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Heard on the Street: Better Late Than Never In Oil Patch -- WSJ

20 May 2017 6:33 am
By Spencer Jakab 

It seems to have been a field of dreams for providers of services to the oil-and-gas industry.

At the beginning of 2017, with the price of oil buoyant following a supply cut from the Organization of the Petroleum Exporting Countries, U.S. drilling activity was on a tear. It still is, but analysts and investors got ahead of themselves when translating that to oil-field-services companies' profits. They should consider reupping that bet now that the sector has sold off 10% to 15% since December.

Analysts polled by FactSet saw industry sales leader Schlumberger earning $1.92 a share this fiscal year back in December, but recently cut that to $1.48. Number two Halliburton and number three Baker Hughes also saw sharp reductions.

Executives are sounding more bullish, though, especially when it comes to red-hot U.S. shale plays. "The ramp-up in North America has become more robust than many had expected," said Martin Craighead, chief executive of Baker Hughes, last month to investors. Halliburton's incoming boss sounded even more upbeat Thursday in an interview with Reuters.

The bonanza is merely delayed. "The expectation coming into the year was that service costs are going up across the board and everyone believed it," says Robert Thummel, a portfolio manager at Tortoise Capital. Now, he says, "it's going to be a second half story."

Evidence of that is the product most sensitive to shale drilling, fracking sand, which did well in the first half. Earnings estimates for companies such as Hi-Crush Partners and Fairmount Santrol Holdings have surged as those companies have gained significant pricing power. The rest of the industry isn't far behind.

Write to Spencer Jakab at spencer.jakab@wsj.com

(END) Dow Jones Newswires

May 20, 2017 02:33 ET (06:33 GMT)

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