With earnings season just getting under way for both the onshore and offshore drillers, it's already abundantly clear which group of contractors is in the catbird seat today. That would be the folks drilling on dry land.
In case you missed Halliburton's
Helmerich & Payne
H&P's U.S. land segment operating income leaped by 73% year on year and 33% sequentially. Rig utilization ran at 84%, which isn't as high as we saw back in 2008, but it's enough to make shareholders very happy. The shares are now trading at their highest level since August 2008.
The dynamics are pretty straightforward. E&Ps like SandRidge Energy
H&P or Canada's Precision Drilling
The contract driller stocks are just as levered to the commodities cycle, if not more so, given the industry's typically rapid response to rising and falling prices. It just doesn't get much more cyclical than this sub-sector. The volatility is exhilarating on the way up and excruciating on the way down. The tricky thing is that these stocks usually look cheap at cyclical peaks, because their trailing earnings are so high. It's also our tendency as humans to project the recent past into the future, so it's hard to see the good times coming to an end.
Everything is going right for H&P in the present environment, and that may continue for several more quarters, or even a few years. If so, there could be substantial upside for shareholders from here, but it doesn't strike me as a particularly opportune time to be establishing or adding to a position in the company's shares.