By OGJ editors
HOUSTON, May 14 -- Oil field service fundamentals are beginning to win out, and the Philadelphia Oil Service Index (OSX) outperformed virtually all the major indices, commodity prices, and other energy sectors for the week ended May 9, said James K. Wicklund, a Banc of America LLC analyst in Houston.
The OSX gained nearly 7% last week compared with flat performance by the S&P 500 Index, Wicklund said.
The mood was optimistic among oil service representatives and their investors attending the Offshore Technology Conference, said both Wicklund and J. Marshall Adkins, a Houston-based analyst with Raymond James & Associates Inc.
OTC reported 50,655 participants attended the May 5-8 event compared with 49,620 last year. The 2003 OTC attendance was the highest since the 1985 meeting, which drew 56,438 participants.
"While well shy of the peak levels we saw during the early 1980s, it was well above the approximately 37,000 annual attendees we have averaged over the prior 15 years," said Adkins. "We believe this is evidence of the view from most in the oil patch that activity levels are likely to recover steadily over the next several quarters."
OSX
The OSX closed near 92 on May 9 and was 94.75 by midafternoon on May 14. Oil service stocks, as measured by the index, have added 10% since late April.
"There has been significant outperformance by a number of stocks," particularly for the land drillers, Wicklund said. He expects land drillers will outperform all other oil service sectors through the cycle, which is expected to last through 2004.
"In the near term, we could see some outperformance from the offshore drillers as they catch (up) from their dismal performance during the first quarter," Wicklund said.
"It is true that so far, most of the drilling increase has been for shallow gas wells, i.e., immediate delivery, but that is normal at the beginning of the cycle, and it became clear to many that sustained, deeper, higher margin drilling should be expected," Wicklund said.
