In the field of oil exploration and production, most people readily recognize the names of the big players: Exxon, BP and companies of that ilk. But what a lot of people don’t realize is that oil services companies are the ones who lug the petroleum hoses around, do the actual drilling and keep everything humming along.
The two big players in the oil services industry are of course Halliburton (HAL) and Schlumberger (SLB). They are colossal in every way. They have huge contracts, and provide cost savings because they are so enormous. Still, Halliburton did not meet Wall Street’s expectations when the company released its third quarter earnings statement.
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Part of the problem is that the number of oil rigs has been slowly but surely declining over the past three years. So things are a little tough for Halliburton right now, and even tougher for some of the smaller oil services companies. But it won’t stay that way, because even if drilling sanctions aren’t loosened up after the upcoming presidential election, the U.S. still remains in the cat-bird seat when it comes to natural gas. In other words, someone is going to have to lug the petroleum hoses.
One company to keep in mind is Baker Hughes Inc. They provide the full gamut of oil services, but are poised perfectly in the areas of hydraulic fracturing and pressure pumping. Producing prolific oil shale wells requires high-pressure hoses and powerful pumps. With natural gas and shale oil prices sitting where they are, the big exploration and production behemoths will have plenty of cash on hand, which will make it easy for them to do more drilling in 2013. Since Baker Hughes does a lot of business with the majors, they should be positioned well.
Industry analysts predict that exploration and production budgets will rise as much as twenty percent in 2013, concentrating specifically on shale fields located in the U.S. and Canada. The forecast growth in shale wells bodes well for any oil service company that can overhaul wells. In addition, Baker Hughes Inc. have people, experts, who excel at restoring production levels from faltering wells.
And last but not least, Baker Hughes’ drilling fluids division appears poised for profitability. This division handles all aspects of problematic projects, including deepwater drilling, oblique drilling and horizontal drilling. Everything from bentonite and specialty fluids delivered under high pressure via hose to pumps and ancillary equipment.
Within the current economic and political environment, along with the outlook for the oil and gas industries generally speaking, oil service stocks might be a good play.