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: