As BP (NYSE: BP) CEO Tony Hayward wanders through the Middle East in search of financial backing from sovereign wealth funds, the damaged well his company left spewing millions of gallons of oil in the Gulf of Mexico continues to do its thing.

In fact, the more I chat with my energy friends -- including longtime oilman Bob Cavnar, who has lately been on TV explaining the catastrophe and its possible solutions more than G. Gordon Liddy has hawking gold -- the more disconsolate I become. As you know, BP has attempted numerous ways to halt the unrelenting flow, only to come up short each time. Its last, best hope is the pair of relief wells being drilled to plug the main well and hopefully staunch the inexorable gusher.

More damage than we thought
Unfortunately, however, there's a school of thought that the damage to the well isn't limited to its top. Beyond that, the pipes underneath the sea floor may well be broken and discharging oil as well. That would make it difficult -- maybe impossible -- to cap the well since an effort to do so from above would simply send more oil out the sides. Further, the blowout preventer (BOP) is leaning and could eventually topple over. Cavnar subscribed to that "rosy" picture one evening on Keith Olbermann's MSNBC TV show.

Such an outcome would seemingly make it more likely that the administration's desired deepwater drilling moratorium would pass judicial muster. In fact, a three-judge panel from the 5th U.S. Circuit Court of Appeals will hear arguments for and against a drilling halt beginning Thursday. That follows an earlier federal judge's decision to stay the deepwater stoppage. Depending on the next outcome, how long do you think it might take drillers Diamond Offshore (NYSE: DO), Noble (NYSE: NE), et al. to begin dragging rigs to Brazil or North Africa?

Crude prices headed higher?
While the gulf accounts for about 30% of our U.S. production, our usage is unlikely to decline significantly regardless of what occurs there. A drilling halt would mean increased (and likely more expensive) imports from other producing areas. Further, it appears that energy investing is at least as important as it was previously, perhaps more so.

But I'd exercise caution in my selections until the sector overcomes its current chaos. For instance, with its size, quality management, and technological strength, I'd be inclined to let ExxonMobil (NYSE: XOM) be my lead dog on the producer side. At the same time, given the severity with which BP has been indicted, it should be noted that even Exxon CEO Rex Tillerson noted before Congress last month that, "When these things happen we are not very well equipped to handle them."

Time to step up to services
Beyond that, I'd spend lots of time improving my familiarity with the companies on the oilfield services side. While care is appropriate with the offshore drillers, given the topsy-turvy world they inhabit these days, for my money there are several oilfield services companies deserving of attention. I'd suggest that you treat the names below as a sampling, and don't let their inclusion substitute for your own research:

  • Schlumberger (NYSE: SLB). You no doubt are aware that, with a market capitalization approaching $70 billion, Schlumberger is the kingpin of the services sector. The company operates with about 77,000 employees throughout virtually the entire energy-producing world. It serves customers from the state oil companies to private producers of all sizes. Its oilfield services segment generates about 90% of revenues and provides numerous services that benefit operators throughout the life of a reservoir. Its smaller WesternGeco unit provides a range of reservoir imaging and sophisticated seismic services. Only 5% of the company's total revenues are generated in the Gulf, so a protracted moratorium shouldn't weigh on shares too badly.
  • Halliburton (NYSE: HAL). Even though Halliburton is the second-largest member of the services contingent, this isn't a recitation of relative sizes. And, while it provided cementing on the Deepwater Horizon, which should raise some caution, I believe that its liability will be limited. It too operates through two segments, Completion and Production, and Drilling and Evaluation. It, like Schlumberger, operates worldwide, but the Gulf has generally accounted for 12% to 16% of its North American revenue.
  • National Oilwell Varco (NYSE: NOV). Unlike the two services companies mentioned above, National Oilwell Varco generally provides a variety of manufactured products, systems, and components to the upstream portion of the oil and gas industry. It operates through three segments: Rig Technology, Petroleum Services & Supplies, and Distribution Services. Its specific products include everything from rigs for both onshore and offshore drilling, to tubular goods and repair supplies and spare parts. It's also down 20% from when the Gulf tragedy began.

During a time like the present, with the possibility of substantial movements within the upstream sector, I'm convinced that the relative geographic flexibility of most of the services companies makes the group especially worthy of attention.