Investment opportunities in oil service companies
Making energy resources available today requires very specific technologies which allow operators to scan a broad area from the surface in order to locate where the best opportunities exist. This high-technology approach is relatively new; up until just recently the capacity of fields could only be estimated by making test drills.
The shift to more and more unconventional resource extraction methods goes hand in hand with higher demand for oil service companies. Horizontal wells are five times more work intensive and complex to handle than conventional wells and deep water rigs are twenty times more complex to handle than horizontal wells. The drilling and maintenance of a shale gas or oil rig costs about USD 20,000 per day. Because of these elevated costs and the relatively short-life of a shale oil rig, operators are keen to develop and exploit sites in a relatively rapid manner, and to mothball them eventually if they don’t produce the expected return.
Oil service companies are key companies in this industry sector. Most operate on long-term contracts and therefore their operating revenues are relatively stable. For this reason, they offer compelling risk-return opportunities for investors seeking such exposure in the energy sector.
| Company | Ticker | Country | Upside Potential | Sharpe (FY01) |
| Schlumberger | SLB | USA | 22 % | 6.87 |
| Investment case: Schlumberger is a global supplier of technology, integrated project management and information technology solutions to the oil and gas industry. SLB operates in the fastest growing industry segments such as Arctic drilling, deep-water exploration, the development of unconventional drilling methods, and the maintenance and management of mature fields. SLB could be impacted by the Russian sanctions. | ||||
| Company | Ticker | Country | Upside Potential | Sharpe (FY01) |
| Technip | TECF | France | 20 % | 4.23 |
| Investment case:Technip provides project management, engineering and construction services to the oil and gas industry. The company operates worldwide in two business segments: onshore plants and offshore platforms. Given the company’s relatively high exposure to Russia, next year’s investment results could disappoint should sanctions be implemented and maintained for a long period of time. | ||||
| Company | Ticker | Country | Upside Potential | Sharpe (FY01) |
| National Oilwell Varco | NOV | USA | 8 % | 5.95 |
| Investment case:National Oilwell Varco, Inc. is a service provider of equipment and components that enable the drilling of oil and gas rigs. The company operates worldwide and is focusing on four growth avenues: deepwater drilling rigs, floating production systems, retooling the jackup rig fleet, and unconventional methods to extract the resources. NOV’s business benefits from an order-backlog worth about 3 years of the company’s revenues. | ||||
| Company | Ticker | Country | Upside Potential | Sharpe (FY01) |
| Halliburton | HAL | USA | 23 % | 5.72 |
| Investment case: Halliburton Company, a Houston-based company, is an oil service company focused on the North American market for unconventional production, deep-water exploration and development, as well as field management. The company’s particular focus is on the management and re-development of mature fields, where through consulting it aims to increase field productivity. This service can be sold to clients at a better rate than its other businesses and offers a better return than the one of the competition; hence, its average investment returns are better than the competition’s. | ||||
| Company | Ticker | Country | Upside Potential | Sharpe (FY01) |
| Baker Hughes | BHI | USA | 23 % | 5.86 |
| Investment case: Baker Hughes provides a wide range of oilfield services such as directional and unconventional drilling, oilfield chemicals, and electronic submersible pumping systems. It operates in over 90 countries and is still somewhat limited by its historical strategy which has traditionally only included the delivery of products and not services. | ||||