3 Oilfield Services Stocks to Dump Now - Analyst Blog
In its monthly release, Houston-based oilfield services provider, Baker Hughes Inc.'s (BHI) worldwide Rotary Rig Count for Jan 2015 was 3,309, down 261 from the 3,570 counted in Dec 2014, and down 289 from the 3,598 counted in Jan 2014.
The trend was echoed in the U.S. where the average rig count fell to one of the lowest levels in the last five years. As of Jan 2015, rig count was 1,683, down 199 from the 1,882 counted in Dec 2014, and down 86 from 1,769 counted in Jan 2014.
This decline can be traced back to steep cutbacks in the tally of rigs. And speaking of numbers, the oil rig count dropped to the lowest level since Jan 2012, as crude prices seesawed around the $50 per barrel mark on plentiful supplies and lackluster demand.
The precipitous slide of crude prices is forcing the oil-field services sector to gird itself for a difficult year. To add to the woe, energy players across the board are focused on cutbacks in their capital projects. Last week, this list included the likes of energy behemoths BP plc (BP), BG Group plc and CNOOC Ltd. (CEO).
However, the cutbacks brought only a temporary breather to oil price. We attribute small spikes in oil price past week to a steady drop in oil-directed rigs which indicates a pause in shale drilling activities. This, we are hopeful, is a precursor to a slowdown in oil production that would lead to a subsequent drop in the commodity’s bloated supply level.
However with U.S. inventories building up at a record pace, the gloom in the oil market is only deepening. The U.S. Energy Department's latest weekly inventory release showed that crude stockpiles jumped by 6.3 million barrels for the week ending Jan 30, 2015, following a climb of 8.9 million barrels in the previous week.
Following the fourth successive weekly inventory surge, at 413.06 million barrels, current crude supplies are up 15.4% from the year-ago period and is at the highest level during this time of the year in 80 years at least. The crude supply cover was up from 26.0 days in the previous week to 26.8 days. In the year-ago period, the supply cover was 23.3 days. Moreover, continued strength in domestic production – now at an all-time highest level – have made things worse.
The weakness in crude is still apparent with WTI crude peeping above the $51-a-barrel mark for a short time. Additionally, Brent crude fared slightly better with prices around $57 a barrel, keeping alive apprehensions that a spurt in oil production will lead to continued weakness in energy markets across the world.
Top Oilfield Players to Dump
In view of the overall negative sentiment, the case for exiting positions in this sector appears quite strong. Accordingly, a smart strategy to adopt now would be to identify stocks profoundly affected by any change in the oil price that have an unfavorable Zacks Rank and are seeing negative earnings estimate revisions.
Below are 3 stocks with chances of further downside on these parameters. The share prices of each of these Zacks Rank #5 (Strong Sell) stocks have nosedived lately.
Gulfmark Offshore, Inc. (GLF)
Houston, TX-based Gulfmark Offshore provides marine transportation services to the energy industry through a fleet of offshore supply vessels.
Estimate Revision – Gulfmark Offshore has seen 3 negative estimate revisions in the last 60 days for full-year 2015. Yearly earnings consensus has dropped from $2.19 a share to $1.63.
Share Price – The stock has lost 34.5% over the last three months.
Core Laboratories NV (CLB)
Core Laboratories operating from Houston, TX, is a leading provider of proprietary and patented reservoir description, production enhancement and reservoir management services used to optimize petroleum reservoir performance. The company has over 70 offices in more than 50 countries.
Estimate Revision – Core Laboratories has seen 6 negative estimate revisions in the last 30 days for full-year 2015. Yearly earnings consensus has dropped from $5.59 a share to $4.63.
Share Price – The stock has lost 20.5% over the last three months.
Unit Corporation (UNT)
Unit Corporation is a Tulsa-based, publicly held energy company engaged through its subsidiaries in oil and gas exploration, production, contract drilling and natural gas gathering and processing.
Estimate Revision – Unit Corp has seen 3 negative estimate revisions in the last 30 days for 2015. Yearly earnings consensus has dropped from $2.80 to $1.23 a share.
Share Price – The stock has lost 35.5% over the last three months.
End Note
Even if oil prices stabilize a bit as we proceed further into 2015, we would remain apprehensive about prospects of oilfield services players. Our bearishness stems from the fact that unlike refiners buoyed by falling input prices, the prospects for oilfield services players are deemed a losing proposition in 2015 in an overflow of cheap oil. This is why it may be a good idea to drop these stocks from your portfolio for the time being.
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BP PLC (BP): Free Stock Analysis Report
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GULFMARK OFFSHR (GLF): Free Stock Analysis Report
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