We've mentioned a few times that once we're again comfortable going long, our preference is for the service companies over the integrateds, especially considering that tight wells can be fracked and refracked two, three and four times over their productive lives.OIH is the Market Vectors Oil Services ETF....And, again when the time comes, we prefer the E&P's that can drill and quickly build reserves to the offshore drillers whose clients need oil to be two or three times today's price.
Both of the ETF's for the oil companies, the XLE for the integrateds and the XOP for the Exploration and Production guys have set new multi-year lows today as has the OIH.
Although there is no ETF exclusively containing offshore drillers the SPDR S&P Oil & Gas Equipment&Svcs ETF (XES) has most of those named below..
From Barron's Stocks to Watch Today:
Cowen’s Marc Bianchi and team see more downside for offshore drillers–resulting in rating cuts for Atwood Oceanics (ATW) and Noble (NE), and lower price targets for Seadrill (SDRL),Rowan (RDC) and Diamond Offshore Drilling (DO). They explain why:
Longer Downcycle Expected for Offshore Drilling and Supply Vessels: While the equities have already lost significant value during this downturn, we see oversupply for offshore rigs and vessels lasting through 2018 or perhaps longer if commodities remain depressed, and we are adjusting our ratings and price targets accordingly…
There are currently 364 jackups and 218 floaters contracted, implying 67%/71%utilization . Another ~125 jackups/ 50 floaters (70 including Petrobras (PBR)) are on order or under construction. Our recent annual survey forecasts global spending to be down 17% yoy in 2016 with a bias to the downside with recent pressure in commodity prices. We forecast offshore rig demand to remain anemic and expect further deterioration in utilization levels and dayrate…MOREWTI $31.70 -1.46 (4.42%); Brent $31.53 down 6.41% and definitely making a new cycle low and possibly a new 21st century low, I'll have it checked and report back.
