Oil service companies are watching both their stock prices and their earnings margins grow, analysts have said, adding that the service sector is being driven by increased oil and gas drilling activity worldwide.
Investors appear to agree, as the benchmark Oil Service Index rose 1.64% to 124.24 Mar. 23.
E&P stocks slip
Meanwhile, Robert Morris, Salomon Smith Barney Inc. analyst in New York, issued a report noting the stock value of exploration and production companies dropped after the Federal Reserve lowered interest rates.
"E&P shares declined by 2.6% on averageellipsewhile West Texas Intermediate spot crude oil and composite spot natural gas prices rose 0.9% and 1.2%, respectively. Concurrently, the S&P 500 declined 2.9%, while the Nasdaq composite was up only slightly," Morris said in a research note.
But overall, Morris said he expects to see gains for E&P stocks this year based upon what he sees as relatively firm gas prices and near-term support for crude prices.
Oil services analyst Kurt Hallead, with Merrill Lynch & Co. Inc., said the fundamentals of the oil service business are improving, particularly for owners of land rigs and jack ups.
"According to our estimates, oil service earnings per share growth should [be] 50-200% in 2001 and 30-100% in 2002," Hallead said in a research note.
Carol Lau, Banc of America Securities LLC services analyst in New York, said earlier this month that she expects oil company upstream budgets will rise by at least 20% this year, driving up rig utilization rates and day rates worldwide.
Noble Drilling Corp., Sugar Land, Tex., recently secured letters of intent for 1-year contracts on two idle jack ups and a 1-year contract extension on another. All three contracts involve the Middle East, demonstrating that international drilling budgets are improving, Lau said.
"Second, the rates on these contracts were in the mid-$50,000s, up from market rates in the low to mid-$40,000s 1 month ago," Lau said in a research note, adding that Gulf of Mexico day rates also are improving.
