Broadly speaking, it has been a rough year for oil services
stocks, a high-beta group that often shows an intimate
correlation to crude futures. The U.S. rig count has fallen from
2,000 in December 2011 to the current level of about 1,800 due in
large part to plunging natural gas prices.
However, there might be reason to be optimistic about the
prospects for the oil services group, particularly as the Gulf of
Mexico "is staging a comeback," S&P Capital points out in a
new research note.
"It is in the deepwater that we are seeing an ongoing
resurgence and recovery," said S&P Capital IQ in the note.
"At the time of the Macondo oil spill in April 2010, there were
33 actively working rigs in the deepwater. Then came the
moratorium on drilling (May 2010 - October 2010), followed by a
prolonged malaise, aka the 'permitorium', during which it was
theoretically possible to get a drilling permit but unrealistic
to get one in short order. The industry responded by either
terminating rig contracts, or agreeing to lower standby day rates
while the regulatory process evolved."
Offshore services providers count on deepwater drilling
activity as a significant driver of revenue and profits because
day rates for those rigs are far higher than for land-based rigs.
Earlier this year, ultra-deepwater day rates touched
a record high of $600,000
S&P said fundamentals are starting to improve and that
there are currently 39 deepwater rigs active in the Gulf.
"We estimate that 22 new deepwater rigs will roll off the
delivery line in 2013, and of those, seven are already under
contract and destined to go to work in the U.S. Gulf. We estimate
that the U.S. Gulf deepwater rig count will reach a record high
by year end 2013, perhaps in the 45-50 range, as those seven
units begin to go to work," according to the research firm.
In the note, the firm placed four-star ratings on Atwood
), Noble (NYSE:
) and Ensco (NYSE:
). Among oil services
, S&P rates the SPDR S&P Oil & Gas Equipment &
Services ETF (NYSE:
XES, which has $273.6 million in assets under management, uses
an almost equal-weight approach. While rival oil services ETFs
are heavily to just a couple of stocks such as Schlumberger
) and Halliburton (NYSE:
), no holding in XES receives a weight of more than 3.06 percent.
Among the aforementioned stocks, Ensco is a top-10 holding in XES
while Atwood and Noble are found further down the ETF's roster.
Schlumberger and Halliburton combine for just 5.1 percent of the
Year-to-date XES is off 2.8 percent, a performance that puts
the fund almost inline with the rival iShares Dow Jones U.S. Oil
Equipment & Services Index Fund (NYSE:
). The Market Vector Oil Services ETF (NYSE:
), the largest oil services fund by assets, is modestly higher on
the year. Sclumberger and Halliburton combine for over 31 percent
of OIH's weight and over 28 percent of IEZ's weight.
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