.g., rig crews, technicians, engineers)
- Third-party subcontractor costs
- Depreciation & amortization (D&A)
- Selling, general & administrative (SG&A)
Profitability
While commodity prices are the most important variable affecting the profitability of E&P or upstream companies and their spending on OFSE, several other factors are considered when evaluating the profitability of an OFSE company. Investors assess the profitability of companies in this industry by considering various financial metrics, including:
- Gross profit margin: The gross profit margin measures the percentage of revenue that exceeds the cost of goods sold (COGS). It is calculated as:
Gross Profit Margin=( Revenue−COGS / Revenue ) × 100% - Net profit margin: This metric represents the percentage of revenue that remains as profit after deducting all expenses, including taxes and interest. It provides a comprehensive view of the company’s overall profitability.
Net Profit Margin=(Net Income/ Total Revenue ) × 100% - EBITDA margin: This metric measures a company’s profitability without considering the effects of financing and accounting decisions.
EBITDA Margin=( EBITDA / Total Revenue ) × 100% - Return on Equity (ROE): ROE shows how much profit a company generates with the money shareholders have invested. It is a key metric for assessing management’s ability to create value for shareholders.
ROE=(Net Income / Shareholders’ Equity) × 100%
When assessing the valuation of companies in the oil & gas equipment and services industry, analysts usually focus on the Enterprise Value to EBITDA (EV / EBITDA) ratio of companies within the industry.
Key performance indicators (KPIs) are the most important business metrics for a particular industry. When understanding market expectations for the oil & gas equipment & services industry, whether at a company or industry level, some KPIs to consider include:
Visible Alpha’s Standardized Industry Metrics
To understand market expectations for the oil & gas equipment & services industry, a key information source is sell-side analyst estimates and consensus forecast data. The buy-side, sell-side, and public companies leverage this type of data to conduct competitive analysis, a type of analysis conducted by professional analysts that involves comparing standardized metrics of one company with those of similar companies. Because companies report metrics differently – and sometimes report on different metrics altogether – standardizing the key metrics for each company can be a cumbersome process.
Visible Alpha Insights includes analyst data, company data, and industry data at a level of granularity unparalleled in the market. Our industry data – Standardized Industry Metrics – enables market participants to quantify and compare market expectations for companies across 150+ industries.
Data as of April 23, 2024
62
Global Tickers
962
Current Analyst Excel Models
305
Proprietary line items in our standardized operating metrics data
89
Contributing Brokers
540
Total standardized line items
235
Unique Line Items In Our Standardized Financials Data
Visible Alpha offers 12 oil & gas equipment & services-related comp tables, comparing forecasts for key financial and operating metrics, to make it easy to quickly conduct relative analysis, whether you are interested in looking at key values for global companies, Americas, or Europe. Every pre-built, customizable comp table is based on region, sub-industry, or key operating metrics.
NORTH AMERICA
- SLB
- Baker Hughes Company
- HALLIBURTON COMPANY
- NATIONAL OILWELL VARCO, INC.
- PATTERSON-UTI ENERGY, INC.
EMEA
- Saipem
- TechnipFMC PLC
- Subsea 7
- WOOD GROUP (JOHN)
APAC
- Sinopec Engineering (Group)
- China Oilfield Services
- Offshore Oil Engineering
Industry KPI Terms & Definitions
Visible Alpha offers an innovative, integrated experience through real-time, granular consensus estimates and historical data created directly from the world’s leading equity analysts. Using a subset of the below KPIs, this data can help investors hone in on the key drivers of companies to uncover investment opportunities.
Rigs
An oil rig is a large structure used in the exploration and extraction of oil and natural gas from beneath the Earth’s surface. These rigs are typically located in oceans, seas, or lakes where petroleum deposits are found beneath the seabed.
Active Rigs
Active rigs refer to the number of drilling rigs that are currently operational and actively engaged in drilling for oil or natural gas.
Rig Utilization
Rig utilization is the percentage of time that a drilling rig is actively engaged in drilling or other operational activities compared to its total available time. It is calculated by dividing the number of active rigs (those in operation or actively working) by the total number of rigs available.
Revenue Per Rig
Revenue per rig is the amount of revenue generated by each drilling rig in a given period, typically calculated on a quarterly or annual basis. A higher revenue per rig typically indicates that the company is extracting more oil and gas from each drilling rig, which can be a sign of operational efficiency and profitability.
Day Utilization
Day utilization is the percentage of available days that a drilling rig is actively working or drilling during a specific period. It is calculated as the total number of days rigs are working (actual operating days) divided by the total number of days in a given period (potential operating days). A high day utilization rate indicates that the rig is in operation for a significant portion of the available days, suggesting strong demand for drilling services and active exploration and production activities.
Actual Operating Days
Actual operating days also known as rig days – contract drilling are the total number of days during a specific period that a drilling rig is actively engaged in drilling operations or other productive activities. It represents the total number of days a drilling rig actively earns revenue under a contractual agreement.
Potential Operating Days
Potential operating days refer to the total number of calendar days in the specified period, such as a month, quarter, or year. It is calculated as a product of the number of days in a month, quarter, or year, and the total number of rigs available for operations.
