The recent Q1 2024 earnings call for Nine Energy Service (NYSE: NINE) [link to transcript] painted a picture of a company navigating a volatile energy market, marked by depressed natural gas prices and cautious oil producers. While the overall message focused on anticipated activity declines and pricing pressures, particularly in the natural gas-heavy basins, a closer look at the transcript reveals a potentially overlooked story: a resurgence in coiled tubing demand, specifically in the oil-rich Permian Basin.

Nine's management acknowledged the headwinds facing the company, particularly the negative impact of low natural gas prices on activity in the Haynesville, Northeast, and Eagle Ford basins. These basins, which accounted for 34% of Nine's 2023 revenue, are experiencing delayed completions, rig declines, and increased white space in drilling calendars. The company expects this slowdown to continue in Q2, leading to a projected revenue decline compared to Q1.

However, amidst this cautious outlook, the coiled tubing segment presented a compelling narrative of robust demand and strategic resource allocation. While the overall rig count remained flat quarter-over-quarter, Nine reported a remarkable 40% increase in coiled tubing days worked, translating to an 11% revenue growth for the segment. This surge in demand was attributed primarily to the Permian Basin, where Nine was able to capitalize on opportunities by strategically reallocating equipment and personnel from the subdued Haynesville region.

This strategic maneuver highlights Nine's operational agility and its ability to capitalize on regional market shifts. While the natural gas basins grapple with low prices, the Permian Basin, buoyed by stable oil prices, presents a more favorable landscape for coiled tubing services. This suggests that Nine is not merely reacting to market conditions but proactively positioning itself to leverage emerging opportunities.

The Hypothesis: A Coiled Tubing Renaissance?

The hypothesis here is that Nine's coiled tubing resurgence in the Permian is not a temporary blip but a potential indicator of a longer-term trend. If oil prices remain supportive, we could see a sustained demand for coiled tubing services in the Permian, driving further growth for Nine's segment.

This hypothesis is supported by several factors:

The Permian Basin remains the most active shale play in the US, with a consistent focus on oil production.As operators push towards more efficient and cost-effective drilling and completion techniques, coiled tubing services, known for their versatility and reduced environmental footprint, become increasingly attractive.Nine's strategic redeployment of assets to the Permian demonstrates their commitment to capitalizing on this burgeoning demand.

However, this hypothesis also faces potential challenges. The sustained growth of coiled tubing in the Permian hinges heavily on oil price stability. A significant drop in oil prices could dampen drilling activity, consequently affecting the demand for coiled tubing services. Additionally, increasing competition within the Permian coiled tubing market could lead to pricing pressures, potentially impacting Nine's margins.

Q1 2024 Performance: Coiled Tubing Shines

The numbers tell a compelling story. While cementing, wireline, and completion tools experienced relatively flat or declining revenues quarter-over-quarter, coiled tubing stood out with its 11% revenue growth. This underscores the segment's robust performance and its potential to contribute significantly to Nine's overall revenue in the coming quarters.

Source: Nine Energy Service Q1 2024 Earnings Call Transcript

Beyond Coiled Tubing: Dissolvable Plugs and International Expansion

The Q1 transcript also highlighted a significant milestone for Nine's completion tool segment: the company surpassed 60,000 dissolvable Stinger units sold since its launch in 2020. This achievement speaks to the growing acceptance of dissolvable plug technology within the industry.

Furthermore, Nine's continued focus on diversifying its revenue streams, particularly through international expansion of its completion tools segment, presents a promising avenue for future growth. The company reported a 16% year-over-year increase in international revenue in 2023, indicating the potential for significant upside in this market.

Conclusion: A Company Poised for Growth?

While Nine Energy Service acknowledges the challenges presented by a volatile energy market, its strategic focus on coiled tubing in the Permian Basin, coupled with the success of its dissolvable plug technology and international expansion, suggests a company poised to navigate market fluctuations and seize emerging opportunities. The coiled tubing renaissance brewing in the Permian could be a significant driver for Nine's future growth, a narrative that deserves a closer look from analysts and investors alike.

"Fun Fact: Coiled tubing, despite its name, is not actually a tube but a continuous length of steel pipe wound onto a large reel. This allows for greater flexibility and reach in wellbore operations, making it ideal for a variety of applications, including well intervention, stimulation, and cleanouts."