OIL STATES INTERNATIONAL, INC.

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Delayed Nyse  -  04:00 2022-06-24 pm EDT
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05/13OIL STATES INTERNATIONAL, INC : Change in Directors or Principal Officers, Financial Statements and Exhibits (form 8-K)
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05/10OIL STATES INTERNATIONAL, INC : Submission of Matters to a Vote of Security Holders (form 8-K)
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04/29OIL STATES INTERNATIONAL, INC Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)
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OIL STATES INTERNATIONAL, INC Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

04/29/2022 | 02:53pm EDT
The following discussion and analysis should be read together with our condensed
consolidated financial statements and the notes to those statements included
elsewhere in this Quarterly Report on Form 10-Q and our consolidated financial
statements and notes to those statements included in our 2021 Annual Report on
Form 10-K in order to understand factors, such as charges and credits, financing
transactions and changes in tax regulations, which may impact comparability from
period to period.

We provide a broad range of manufactured products and services to customers in
the energy, industrial and military sectors through our Offshore/Manufactured
Products, Well Site Services and Downhole Technologies segments. Demand for our
products and services is cyclical and substantially dependent upon activity
levels in the oil and gas industry, particularly our customers' willingness to
invest capital in the exploration for and development of crude oil and natural
gas reserves. Our customers' capital spending programs are generally based on
their cash flows and their outlook for near-term and long-term commodity prices,
making demand for our products and services sensitive to expectations regarding
future crude oil and natural gas prices, as well as economic growth, commodity
demand and estimates of resource production and regulatory pressures related to
environmental, social and governance ("ESG") considerations.

Recent Developments


The spot price of Brent crude oil price averaged $101 per barrel during the
first quarter of 2022, an increase of 27% from the fourth quarter 2021 average
and the highest quarterly average level observed since the second quarter of
2014. The higher commodity price environment was driven by crude oil supply
reductions resulting from the Russian invasion of Ukraine on February 24, 2022,
increased demand as the global effects of the COVID-19 pandemic have moderated
and slower crude oil production growth due to reduced investments by operators
globally.

Brent and West Texas Intermediate ("WTI") crude oil and natural gas pricing
trends were as follows:

                                               Average Price(1) for quarter ended                                   Average Price(1)
                                                                                                                     for year ended
     Year                 March 31                 June 30             September 30           December 31             December 31
Brent Crude (per bbl)
     2022            $         100.87          $          -          $           -          $           -          $        100.87
     2021                       61.04                 68.98                  73.51                  79.61                    70.86
WTI Crude (per bbl)
     2022            $          95.18          $          -          $           -          $           -          $         95.18
     2021                       58.09                 66.19                  70.58                  77.33                    68.14

Henry Hub Natural Gas (per MMBtu)

     2022            $           4.67          $          -          $           -          $           -          $          4.67
     2021                        3.50                  2.95                   4.35                   4.75                     3.90


________________

(1)Source: U.S. Energy Information Administration (spot prices).


On April 22, 2022, Brent crude oil, WTI crude oil and natural gas spot prices
closed at $105.15 per barrel, $102.86 per barrel and $6.59 per MMBtu,
respectively. Additionally, as presented in more detail below, the U.S. drilling
rig count reported on April 22, 2022 was 695 rigs, 10% above the first quarter
2021 average.

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In January of 2022, we completed the previously announced exit of certain
non-performing service offerings within our Well Site Services segment. These
service offerings generated revenues of $4.4 million in the first quarter of
2021.

During the first quarter of 2022, we recorded bad debt expense of $0.8 million
related to receivables from Russia-based customers of the Offshore/Manufactured
Products segment. As of March 31, 2022, we had no remaining material balance
sheet exposure related to Russia.

On April 14, 2022, our Offshore/Manufactured Products segment acquired E-Flow
Control Holdings Limited ("E-Flow"), a global provider of fully integrated
handling, control, monitoring and instrumentation solutions. E-Flow, founded in
1988, provides a broad range of engineering, design, manufacturing, installation
and commissioning services to its customers in the energy industry. The purchase
price of $8.6 million, which is subject to customary post-closing adjustments,
was funded with cash on-hand.

