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Onshore oil servicers thrive amid spill

Onshore oilfield service providers are expected to see a surge in demand and prices as the focus shifts to land drilling following the Gulf of Mexico disaster.
A Lufkin oil pumps works near Stanley, N.D. Stanley is in one of the hottest area's of North Dakota's Bakken oil field. James MacPherson / AP
/ Source: Reuters

Onshore oilfield service providers are expected to see a surge in demand and prices as the focus shifts to land drilling following the Gulf of Mexico disaster.

The oil spill at BP's well has spurred drilling in shale hotspots like the Marcellus, Eagle Ford and the oil-rich Bakken, as companies and investors get increasingly wary of the risks and difficulties associated with hunting for oil miles away from the shore.

"Because of the continued uncertainties that we perceive, even if the offshore (drilling) moratorium is lifted, investors are likely to come back onshore ... much more than they have already," said Wunderlich Securities analyst Neal Dingmann.

"So, we will continue to see an outperformance."

Right now the U.S. onshore activities continue to be very brisk. So the beneficiaries would be companies that help in fracking and well completion, Dingmann said.

Some of the potential gainers are Basic Energy Services, Superior Well Services, T-3 Energy Services and Lufkin Industries, whose services range from well servicing and pressure pumping to making pumping units used to lift oil from wells.

Investors gave a thumbs up to shares of these companies after oil started gushing out of the BP well uncontrolled, and Lufkin hit a year-high barely within a week.

In contrast, Transocean and Halliburton, which mainly operate offshore, have seen their stocks tumbling.

Even though the U.S. government plans to be more flexible on offshore drilling, allowing some deepwater oil projects to go forward, analysts say the possible impact from the oil spill goes beyond the moratorium and hence they are getting increasingly bullish on the onshore stocks.

The spill will now act a catalyst to the onshore activities and new oil plays like Bakken and Eagle Ford shale will be stimulated, according to Jerry Swank, founder of income adviser Swank Capital.

Onshore stocks have pared some of their gains in the last few days, as investors reassess their position following a court ruling questioning the moratorium.

"Shares will take a little bit of a breather. Nothing is a straight line...but the general trend is higher," said BMO Capital Markets-Canada analyst Michael Mazar.

"The land sector is lower risk and the economics are very strong for the unconventional gas plays, the liquid condensates. You are going to see E&P companies diverting capital expenditure to lower risk, more stable or more predictable onshore plays," Mazar said.

The prospects of unconventional plays like shale are already attracting big global players to the U.S. shores, with India's Reliance Industries being the latest to jump into the fray.

Reliance has already announced two deals in as many months, planning to spend a shade over $3 billion in the shale gas assets of Pioneer Natural Resources and Atlas Energy.

Analysts say the focus on the shale plays will also benefit dual players like Helmerich & Payne, Trinidad Drilling and Carbo Ceramics.