Oilfield Stocks You Need to Watch

As I write this, the price of crude oil tops $100 a barrel, and we're all generally calm about that number. A year ago, when that same barrel was $80, or three years ago, when it sold for roughly $56, the thought of triple-digit oil was panic-inducing. But with current prices down approximately $40 from their peak earlier this year, it's clearly all a matter of perspective.

Still, Fools should accept that relatively high crude prices -- perhaps far higher than today's -- are here to stay, which makes learning more about the oil industry a potentially profitable move.

I think that energy's most compelling names, and its best prospects for stability, lie within the oilfield-services subsector. Since nearly everyone knows about bigger names like Schlumberger (NYSE: SLB), Halliburton (NYSE: HAL), Baker Hughes (NYSE: BHI), and Transocean (NYSE: RIG), perhaps we should look briefly at three less familiar midsized names.

Superiority first
We'll start with Louisiana-based Superior Energy Services (NYSE: SPN). One of its four operating segments, Well Intervention Services, provides an array of drilling and production services to oil and gas operators on- and offshore. Its other three units include an oilfield tool rental operation, a marine segment that operates liftboats, and an oil and gas unit that operates mature oil and gas properties, largely in the Gulf of Mexico.

Like most of its rivals, Superior's shares have fallen along with oil prices, down 40% since June. Nevertheless, the company's expected to improve last year's $3.35 a share in earnings by nearly 25% this year, with nearly 20% following in 2009. Despite those rosy projections, its fat 28% operating margin, and a healthy 32% return on equity, Superior shares trade for only around seven times forward earnings. The table below shows how Superior stacks up against similar companies.

Sources: Yahoo! Finance and TMF calculations at close Sept. 25, 2008.

Just one from Houston
Then there's Houston-based NATCO Group (NYSE: NTG). Through its various subsidiaries, NATCO designs and makes a variety of oil and gas production equipment, including separators -- largely for separating the water and oil in the production process -- heaters, and water-treatment and gas-conditioning equipment. As energy prices have increased, NATCO's equipment for separating dangerous carbon dioxide from hydrocarbon production streams has become more important, as have its made-to-order production systems.

Unlike most other energy companies, debt-free NATCO hasn't been hit by the peak-and-trough chart pattern that typically follow declines in oil prices. Instead, its share price peaked late in 2007, and it's slipped about 28% since then. The company trades at roughly 13 times its expected 2009 earnings, which are projected to rise roughly 27% from this year's.

One solid Okie Unit
Tulsa-based Unit (NYSE: UNT) is somewhat easier for energy novices to understand. The company operates onshore oil and gas drilling rigs -- mostly in Texas, Oklahoma, the Gulf Coast, and the Rocky Mountains. It also conducts its own oil and gas operations in many of the key producing areas of the U.S., and to some extent in Canada. In addition, Unit operates a midstream segment that buys, sells, gathers, processes, and treats natural gas in Oklahoma, Texas, Louisiana, and Kansas.

Unit's chart pattern is in line with most oil and gas companies since midsummer: The company hit its high in early July, and it has slid more than 35% since. The half-dozen analysts who follow the essentially debt-free company expect it to grow its earnings about 7% in 2009. Based on those projections, the company trades at a forward multiple P/E near 6.5.

Where should Fools focus?
I'll be candid here: Given its earnings growth expectations, the balance of its businesses, and its margins, my favorite of the above trio is Superior. However, having once followed Unit, I know it's also a solid, well-run company. On those bases, I'd keep an especially careful eye on both of them.