As we wrap up perhaps the wildest ride that energy shares have taken us on since Colonel Drake discovered oil in Pennsylvania a century and a half ago, I noted not long ago that I'm convinced that ExxonMobil (NYSE:XOM) could be the strongest -- and perhaps the safest -- stock for you to latch onto in 2009. With the company's shares up about 14% in just over a month, I haven't softened on that opinion in the slightest.
And while I'd still give most of the independent producers a wide berth, there are other members of the integrated oil and gas production family that I wouldn't shy away from these days. BP (NYSE:BP), for instance, has weathered a few difficult years that included refinery explosions and fires, pipeline leaks, abrupt changes in its top ranks, and difficulties with a major joint venture in Russia. I think most of its problems are behind it, however, and its 7.6% forward yield starts investors off with a real leg up.
Will oilfield services recover?
But what about the oilfield services companies -- those firms that, in a variety of ways, assist the producers -- both publicly held and government owned -- in finding and producing oil and gas? Most have taken it on the chin just since mid-summer, and their badly decimated share prices essentially provide us with one of two conclusions: Either the plunge in commodities prices is signaling a lengthy dip in the group that could make it unattractive far beyond our typical investment time horizons, or its shares have given up so much that it just might be a perfect time for a patient investor to jump into the sector and splash around.
For now, I'm speaking mainly of the five biggest members of the services group:
|
52-Week High |
12-29-08 |
Decline | |
|---|---|---|---|
|
Baker Hughes (NYSE:BHI) |
$90.81 |
$31.18 |
(66%) |
|
Halliburton (NYSE:HAL) |
$55.38 |
$17.48 |
(68%) |
|
Schlumberger (NYSE:SLB) |
$111.95 |
$40.91 |
(63%) |
|
Transocean (NYSE:RIG) |
$163.00 |
$46.38 |
(72%) |
|
Weatherford (NYSE:WFT) |
$49.98 |
$10.00 |
(80%) |
Each of the companies above, with the exception of Transocean, which is the major domo of the deepwater drillers, performs generally similar functions, the nuances of which Fools shouldn't knock themselves out to try to understand.
- Baker Hughes operates through two segments -- Drilling and Evaluation, and Completion and Production -- as it supports producers in their energy production efforts worldwide. The company sports a $7 billion market cap, has a solid balance sheet, and pays nearly a 2.00% dividend yield.
- Halliburton has also reorganized its operations into two units. Much of the company's recent growth has occurred in the Eastern Hemisphere, leading CEO Dave Lesar to establish a second headquarters in Dubai. The company's market value tops $15 billion, its balance sheet is also sound, and at current prices, is yielding about 2.10%
- Schlumberger, with a $48 billion market valuation, is easily the largest member of the services sector. It too operates through two sectors: Oilfield Services and WesternGeco -- with the latter's activities consisting mostly of seismic operations. Schlumberger warned early this month that its December quarter would fall short of expectations.
- As noted, Transocean is the largest member of the offshore drilling contingent. It conducts operations in virtually all the world's offshore oil and gas venues and boasts a market valuation approaching $15 billion.
- Weatherford maintains a headquarters in Houston. The company, with its market valuation near $7 billion, offers artificial lift systems, drilling services, and a variety of drilling tools to oil and gas producers worldwide.
Two perspectives on the group
It seems to me that there are a couple of ways of looking at the likely future of shares in the oilfield services group. In the shorter term, the precipitous slide in oil and gas prices just since midyear has already resulted in the shelving of a number of energy development projects around the world, and especially in the U.S. and Canada. The results can't be entirely positive for the service folks as they watch their business tail off. But that's the shorter term.
Longer term, as these cancelled projects crimp supply and demand regains its steam, the badly beaten up services companies will be big beneficiaries of what likely will be a return to substantial commodities inflation. The difficulty today is simply one of attempting to define both the short and long terms.
Reasons for a re-examination
Nevertheless, with current events in Gaza, for instance, indicating the instability of much of the world, the short term could imply more brevity than we'd generally believe. And beyond that, given the beating that the oilfield services sector has taken in just the past few months -- to say nothing of longer-term expectations for global energy demand -- it seems to me that the services group deserves your careful attention and perhaps even your investment shekels.
Baker Hughes, Schlumberger, Transocean, and Weatherford have all been awarded five stars by Motley Fool CAPS players. Do those ratings include your votes?
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