Overview

Current and expected future pricing for WTI crude oil, along with expectations
regarding the regulatory environment, are factors that will continue to
influence our customers' willingness to invest in U.S. shale play developments
as they allocate capital and strive for financial discipline and spending levels
that are within their capital budgets and cash flows. Expectations for the
longer-term price for Brent crude oil will continue to influence our customers'
spending related to global offshore drilling and development and, thus, a
significant portion of the activity of our Offshore/Manufactured Products
segment.

Crude oil prices and levels of demand for crude oil are likely to remain highly
volatile due to numerous factors, including geopolitical conflicts (such as the
direction and outcome of Russia's invasion of Ukraine), unrest and tensions;
sanctions; global uncertainties related to the COVID-19 pandemic; domestic or
international crude oil production; changes in governmental rules and
regulations; the willingness of operators to invest capital in the exploration
for and development of resources; use of alternative fuels; improved vehicle
fuel efficiency; a more sustained movement to electric vehicles; and the
potential for ongoing supply/demand imbalances. Capital investment by our
customers recently reached a 15-year low due to negative developments with
respect to many of these factors.

Customer spending in the natural gas shale plays has been limited due to
technological advancements that have led to significant amounts of natural gas
being produced from prolific basins in the Northeastern United States and from
associated gas produced from the drilling and completion of unconventional oil
wells in the United States.

U.S. drilling, completion and production activity and, in turn, our financial
results, are sensitive to near-term fluctuations in commodity prices,
particularly WTI crude oil prices, given the short-term, call-out nature of our
U.S. operations.

Our Offshore/Manufactured Products segment provides technology-driven,
highly-engineered products and services for offshore oil and natural gas
production systems and facilities globally, as well as certain products and
services to the offshore and land-based drilling and completion markets. This
segment also produces a variety of products for use in industrial, military and
other applications outside the traditional energy industry. This segment is
particularly influenced by global spending on deepwater drilling and production,
which is primarily driven by our customers' longer-term commodity demand
forecasts and outlook for crude oil and natural gas prices. Approximately 40% of
Offshore/Manufactured Products segment sales in the first quarter of 2022 were
driven by our customers' capital spending for products used in exploratory and
developmental drilling, greenfield offshore production infrastructure, and
subsea pipeline tie-in and repair system applications, along with upgraded
equipment for existing offshore drilling rigs and other vessels (referred to
herein as "project-driven products"). Deepwater oil and gas development projects
typically involve significant capital investments and multi-year development
plans. Such projects are generally undertaken by larger exploration, field
development and production companies (primarily international oil companies and
state-run national oil companies) using relatively conservative crude oil and
natural gas pricing assumptions. Given the long lead times associated with field
development, we believe some of these deepwater projects, once approved for
development, are generally less susceptible to short-term fluctuations in the
price of crude oil and natural gas.

Backlog reported by our Offshore/Manufactured Products segment increased to $265 million as of March 31, 2022 from $226 million as of March 31, 2021. Bookings totaled $93 million in the first quarter of 2022, yielding a book-to-bill ratio of 1.1x. The following table sets forth backlog as of the dates indicated (in millions).

                                                   Backlog as of
                  Year      March 31       June 30       September 30      December 31
                  2022     $     265      $      -      $          -      $          -
                  2021           226           214               249               260
                  2020           267           235               227               219


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Our Well Site Services segment provides completion services and, to a much
lesser extent, land drilling services, in the United States (including the Gulf
of Mexico) and the rest of the world. U.S. drilling and completion activity and,
in turn, our Well Site Services results, are sensitive to near-term fluctuations
in commodity prices, particularly WTI crude oil prices, given the short-term,
call-out nature of its operations. We primarily supply equipment and service
personnel utilized in the completion of and initial production from new and
recompleted wells in our U.S. operations, which are dependent primarily upon the
level and complexity of drilling, completion and workover activity in our areas
of operations. Well intensity and complexity have increased with the continuing
transition to multi-well pads, the drilling of longer lateral wells and
increased downhole pressures, along with the increased number of frac stages
completed in horizontal wells.

