Shares of many oil and gas services providers fell along with crude oil prices Thursday, and a Morgan Keegan & Co. analyst downgraded a dozen companies on concerns about capital spending cuts.
Analyst J. Michael Drickamer dropped his rating to "Outperform" from "Market Perform" on companies including Pioneer Drilling Co., Rowan Companies Inc., Allis-Chalmers Energy Inc., StealthGas Inc. and Diamond Offshore Drilling Inc.
Drickamer said rising uncertainty about the depth and length of the recession is prompting many exploration and production companies to cut their capital spending plans, which in turn is prompting oilfield service companies to reconsider their capital expansion plans.
"While almost certainly this downgrade would have been better timed three months ago, we do not believe that the bottom in oilfield service stocks will be a 'V' shaped bottom, as a global recession now seems to be an almost foregone conclusion," Drickamer wrote in a client note.
Oil plunged below $70 a barrel Thursday after the government reported massive increases in U.S. crude and gasoline stockpiles amid slowing demand. Light, sweet crude for November delivery dropped as low as $69.15 a barrel on the New York Mercantile Exchange before gaining slightly.
Taking the hit in the oil and gas services sector were Pioneer, down 86 cents, or 11.8 percent, to $6.41 in afternoon trading, and Rowan Companies, whose shares fell $1.25, or 7.3 percent, to $15.91.
Allis-Chalmers fell 35 cents, or 5.5 percent, to $5.98, StealthGas lost 61 cents, or 6.8 percent, to $8.36 and Diamond Offshore dropped $2.16, or 3.2 percent, to $65.48.
Others oil and gas services stocks downgraded by Morgan Keegan were: Hercules Offshore Inc., Noble Corp., Ensco International Inc., Basic Energy Services Inc., Complete Production Services Inc., Parker Drilling Co. and RPC Inc.
Drickamer reiterated his "Outperform" rating on Transocean Inc., Helmerich & Payne Inc., Boots & Coots International Well Control Inc. and Natural Gas Services Group Inc.
"We are revising our investment thesis to more selectively focus on high quality companies rather than a broader industry focus based on low valuations," he wrote.
Credit Suisse analyst Brad Handler said lower oil prices have negative implications for upstream spending.
"We also ratchet down our estimates for North America (NAM) revenues in 2009 as concerns about supply/demand balance persist and credit tightness may limit E&P company ability to outspend cash flow," Handler wrote in a client note.
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