Oil Service Stocks Rise on Talk of Saudi Rig Growth
By Eric Rosenbaum 03/28/11 - 05:22 PM EDT
Stock quotes in this article:WFT, SLB, HAL, BHI
(Oil service stock story updated for Halliburton comments, Monday closing prices)
NEW YORK (TheStreet) -- Oil service stocks surged on Monday as the CEO of oil service bellwether Schlumberger(SLB_) spoke at an industry conference about the upcoming earnings impact from the Middle East unrest and the long-term outlook for the sector. However, it was comments about Saudi production increases not voiced by the Schlumberger CEO that were really responsible for moving the oil service sector higher, several energy analysts said.
The number that energy analysts were talking about on Monday was an increase in the Saudi rig count from 92 to 118, which would be a 30% increase -- not huge compared to previous cyclical upturns, but significant in comparison to the oil market dynamics in the past few years.
Additionally, the biggest question for the oil service stocks has been when an international activity recovery takes places to match the peaking U.S. land market, and the indications from Saudi Arabia that it's time for an upswing in the production cycle will drive bullishness on the international recovery that has lagged for the oil service companies, analysts said.
"People have been expecting the big international recovery for some time already, but it hasn't come, and the Saudis are the key variable that gets everyone else going," David Havens, analyst at Sterne Agee said.
Shares of Schlumberger, Halliburton(HAL_) and Baker-Hughes(BHI_) were all up by 4% on Monday. Weatherford International(WFT_) rose by 1.8%, but has been slowed recently by one-time items and a revelation of tax structure missteps that will require restated earnings.
Halliburton hit a new 52-week high during trading on Monday and was specifically referenced in commentary about the coming Saudi production increases.
Analysts said the lack of pop in the land drillers, offshore energy and integrated oil stocks was an indication of how important the reports of a Saudi production increase were to the oil service giant Schlumberger and its peers, specifically.
The comments made by the Schlumberger CEO, Andrew Gould, during his prepared remarks at the Howard Weil conference, were seen as driving oil service stocks higher. Specifically, Schlumberger put out in the open that it expects an 8 to 10 cent hit to upcoming earnings as a result of business impacts from weather and the Northern Africa/Middle East disruptions, less of an impact than some investors expected.
Yet Schlumberger was really the last of the major oil service companies to quantify the upcoming earnings impact from world events, with Baker Hughes, Halliburton and Weatherford all having commented on the issue previously. While there may have been some "relief rally" in the comments from Schlumberger because it is the industry bellwether, several analysts insisted that the market buzz about a Saudi production increase is really driving sentiment on the oil service stocks.
On Monday afternoon, Halliburton released an operation update reiterating its previously provided guidance that first quarter earnings would be impacted at the high end of the 5 to 8 cents range due to adverse weather conditions in North America and Australia. Additionally, Halliburton said the disruptions due to geopolitical issues in certain locations in the Middle East and North Africa will "severely affect first quarter results in the range of 3 to 4 cents per share."
(2 more pages of story here: thestreet.com ) |
