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
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.
Let's start with the biggest company in the sub-sector, New Orleans-based Tidewater
If a driller such as Noble
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
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
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.