Oklahoma oilman Harold Hamm isn’t the only one predicting a rebound in the oil and gas industry in the coming months.
So does Deutsche Bank analyst Chris Snyder, who according to Barron’s, believes stocks have bottomed out and will rise in 2020. Snyder especially believes the U.S. shale exploration, of which Oklahoma is a part will rebound in the second half of 2020 and that should help the big oil services companies.
Snyder points out the rebound will benefit Halliburton and Schlumberger.
Here’s how Barron’s Avi Salzman reported Snyder’s explanation.
Snyder initiated coverage on Halliburton, Schlumberger, Baker Hughes (BKR), and TechnipFMC (FTI) with Buy ratings. Halliburton is the dominant player in U.S. shale services, an area that has been hurt because producers are spending less on new projects. Its stock is down 23% this year after falling 46% in 2018. Snyder doesn’t expect an immediate rebound, but he does see producers spending more on oil services to maintain production. “While a long way from profitability, we think the directional move over the next 12 months is up, not down,” he writes.
Schlumberger’s business is more focused on international development, an area that’s already rebounding. “International oil field service (OFS) markets are firmly in recovery mode, signalling the start of a much needed multi-year growth cycle,” Snyder writes. “Schlumberger is the primary beneficiary of this with nearly four times the international earnings power of its nearest competitor.”
Similarly, TechnipFMC, which helps companies drill more efficiently offshore, is worth buying today, Snyder says. Baker Hughes, his top pick, has substantial business in liquefied natural gas, a particularly promising area.
Others in the industry are in a tougher spot, he warns.
U.S. land drillers are in trouble, given that producers have become adept at producing more oil with fewer rigs. “To this point, U.S. spending is currently running about 40% below the high-water mark set in 2014 while the rig count is nearly 70% below peak levels,” Snyder wrote. He initiated coverage on Patterson-UTI Energy (PTEN) and Helmerich & Payne (HP) with Sell ratings.
He also has a Sell rating on Transocean (RIG). “Simply put, the company cost structure is too high relative to the offshore rate environment and outlook,” he writes. “Transocean has used the downturn to build the world’s highest spec fleet of deepwater rigs along with the industry’s strongest backlog by a factor of four times, however, the company spent aggressively on the assets, leaving RIG with a high debt load and elevated cash obligations.”
Source: Barron’s
