Oil and gas services and equipment
pumped out fresh 52-week highs Thursday following a positive
industry report fromGoldman Sachs (
) and a Transocean (
) guilty plea and agreement to pay criminal fine for its role
inBP 's (
) 2010 Gulf of Mexico oil spill.
PowerShares Dynamic Oil & Gas Services (
),Market Vectors Oil Services (
) andiShares Dow Jones U.S. Oil Equipment Index (IEZ) all popped
3%, breaking out of bases or extending gains to new highs.
"Following four quarters of sequential declines in North
American drilling activity and oil service profitability, January
is marking a turnaround in activity," Goldman's equity analysts
wrote in a report. "Revenues/margins for North American service
companies either bottomed in fourth-quarter 2012 or are expected
to bottom in first-quarter 2013, marking a major inflection for
Nabors Industries (NBR)jumped 4.4% in double average volume
after Goldman upgraded the shale exploration services provider to
buy and added it to the conviction buy list, noting that it
trades at a 34% discount to its net asset value.
Goldman reiterated its buy rating onHalliburton (HAL), which
rose 6% Thursday,Basic Energy Services (BAS), up 8%;Schlumberger
(SLB), up 4%; Cameron International (CAM), up 2%;National Oilwell
Varco (NOV), up 2%;Pioneer Energy Services (PES), up 9%;
andC&J Energy Services (CJES), up 6%.
Share prices should get a boost from robust free cash flows at
several companies, raising the potential for dividend increases
and share buybacks, along with the likelihood of margin
expansion, asset restructuring, the possibility of leveraged
buyouts and rising horizontal rig counts, Goldman wrote.
"There is strong evidence from past cycles that increases in
rig count causes improvement in valuations during this part of
the cycle," Goldman analysts wrote. "While continuing declines in
vertical rig count are masking this growth, North American
service profitability is driven by horizontal rig count rather
than the vertical rig count."
The U.S. horizontal rig count now is 3% higher than the
average in the fourth quarter. Goldman projects U.S. rig counts
to rise by 150 rigs, or 9%, by year's end.
"Moreover, well count is the true driver of service
profitability and that is increasing at an even higher rate,
owing to rising rig efficiency," Goldman added.
Based on research going back 20 years, stocks bottomed long
before rig counts bottomed. Goldman believes large-cap energy
services and equipment providers bottomed in June 2012 and that
rig counts bottomed in January.
"However, the large caps are currently up only 4% since that
early-January rig count trough, implying significant upside still
exists should historical trends play out," Goldman wrote.
Transocean surged 4% to 59.30, a 52-week high, in heavy
volume. It broke out of a bullish cup-with-handle chart pattern.
A federal judge approved the Switzerland-based firm's deal with
prosecutors to plead guilty to a misdemeanor charge and pay a
$400 million criminal penalty in the BP oil disaster that killed
It also agreed to pay $1 billion in civil penalties, most of
which will fund oil spill prevention research and environmental
restoration. It will also be on probation five years.