So far this earnings season, we've seen two disparate sets of results in the oil services business. Folks like Halliburton
National Oilwell Varco
How this result came about is clear when you break the company down into its two major business lines. Rig Technology, which delivers both big-ticket components and entire rig packages, actually saw revenue and operating profit rise in 2009, as orders placed in prior years flowed out of backlog. The Petroleum Services and Supplies line, which is much more tied to present activity levels, saw a big drop. Operating profit in that segment declined by 65%, leaving Rig Tech to account for 90% of total firm operating profit for the year, versus 63% last year.
On balance, 2009 was a fine year for the oil-patch equipment shop. The company piled up so much cash that it both paid out a special dividend and instituted an ongoing quarterly dividend in December. Judging by the pickup in the fourth quarter, the outlook for 2010 looks pretty solid. Fourth-quarter capital equipment orders, net of cancellations, were the best in a year. Spending should continue to rise, as long as the oil price is supportive.
CEO Pete Miller pointed out several areas to watch in the coming years. Some of the themes won't surprise you: shale, deepwater, and international. One that might not immediately come to mind is the Arctic, but based on Royal Dutch Shell's activity in the Chukchi Sea, and ExxonMobil's
National Oilwell Varco clearly sits at the juncture of a lot of key long-term trends in the oil patch. As far as picking up portfolio exposure to the sector, there are few better options for risk-averse investors.