NexTier: A Multiple Adjustment

After a few tough years, over which oil prices turned negative, NexTier Oilfield Solutions Inc. (

The company is a leading provider of integrated completions focused on U.S. land drilling services. The company delivers solutions and technologies for the oil and gas industry to maximize the production of wells. It was formed when Keane Group and C&J Energy Services merged in 2019, bringing together complementary assets and technology. The combined company has expanded its presence in most major U.S. onshore oil and gas basins.

NexTier's business

NexTier has a large fleet of hydraulic fracturing pumps, cementing pumps and other ancillary equipment, which it uses to help oil and gas companies complete their wells and begin production. It operates through multiple segments, including Completion Services and Well Construction and Intervention Services

The company generates revenue primarily by offering a range of services to oil and gas exploration and production companies. The main revenue streams come from several sources, including:

Competitive advantages

NexTier has a few key competitive advantages. To begin, it offers a wide range of oilfield services that are integrated, giving the company an edge because it can provide comprehensive solutions to its clients, covering different aspects of well completion and production. This convenience can be a significant deciding factor for clients when choosing service providers.

It also has geographical dominance with operations in most of the significant onshore oil and gas basins in the U.S. This broad presence allows the company to serve a larger customer base and gives it a competitive edge over regional players. The company also has technological advantages and strong focus on leveraging technology to deliver its services more effectively and efficiently, delivering through an experienced and skilled workforce to significantly contribute further to a company's value.

The world is definitely trying to shift to more renewable energy as the resource is running out and total oil rig counts are on the decline, going from more than 2,000 in the early 1980s to under 700 mow in the United States, according to Baker Hughes. This means oil production companies must drill for new wells or risk volumes and revenue falling. This essentially means spending money. What that really means is that NexTier is in the right business to help oil conglomerates allocate capital expenditures and profit greatly for the foreseeable future.

Financials

Nearly all of NexTier's 2022 revenue, which was $3.2 billion, originated inside the U.S., including 65% from the Texas operations. On the spike in oil and gas prices last year, total sales jumped 128% compared to 2021 and could remain elevated for some time going forward. In fact, the company's revenue expectations have already increased for the current year with $3.8 billion within reach. More importantly, after years of losing money, the company has started to squeeze out profit, amounting to around $130,000 per employee. The number that seems even more important is $5.07. That's what analysts estimate the company will produce in net income per share over the next three years. The stock price is under $9 right now and NexTier's earnings could be even higher than expected.

In a year or two, NexTier's management could have more than $1 billion in cash to do any number of strategic desires. The company could pay out 50% of its earnings as a dividend with 15% yield. It could buy back stock or pay down debt to add value to shareholders. It could do all of them, but if the thesis of oil well development is sound, then NexTier will remain profitable for this decade, at least. Is it a cigar butt? Maybe. But at some point, the market will realize this valuation is wrong and push the price higher.

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