Online Stock Trades: Oil Service Companies

Oil service companies are those companies which somehow provide the equipment, technology, and man-power to the oil companies to locate and retrieve oil.  They can benefit as long as the demand for oil is strong regardless of the price of oil, but they can really profit when the price of oil is high when the oil companies really have incentive to go out and find and drill more oil.  As the economies of the world begin to recover and the price of oil begins to rise, these companies will make plenty of profits.  The stocks of these oil service companies would be worth having in your investment portfolio in such a scenario.

Schlumberger (SLB):  Schlumberger is one of the world’s preeminent oil services and drilling companies.  In 2008, the company had revenues of $27.1 billion and net income from operations of almost $5.4 billion.  They were able to reduce debt on the balance sheet by $700 million dollars last year to $1.1 billion.  The stock is well below its 52-week high of 93 but has been steadily climbing along with the price of oil.  The P/E ratio is 16.5 and the yield is 1.4%.

Commentary:  SLB has had good management, and the stock has done well over the years as I have followed them.  I have never actually owned stock in SLB.  It is one of those cases of just not having the funds to own everything that I would like.  SLB is one of the stocks to own as inflation begins to heat up in the next few years and oil begins to rise with the recovering economies of the world.

Baker Hughes (BHI):  This is a much smaller company than SLB with a market cap of $11.1 billion compared to $68.7 billion.  The company provides products and services that help oil companies extract oil from the ground.  In 2008, record revenues and profits were achieved by the company.  Revenues were $11.8 billion and income was $1.6 billion.  Debt on the balance sheet increased in 2008 to $2.3 billion but cash and short term investments had also increased to almost $2 billion.  The P/E is 9.6 with a dividend yield of 1.6%.

Commentary:  I think Baker Hughes would also be a good stock to own with the idea that rising oil prices will benefit this company greatly.  It has a reasonable P/E ratio since as recently as 2006 that ratio has been up in the 30’s.  So an investor might stand to gain from a boost to that ratio considering SLB is in the mid-teens.  Overall, BHI is a good stock to own in this sector.

Transocean (RIG):  Transocean is the world’s largest offshore drilling contractor providing drill rigs and services to oil and gas companies drilling in the ocean.  Last year’s revenues of nearly $12.7 billion yield a net income of over $4.2 billion.  With the record oil prices of 2008, these results were records as well.  The stock has a current P/E of 7.2.

Commentary:  RIG is another stock that tracks the price of oil and will do well as the price and demand for oil recover.  The recent discovery of a large oil field in the Gulf of Mexico will increase demand for RIG’s expertise and services.  It is a leader in its field, and you would be hard pressed to do poorly with this stock.  It is unfortunate that it doesn’t offer a dividend.

Diamond Offshore Drilling (DO):  Diamond Offshore is another offshore drilling contractor.  It is smaller than RIG with revenues of $3.5 billion and net income of $1.3 billion.  They have 45 drilling rigs.  The P/E of the stock is 9.8, and the stock pays a dividend yield of 0.5%.

Commentary:  Diamond Offshore is another company that will benefit greatly as more and more oil and gas is being found in deeper and deeper waters.  I think either DO or RIG would be worth owning.  These stocks will track the price of oil so any pull back in the oil price would be expected to result in a decrease in these stocks.  I think that would represent a buying opportunity.