Over the last two months we have seen a significant increase in the North American active rig count. The E&P companies in our coverage universe have significantly expanded their capital programs in the Bakken Shale and the Eagle Ford. The active rig count has almost doubled in Canada since the spring break-up.
With the onshore active rig count continuing to move higher, at a faster pace than most forecasts, I remain bullish on all of the onshore drillers on our Watch List (www.energyprospectus.com) and on the oilfield service firms.
Patterson-UTI (PTEN) is my top pick because of its aggressive move into the pressure pumping business and the fact that it has the most rigs ready for immediate contracts. My Fair Value estimate for PTEN is $42.00 (compared to First Call's 12-month price target of $41.70).
Scott Gruber, CFA, Senior Research Analyst for Sanford C. Bernstein & Co., LLC: "I'm still bullish, despite the macro risks. I'm generally a believer that the economic recovery continues, albeit at a moderating pace at least near term. But fundamentally I don't foresee crude prices falling below the marginal cost of supply, which we believe is around $85 to $90 a barrel. And if that is the case, the revenue opportunity for the oil services companies continues to grow, both near term and over the medium term. So I remain bullish, even given what some view as rising macroeconomic risks.”
An interview with Scott Gruber can be found here.
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