Investing in drilling and energy services companies is a great way to expose a portfolio to the energy sector. It provides your portfolio with a broad exposure to the oil and gas commodity sector minus the risk producers and explorers have to deal with. Emerging North American oil resource plays are fuelling the industry momentum on the back of strong oil prices. A momentum that will potentially carry over into 2012 as the focus shifts away from dry gas into liquids in the US and Canada. The economics associated with oil and liquids rich plays are very attractive particularly when oil prices are above US $80 which translates into a positive outlook thanks to the current commodity strip pricing.
Drilling & Well Completion – Trinidad Drilling Presentation
We are looking for dividend paying stocks of drilling companies to profit from increased demand for directional and horizontal drilling (growing trend of drilling deeper and longer horizontal legs) and completion services companies. The energy services segment encompasses a wide sector of products and services (fracking, cementing, coil tubing, nitrogen, industrial and geological services to name a few). Many of these companies enjoy a growing global presence or are capitalizing on significant growth opportunities in select US and international locations. The key in choosing your investment is to look for the following attributes: financial flexibility, cash flow visibility and diversified operational exposure (geographic and by commodity). We recommend choosing a company offering integrated complementary services as it maximizes cash flow from the same client.
|
Company |
Ticker & Price |
2013E Dividend Yield |
|
Akita Drilling |
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2.7% |
|
Canadian Energy Services & Technology |
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5.1% |
|
Calfrac Well Services |
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2.4% |
|
Canyon Services Group |
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5.5% |
|
Cathedral Energy Services |
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5.2% |
|
Ensign Energy Services |
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2.5% |
|
IROC Energy Services |
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5.1% |
|
Pason Systems |
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2.5% |
|
PHX Energy Services |
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7.7% |
|
Pure Energy Services |
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3.2% |
|
Total Energy Services |
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1.3% |
|
Trican Well Service |
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2.2% |
|
Trinidad Drilling |
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2.8% |
Finally, even though you get all the upside in commodity prices through drilling companies minus the risk of hitting or missing on a well, risk still remains when investing in contract drilling, drilling services and well completion companies. If commodity prices were to decline sharply for an extended period of time, customers (oil and gas exploration and production companies) may choose to cut their capital programs which would negatively impact demand for services provided by drilling and services companies. The Canadian companies listed above are exposed to foreign currency risk, a large and sustained increase in the Canadian dollar would impact revenue and margin negatively since many of these companies offer their services and products in foreign currencies. Finally, for the companies with operations outside of Canada remember that they are exposed to political and economic risks beyond their control.
Disclaimer: the information presented above is only for informative purposes; it’s meant to serve as a starting point to carry your own due diligence. It is in no way an encouragement to buy or sell the aforementioned securities. If you find any errors in the data please do not hesitate to contact us.