Our Downhole Technologies segment provides oil and gas perforation systems,
downhole tools and services in support of completion, intervention, wireline and
well abandonment operations. This segment designs, manufactures and markets its
consumable engineered products to oilfield service as well as exploration and
production companies. Product and service offerings for this segment include
innovations in perforation technology through patented and proprietary systems
combined with advanced modeling and analysis tools. This expertise has led to
the optimization of perforation hole size, depth, and quality of tunnels, which
are key factors for maximizing the effectiveness of hydraulic fracturing.
Additional offerings include proprietary frac plug and toe valve products, which
are focused on zonal isolation for hydraulic fracturing of horizontal wells, and
a broad range of consumable products, such as setting tools and bridge plugs,
that are used in completion, intervention and decommissioning applications.
Demand drivers for the Downhole Technologies segment include continued trends
toward longer lateral lengths, increased frac stages and more perforation
clusters to target increased unconventional well productivity, which requires
ongoing technological and product developments.

Demand for our completion-related products and services within each of our
segments is highly correlated to changes in the total number of wells drilled in
the United States, total footage drilled, the number of drilled wells that are
completed and changes in the drilling rig count. The following table sets forth
a summary of the U.S. and international drilling rig count, as measured by Baker
Hughes Company, as of and for the periods indicated.
                                                                                                              Average for the
                                                                                    Three Months Ended March 31,
                                               As of April 22, 2022                                 2022                          2021
United States Rig Count:
Land - Oil                                                          537                                      493                           286
Land - Natural gas and other                                        145                                      123                            91
Offshore                                                             13                                       17                            16
                                                                    695                                      633                           393
International Rig Count:
Land                                                                                                         828                           667
Offshore                                                                                                     193                           169
                                                                                                           1,021                           836
                                                                                                           1,654                         1,229


The U.S. energy industry is primarily focused on crude oil and liquids-rich
exploration and development activities in U.S. shale plays utilizing horizontal
drilling and completion techniques. As of March 31, 2022, oil-directed drilling
accounted for 79% of the total U.S. rig count - with the balance largely natural
gas related. Due to the unprecedented decline in crude oil prices in March and
April of 2020, drilling and completion activity in the United States collapsed -
with the active drilling rig count declining from 790 rigs as of February 29,
2020 to a trough of 244 rigs as of August 14, 2020. From this trough, the U.S.
rig count has increased to 670 rigs as of March 31, 2022. As can be derived from
the table above, the average U.S. rig count for the first three months of 2022
increased by 240 rigs, or 61%, compared to the average for the first three
months of 2021.

We use a variety of domestically produced and imported raw materials and
component products, including steel, in the manufacture of our products. The
United States has imposed tariffs on a variety of imported products, including
steel and aluminum. In response to the U.S. tariffs on steel and aluminum, the
European Union and several other countries, including Canada and China, have
threatened and/or imposed retaliatory tariffs. The effect of these tariffs and
the application and interpretation of existing trade agreements and customs,
anti-dumping and countervailing duty regulations continue to evolve, and we
continue to monitor these matters. If we encounter difficulty in procuring these
raw materials and component products, or if the prices we have to pay for these
products increase and we are unable to pass corresponding cost increases on to
our customers, our financial position, cash flows and results of operations
could be adversely affected. Furthermore, uncertainty with respect to potential
costs in the drilling and completion of oil and gas wells could cause our
customers to delay or cancel planned projects which, if this occurred, would
adversely affect our financial position, cash flows and results of operations.
See Note 11, "Commitments and Contingencies."

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Other factors that can affect our business and financial results include but are
not limited to: the general global economic environment; competitive pricing
pressures; public health crises; natural disasters; labor market constraints;
supply chain disruptions; inflation in wages, materials, parts, equipment and
other costs; climate-related and other regulatory changes; geopolitical
tensions; and changes in tax laws in the United States and international
markets. We continue to monitor the global economy, the prices of and demand for
crude oil and natural gas, and the resultant impact on the capital spending
plans and operations of our customers in order to plan and manage our business.

Human Capital


For more information on our health and safety, diversity and other workforce
policies, please see "Part I, Item 1. Business - Human Capital" in our Annual
Report on Form 10-K for the year ended December 31, 2021.

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Selected Financial Data


This selected financial data should be read in conjunction with our Unaudited
Condensed Consolidated Financial Statements and related Notes included in
"Part I, Item 1. Financial Statements" of this Quarterly Report on Form 10-Q and
"Part II, Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our Consolidated Financial Statements and related
notes included in "Part II, Item 8. Financial Statements and Supplementary Data"
of our Annual Report on Form 10-K for the year ended December 31, 2021 in order
to understand factors, such as charges and credits, financing transactions and
changes in tax regulations, which may impact the comparability of the selected
financial data.

© Edgar Online, source Glimpses

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