Unless you were born in, say, West Texas or Oklahoma and watched a drill bit whirling in your backyard, you're probably somewhat confused by what oilfield service companies actually do. And as crude prices have jumped to almost unbelievable levels, you may have felt the frustration born of that confusion intensify as you tried to make head or tails of the energy industry, where stocks have bucked the market's general downward trend.
Here's a thought: I try not to turn myself inside out attempting to discern the differences between Baker Hughes (NYSE:BHI) and Weatherford (NYSE:WFT), for instance. Rather, I find it helpful to group common companies in the services sector, spending time getting to know as much about each grouping as possible before moving on to the next one.
For example, people, equipment, supplies, and rigs used in the oil patch have to be transported to the drill sites, production platforms, or other locations where they're employed. That's basic. And wonder of wonders, there are several companies whose function it is to move these people and equipment. These are generally solid companies that you should know about.
First Tidewater
Let's start with the biggest company in the sub-sector, New Orleans-based Tidewater (NYSE:TDW). The company, which was has been plying its trade for more than half a century, essentially pioneered the U.S. supply boat business. It maintains several hundred vessels that it uses to move equipment and people around the oil patch. For Tidewater, the "patch" is defined as the Gulf of Mexico, the Persian Gulf, the Caspian Sea, offshore Brazil, Egypt, West Africa, and a host of other locations.
If a driller such as Noble (NYSE:NE) or Ensco (NYSE:ESV) wants a supply of drill pipe deposited at an offshore rig or a rig's crew changed, Tidewater may very well provide the transportation. And if a driller needs to move a rig from the Gulf of Mexico halfway around the world, the mobilization could take place under the power of one or more Tidewater towing vessels.
Looking at Tidewater's metrics, the company's trailing operating margin is north of 30%, meanwhile, its forward P/E of based on expected 2009 earnings stands at just 7.5 times. And with its cash pile close to the face value of its long-term debt owed, one needn't worry about the company's balance sheet.
Hornbeck: Almost Tidewater's child
A dozen years ago, Tidewater bought a smaller Galveston-based supply boat company, Hornbeck Offshore Services. At the time, Todd Hornbeck (son of CEO Larry Hornbeck) joined Tidewater as Gulf of Mexico marketing director. About a year later, however, Todd started a company that purchased two tugs and one tank barge from Sun Oil Co., now known as Sunoco. And thus was the second Hornbeck Offshore Services (NYSE:HOS) (eventually) born.
Today, the newest Hornbeck Offshore operates a fleet of about 76 supply vessels, tugs, and tank barges. Its operating margin is a sprightly 42%, while it trades at only 9.8 times fiscal 2009 earnings estimates. But because the company was started from scratch just over a decade ago, and given the capital-intensive nature of the supply boat business, its balance sheet is understandably somewhat less impressive than Tidewater's.
And time for a flight
Let's now take to the air, and look briefly at Houston-based Bristow Group (NYSE:BRS), which uses helicopters to transport crews and time-sensitive equipment to offshore locations. The company, which, like Tidewater, has been operating for more than half a century, flies largely in the Gulf of Mexico, Alaska, and the North Sea. Its three sizes of helicopter can carry from four to 20 passengers each. In the context of financials, Bristow's forward 2009 P/E is a very low 10.2, while its margins are lower than the boat operators.
Conclusion
It seems that, much as is the case with the offshore drillers, the market is harkening back to those thrilling days of yesteryear and looking at the three transportation companies as subject to cyclical swings. That, it seems, is largely why they're adorned with relatively low P/Es.
My feeling, however, is that high crude prices are here to stay and that the offshore is the place to be. For that very reason, I'd suggest that Fools watch the three companies closely as the market comes to grips with its myth of ongoing cyclicality. The attention paid could be very profitable.
