Trends We Expect to See from Oil Services in 1Q

We expect to hear more about the oil services sector's Iraq efforts and the acquisition of oily assets

Stephen Ellis 20 April, 2010 | 11:48AM
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Some trends we expect to see in oil services firms' first-quarter earnings reports will be unchanged from prior quarters. For example, we expect improved profitability and higher revenue in the North American market, thanks to higher drilling activity, and weaker profitability in the international markets because of contract resets. However, we do think there will be some new data points on a few key trends. We believe the services companies will share more detail about their Iraq efforts, as BP's recent award is probably only the first of many contracts that will be handed out in the coming months. The additional detail will help us better handicap which companies will be the best positioned in the region in 2011 and 2012. Currently, we believe Schlumberger and Weatherford International are the early leaders.

We think the industry might offer some additional comments on the surge in oil drilling--in particular, what the recent shift by Chesapeake, EOG, SandRidge, and others towards acquiring more oily assets means for an industry that over the past few years has made a mint from gas. An early casualty of this oily shift and low natural gas prices may be gas drilling budgets in the second half of 2010. Any decline in gas drilling would hurt services activity and halt the rebound the industry has experienced over the past few months.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Stephen Ellis  Stephen Ellis is a senior stock analyst on the Energy Team.