Oil Service Stks Up On Oil Co. Spending Forecasts
Dow Jones Newswires
By Christina Cheddar
Of DOW JONES NEWSWIRES
NEW YORK -- Survey results are in, and the news could hardly be better for oilfield-services and equipment companies.
Forecasts of oil and gas exploration and production spending in 2001 released separately by Lehman Brothers and Salomon Smith Barney Monday touched off a rally among the stocks of oilfield-services and equipment companies, which make their profits from spending on exploration and drilling.
After surveying 343 oil and gas exploration and production companies about their spending plans in 2001, Lehman Brothers analyst James Crandell expects 2001 spending to rise 19.1% to $103.2 billion from $86.6 billion in 2000.
Meanwhile, Salomon Smith Barney analysts Geoff Kieburtz and Mark Urness are forecasting a 20.2% spending increase in 2001, following a 18.7% increase in 2000.
"After enduring the second sharpest contraction in more than 40 years, these results strongly reinforce our view that the oilfield service industry is into the early stages of a multi-year growth phase," said Kieburtz and Urness in thier report. "According to this forecast, oilfield activity is on course to exceed 1997-98 peak activity levels by the end of 2001," the analysts said.
The Oil Service Index was recently up 7.7%.
Among the biggest movers were merger partners R&B Falcon Corp. (FLC) and Transocean Sedco Forex Inc. (RIG). The two companies received verbal approval Friday from the Department of Justice for Transocean's $8.8 billion acquisition of R&B Falcon.
R&B Falcon shares recently traded at $21.63, up $2.56, or 13.4%, while Transocean shares recently changed hands at $43.63, up $4.31, or 11%.
Sector bellwethers Schlumberger Ltd. (SLB), Halliburton Co. (HAL) and Weatherford International Ltd. (WFT) also posted strong gains Monday.
Schlumberger, New York, recently traded at $76.75, up $4.81, or 6.7%.
Halliburton, Dallas, recently gained $1.69, or 4.5%, to $38.94, while Weatherford, Houston, added $3.44, or 8.3%, to $44.88.
In examining the results of his study, Lehman's Crandell said he was most impressed by the breadth of the spending increases planned for 2001. Unlike in 2000, when spending increases have mostly focused on North American natural gas exploration, spending next year will rise in all regions of the world, Crandell said.
After years of cost-cutting, spending levels will pick up for the largest oil companies. "The supermajors seem to be coming back," Crandell said.
BP Amoco PLC (BP), Royal Dutch Petroleum Co. (RD) and Exxon Mobil Corp. (XOM) really drove up the total forecasted spending with some substantial increases, Crandell said.
Supporting this observation was an announcement earlier Monday that Royal Dutch Petroleum and Shell Transport & Trading Co. (SC) would increase 2001 capital spending to $12.2 billion.
According to ABN Amro Inc. analyst Asit Sen, $7.4 billion of the total spending will be earmarked for exploration and production, up from $4.9 billion in 2000. The $7.4 billion figure includes about $1 billion for investments in the Fletcher Challenge Energy (FEG) acquisition and in China National Offshore Oil Corp., or CNOOC, Sen said.
The prime beneficiaries of the Royal Dutch/Shell announcement are deepwater drillers, such as Transocean; diversified oil service companies, such as Schlumberger, Baker Hughes Inc. (BHI) and Halliburton; and drillers with above-average North Sea exposure such as Noble Drilling Corp. (NE), Global Marine Inc. (GLM) and Santa Fe International Corp. (SDC), Sen said.
Sen expects capital spending to grow 18% to 20% industrywide in 2000.
The combination of factors was helping the oilfield-services companies, the oil drilling companies and the oilfield-equipment companies to post the largest gains in the overall market.
Crandell also observed that exploration and production companies are increasing their oil and gas price assumptions. Last year, companies were examining oil and gas projects using an average of about $19.50 a barrel for oil to test whether the project was financially sound, Crandell said. Now companies are assuming an average price of $25 a barrel for oil and about $3.75 per million cubic feet for natural gas.
By comparison, the January contract for light sweet crude on the New York Mercantile Exchange recently traded at $29.47 a barrel, while the January contract for natural gas was at $8.52 per million British thermal units.
Crandell continues to focus on companies in the sector that have exposure to natural gas such as BJ Services Co. (BJS), Rowan Cos. (RDC), and Nabors Industries Inc. (NBR).
Salomon also prefers companies exposed to the booming natural gas market, citing BJ Services, Smith International Inc. (SII) and Weatherford International as its choices.
Salomon's Kieburtz and Urness expect Schlumberger, Baker Hughes and Halliburton to benefit from the early-cycle recovery in the international markets, while Halliburton benefits more at the later portion of the international recovery. |
