There are some major opportunities emerging in the oilfield services sector - two key oilfield service opportunities you’ll want to keep an eye on.
-MWD, LWD, downhole tool information, to ensure that the bit stays in the reservoir to total depth-TD. This is a critical aspect of well construction and delivery and may help to eliminate an unnecessary bit trip. A bit trip costs hundreds of thousands of dollars at a minimum. Ancillary services are accretive, but not game changers for the company as they are widely replicated throughout the industry.
Rollyson noted further that the OFS sector is set up for a multi-year run as tight supplies of Tier I Super Spec rigs boost day rates and margins. What turned me around on the drillers? It's a fair question as traditionally I've been a little dour on the category, seeing them as a value trap that would keep all but the earliest investors underwater. Sometimes for years. They were typically run on spec, where an operator might tell them they were going to drill a bunch of wells and needed rigs. Drilling contractors would then oblige, borrowing the money to build them...
The rise in revenue has been at increasingly profitable terms, bringing EPS , from -$.038 in Q-4 of 2021 to a positive $0.18 in Q-3, 2022. With rates at the current levels, the company is now seeking and getting longer-term 3-5 year contracts, which will stabilize cash flow at high levels for years to come. This figure may improve still further in the year to come as was noted in their Q-3 quarterly conference call where CEO Andy Hendricks commented.
Risk and reward go together, so investors will have to gauge if these companies meet their individual risk profiles.As I noted above, PTEN is trading at an EV/EBITDA multiple of 5.6X. Clearly, PTEN is not going to grow at its 2022 rate in 2023. But it will experience some growth that could end up being significant. Andy Hendricks, the CEO, commented in regard to an analyst question-
I think PTEN can revisit the recent highs from its current 15% discount. I wouldn't be surprised with the market strength in shale drilling and the shift to longer term contracts, to see PTEN get awarded a higher multiple from the market. A 6X, not excessive in a rising market, would take the share price toward the middle to upper $20's, implying ~40% growth from present levels. Now let’s look at HP.
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