It still seems hard to believe that just a little over two years ago oil prices were bubbling near the $100 a barrel level and everything was a go in every major drilling area in the United States. Then came the sell-off, and the rig count plummeted domestically from 1,859 in November of 2014 to just 442 today. While that is better than the low count of 374 in late May, it is a long way from the heights in 2014. One thing is for sure, the consolidation of the last two years got rid of a lot of the weak hands.
In a new UBS research report, oil services analyst Angie Sedita makes the case that earnings are starting to surprise to the upside somewhat, and while deepwater offshore could be slow well in 2018, the land drillers and operations look better. The UBS team has three of the big players rated Buy, and they are the ones to stick with as the recovery goes on.
While the deal with Haliburton fell apart, the company has continued to trade higher since and looks very attractive now. Baker Hughes Inc. (NYSE: BHI) is engaged in the oilfield services industry and is a supplier of oilfield services, products, technology and systems used in the oil and natural gas industry around the world. It also provides industrial products and services for other businesses, including downstream chemicals and process and pipeline services. It conducts its operations through its subsidiaries, affiliates, ventures and alliances.
Baker Hughes has four geographic operating segments: North America, Latin America, Europe/Africa/Russia Caspian and Middle East/Asia Pacific. It also has an Industrial Services segment, which includes the downstream chemicals and the process and pipeline services businesses. The company’s oilfield products and services are of approximately two categories, Drilling and Evaluation or Completion and Production.
The UBS analysts cite solid cost-cutting efforts, and the analysts noted in a recent research report:
The strategy came across far more clearly this conference call outlining that the new international model would impact less than 5% of revenue, which should be offset by greater gains in margins with the de-emphasis of lower return product lines. Baker Hughes seeks growth opportunities from new international sales channels, 60 pending new technologies, and new business lines including subsea.
Baker Hughes shareholders receive a 1.42% dividend. The UBS price target is $55, and the Wall Street consensus target is $51.63. The stock closed most recently at $47.85.
This company also has ticked higher since the deal with Baker Hughes fell through due to regulators’ concerns, but is still done almost 40% from highs printed two years ago. Halliburton Co. (NYSE: HAL) is one of the world’s largest providers of products and services to the energy industry. The company serves the upstream oil and gas industry throughout the life cycle of the reservoir, from locating hydrocarbons and managing geological data to drilling and formation evaluation, well construction and completion, and optimizing production through the life of the field.