Average Day Rate
Average day rate refers to the average amount earned per day by a drilling rig under a contractual agreement.
Average Operating Cost Per Day
Average operating cost per day measures the average daily expenses incurred in operating a drilling rig. It represents the average amount of money spent per day to keep the rig operational and productive. It is calculated by dividing the total operating costs in a given period by the number of actual operating days in that period. This metric excludes operating costs that are reimbursed by customers, as well as rig construction costs.
Average Operating Margin Per Day
Average operating margin per day measures the average profit earned per day from operating a drilling rig. It is calculated by dividing the EBITDA from contract drilling during a given period by the number of actual operating days in that period.
Reimbursement Revenue
Reimbursement revenue is the income a company receives from its clients for purchasing equipment, supplies, personnel, and other services as requested by the clients. This revenue is recognized when the company incurs costs on behalf of the customer.
Net Order Value
Net order value refers to the total value of orders that a company has received after deducting any cancellations, returns, or adjustments.
Backlog Value
Backlog refers to the total value of confirmed orders that a company has received but has not yet fulfilled or delivered. It represents the value of work that the company has committed to completing in the future.
Book-to-Bill Ratio
The book-to-bill ratio is a measure that compares the value of new orders a company receives for its goods and services to the amount it bills (or earns) over a specific period. It shows how much new business a company has acquired in comparison to the revenue it generated during that period.
Active Fleets
Active fleet refers to the number of operational assets or equipment units that a company has available for use at any given time. These assets can include drilling rigs, production platforms, vessels, well intervention equipment, seismic survey vessels, and other machinery used in oil and gas exploration, production, and transportation.
Total Fleet
Total fleet refers to the complete inventory of equipment and assets that a company owns or operates. This includes all machinery, vehicles, vessels, rigs, and other equipment that the company possesses, regardless of whether they are currently in use or not.
Revenue Per Active Fleet (Annualized)
Revenue per active fleet measures the amount of revenue that an operating fleet earns every year. It is computed as revenue from hydraulic fracturing or pressure pumping on an annual basis divided by active fleet.
EBITDA Per Active Fleet (Annualized)
EBITDA per active fleet indicates the average EBITDA generated by each active unit (such as a drilling rig, production platform, vessel, etc.) in a company’s operational fleet. It is computed as EBITDA from hydraulic fracturing or pressure pumping on an annual basis divided by the active fleet.
Active Horsepower, Average
Active horsepower refers to the total power output of the engines or motors that are currently in use or actively deployed in operations.
Total Horsepower, Average
Total horsepower refers to the combined power output of all the engines or motors used in a company’s equipment fleet. This metric is particularly important for companies that provide drilling, hydraulic fracturing (fracking), pumping, or other services that require significant power.
Horsepower Per Fleet
Horsepower per fleet measures the average power capacity of each unit within a company’s fleet of equipment. It is calculated as total horsepower divided by the number of units in a fleet.
Horsepower Utilization Rate
Horsepower utilization rate indicates the percentage of available horsepower or power capacity that is actively utilized in a system, process, operation, or fleet of equipment. It is calculated by dividing the actual horsepower being used in the operation by the total available horsepower and multiplying by 100 to express it as a percentage.
Revenue Per Horsepower (Annualized)
Revenue per horsepower calculates how much revenue a company generates for each horsepower (HP) unit of its equipment’s power capacity. It is computed as revenue from hydraulic fracturing or pressure pumping on an annual basis divided by active horsepower.
EBITDA Per Horsepower (Annualized)
EBITDA per horsepower measures the profitability and efficiency of a company’s operations relative to its horsepower (HP). This metric indicates the average EBITDA generated by each unit of horsepower in a company’s fleet of equipment. It is computed as EBITDA from hydraulic fracturing or pressure pumping on an annual basis divided by active horsepower.
Revenue Per Active Horsepower Per Month
Revenue per active horsepower per month (revenue per HHp per month) measures the efficiency and profitability of compression equipment. It is calculated by dividing the total revenue generated by a piece of equipment (such as a compression equipment) by the total active horsepower of that equipment, and then dividing that by the number of months in a given period.
Gross Profit Margin
Gross profit margin measures the percentage of revenue that exceeds the cost of goods sold (COGS)
Net Profit Margin
Net profit margin represents the percentage of revenue that remains as profit after deducting all expenses, including taxes and interest. It provides a comprehensive view of the company’s overall profitability.
EBITDA Margin
EBITDA margin measures a company’s profitability without considering the effects of financing and accounting decisions.
Return on Equity (ROE)
Return on equity (ROE) shows how much profit a company generates with the money shareholders have invested. It is a key metric for assessing management’s ability to create value for shareholders.
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Guide to Oil & Gas Equipment & Services Industry KPIs for Investment Professionals
This guide highlights the key performance indicators for the oil & gas equipment & services industry and where investors should look to find an investment edge, including:
- Oil & Gas Equipment & Services Industry Business Model & Diagram
- Key Oil & Gas Equipment & Services Industry Metrics PLUS Visible Alpha’s Standardized Industry Metrics
- Available Comp Tables
- Industry KPI Terms & Definitions
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