3 Oil Service Giants to Buy as Rig Count Slowly Improves
Halliburton operates through two segments. The Completion and Production segment delivers cementing, stimulation, intervention, pressure control, specialty chemicals, artificial lift and completion products and services. The Drilling and Evaluation segment provides field and reservoir modeling, drilling, evaluation and wellbore placement solutions that enable customers to model, measure, drill and manage its well construction activities. The company’s baroid provides drilling fluid systems, performance additives, completion fluids, solids control, specialized testing equipment and waste management services for oil and natural gas drilling, completion and workover operations.
UBS noted in a recent report that despite the recent pullback in oil pricing the U.S. exploration and production companies remain quite optimistic on returning to the field when oil can hit and hold $50 a barrel. The firm also felt it was equally interesting that it was Halliburton’s view that a 2,000 rig count of the last cycle equates to 900 rigs this cycle, or about double the current count.
Halliburton investors are paid a 1.63% dividend. The $55 UBS price target for the stock is well above the consensus price target of $46.03. The shares closed Tuesday at $44.05.
This top oil services company came in with second-quarter results that beat expectations. Schlumberger Ltd. (NYSE: SLB) is a supplier of technology, integrated project management and information solutions to the international oil and gas exploration and production industry. The company remains the largest oilfield services company in the world for now, with far-reaching operations all around the globe, and could be poised for years of solid growth despite the huge turn down in oil pricing.
Schlumberger operates in the oilfield service markets through three groups. The Reservoir Characterization Group consists of the principal technologies involved in finding and defining hydrocarbon resources. These include WesternGeco, Wireline, Testing Services and Schlumberger Information Solutions. The Drilling Group consists of the principal technologies involved in the drilling and positioning of oil and gas wells and consist of Bits & Drilling Tools, M-I SWACO, Drilling & Measurements, Land Rigs and Integrated Drilling Services. The Production Group consists of the principal technologies involved in the lifetime production of oil and gas reservoirs and includes Well Services, Water Services, Integrated Production Services and Schlumberger Production Management.
UBS likes the impressive execution by company management and said this in a recent research report:
We applaud Schlumberger’s efforts to lead the charge on recovering steep price concessions and restructuring unprofitable contracts as the oil service industry has taken the brunt of the oil price downturn pain. Now that oil is up 40% off the bottom, price recovery becomes a top focus.
Shareholders are paid a solid 2.45% dividend. UBS has a $100 price objective, while the consensus target is lower at $92.56. The stock ended the day on Tuesday at $81.83.
While things have clearly improved, oil spot prices remain volatile, as we saw a 20% or so dip in just over a month. Staying with the industry leaders remains a good plan for the foreseeable future, and they certainly should outperform when things get better.