Dahlman Rose is forecasting an 11% increase in North American exploration revenue next year, translating into higher profits for some smaller drillers and services companies with undervalued stocks in the face of “washed out” sentiment.
Analysts Doug Garber, James Crandell and Jonathan Hunter say exploration and production revenue should get a boost from the relative strength in natural gas prices, which have recovered to near $3.85 per million British thermal units. In the past, about half of E&P revenue has translated into E&P spending. Dahlman writes that rig utilization should increase to 85% by the end of 2013 from 77% currently, raising equipment prices in the second half of 2013 — especially for “liquids” projects.
“We expect North American E&P revenue to increase 11% ($32 billion) to $334 billion in 2013 driven by a 37% increase in North American natural gas revenue ($31 billion), a 2% increase in North American oil revenue ($4 billion), and an 8% decrease in US natural gas liquids revenue(-$2 billion).”
Among U.S. land drillers, Crandell has Buy ratings on Helmerich & Payne (HP), Nabors Industries (NBR), Precision Drilling (PDS), and Patterson-UTI Energy (PTEN). Patterson shares were the biggest winner Monday, up 9%. Dahlman also ugraded two Canadian drillers to Buy from Hold: ESI.Toronto and TDG.Toronto.
And stock valuations are well below averages:
“land drillers are currently trading at 1.1x tangible book value versus the historical average of 2.0x, implying an average of 95% upside to mid-cycle levels. Our price targets reflect an average of 43% upside and an average of 1.5x P/TBV.”
Dahlman also upgraded a handful of small and mid-cap oilfield services names, including Basic Energy Services (BAS), C&J Energy Services (CJES), and Newpark Resources (NR). Also Dahlman upgraded two Canadian oilfield services names to Buy from Hold: TCW.Toronto and CFW.Toronto.
Yup....... we are nearing the bottom in sentiment and the stocks are already reflecting the darvy type sentiment......
So far it sure is looking like this was the more important news vs. the 3 million shares being sold from "time to time." All the fear peeps were posting and the oh no crowd being proven wrong. CJES up nicely since that "terrible" news was announced.