Investment firm Sterne Agee this morning published its outlook for the oil field services sector, calling for limited upside in North American activity, improvement in international drilling, and a trend toward growth in deepwater activity.

The firm also made some changes to its ratings on services companies. Baker Hughes Inc. (NYSE: BHI) and Superior Energy Services Inc. (NYSE: SPN) were both downgraded from ‘buy’ to ‘neutral’ and FMC Technologies Inc. (NYSE: FTI) was upgraded from ‘neutral’ to ‘buy’. The price target for Baker Hughes remained at $46 a share, and the price target on shares of Superior remained at $24. EPS estimates for the years 2012 through 2014 were lowered for both firms. FMC’s price target was raised to $56.

Sterne Agee’s favorite names in the sector are FMC, Halliburton Co. (NYSE: HAL), and Schlumberger Ltd. (NYSE: SLB). Although the firm doesn’t offer any comments on either Halliburton or Schlumberger, these two companies share FMC’s international exposure and deepwater experience.

The more exposed a services company is to U.S. and Canadian drilling, the greater the potential drag on performance. Drilling for natural gas has been sharply curtailed in the U.S., while lower crude and liquids prices have slowed the growth in drilling for liquids. As things stand today, rising prices for crude, liquids, and natural gas are not in the near-term picture and appear only fuzzily in the longer term outlooks.

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