Deutsche Securities cuts 17 oil service stocks
NEW YORK, June 12 (Reuters) - Deutsche Bank Securities said Friday it has trimmed its earnings estimates for 17 oil
services companies because the outlook for crude prices looked bleak.
''We believe that the past week has ushered in a sea change in the oil price outlook,'' said Wesley Maat, Deutsche
Bank Securities' oil services analyst.
On Thursday, crude traded on the New York Mercantile Exchange plunged to $12.70 per barrel, its lowest level in
almost 10 years as the market dismissed attempts by three key producers to initiate a round of output cuts.
In early trading on Friday, July crude was up 6 cents at $12.81.
''We believe producers will sharply curtail their non-ultra deepwater drilling budgets in response to the prospects of
$12 to $15 per barrel oil prices in the second half of 1998 and a $16 average oil price next year,'' Maat said in a
report.
Deutsche has trimmed its 1998 and 1999 earnings per share forecasts for the 17 oil services companies by an average
of 9.0 to 11 percent, respectively.
The reduced EPS forecasts assumes that natural gas prices do not go below $2.25 per million British thermal units in
1998 and $2.50 per MMbtu in 1999.
Deutsche cut the stock rating to hold from a buy on BJ Services Co. (BJS - news), Cliffs Drilling Co. (CDG - news),
Cooper Cameron Corp. (RON - news), Dresser Industries Inc. (DI - news), ENSCO International Inc. (ESV - news),
Global Marine Inc. (GLM - news), Halliburton Co. (HAL - news), Marine Drilling (MDCO - news), R&B Falcon
Corp. (FLC - news), Rowan Companies Inc. (RDC - news), Santa Fe International (SDC - news), and Schlumberger
Ltd. (SLB - news).
Noble Drilling (NE - news) and Smith International Inc. (SII - news) were cut to hold from accumulate.
Deutsche said it has a buy rating on Diamond Offshore Drilling Inc. (DO - news), Transocean Offshore (RIG - news),
Varco International Inc. (VRC - news), and Petroleum Geo-Services (PGSO.OL).
Deustche said its Energy Research Group is lowering its oil price forecast to $15 per barrel for 1998, down from $16,
and lowering its 1999 forecast to $16 from $17.
The prospects of weak oil prices will result in a 9.0 percent fall in 1998 rig counts in North America, thereby putting
downward pressure on earnings, Deutsche said.
''We caution that further 1999 EPS reductions of 15 to 25 percent would be in order if gas prices were to disappoint
to the $1.60 to $1.80 level over the next few months,'' Deutsche's Maat said.
Deutsche said that, although valuations of oil driller shares appear cheap, the earnings outlook is still quite tenuous and
Wall Street appears too optimistic on the international rig outlook.
''A long wait is likely in order for oil services investors,'' Maat said. ''Oil services stocks will likely be further avoided
in market corrections.''
Deutsche said investors wanting exposure to oil services should focus on deepwater intensive drilling contractors like
Diamond Offshore Drilling and Transocean Offshore and deepwater intensive equipment and services providers Varco
and Petroleum Geo-Services.
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