In making my selection for Best Stock for 2009, I expressed extreme hesitancy in choosing from the energy sector. A roundup of recent data points and telling actions by various players should clarify why I'm still spooked.
In mid-December, G. Allen Brooks, an energy investment banker who pens the thoughtful Musings From the Oil Patch newsletter, projected a 1,000-rig drop in the U.S. rig count, as calculated weekly by Baker Hughes (NYSE: BHI). This figure peaked in September at a 23-year high of 2,449. A drop of 1,000 would thus translate to a decline of roughly 40%.
Today, I'm not really interested in exploring whether this collapse in activity is already priced into a stock like Nabors Industries (NYSE: NBR) or Precision Drilling Trust (NYSE: PDS). I'm more intrigued that public companies have quickly come around to Mr. Brooks' point of view.
NATCO Group, a wellhead separation equipment supplier, came out with guidance today that modeled an average rig count drop to 1,450 for 2009. In other words, a 1,000-rig drop from the peak.
Mr. Brooks is clearly well-followed, and for good reason. He turns up nuggets like this one: StatoilHydro (NYSE: STO) recently canceled a tender offer for drilling rigs in the North Sea, because rig rates are too high. Since this underreported announcement, I've also seen Leed Petroleum issue a similar statement. The small U.K.-based firm released its only rig, the Ensco (NYSE: ESV) 98, and it's waiting for rates to "normalize" before hiring any others.
These tidbits point to a growing disconnect, or what you might call a bid/ask spread, between E&Ps on the one hand, and drilling contractors like Transocean (NYSE: RIG) and Noble (NYSE: NE) on the other. For a time, it seemed as though the deepwater-levered players would largely be immune to such pushback. But with crude oil down to the low $40s, even the most sought-after rigs may see their going rates ratcheted down before long.
Further Foolishness in the pipeline:
Follow along with the Global Gains team as they travel to key business centers in China to uncover the very best investing opportunities! Sign up here to receive their FREE dispatches from the road.
Terms & Conditions
RSS Headlines
Fool UK