Less than a month ago, we published a story on oilfield services companies and how their stocks had fallen along with the price of crude. Their stocks should be doing better considering the services business should hold up much better than the raw price of crude. Since then, stock prices have fallen even further, and again, for no apparently good reason. Sure, crude oil prices have fallen more than $5/b since August 20th,but orders for new rigs are strong, day-rates are essentially atall-time highs, and the major players are able to fund new constructionout of cash flow, with cash left over to buyback stock or liftdividends.

The largest stock price drops come at Foster Wheeler (NASDAQ:FWLT) andNational Oilwell Varco (NYSE:NOV), which are down about 30% since ourstory. Schlumberger (NYSE:SLB), Weatherford (NYSE:WFT), and BakerHughes (NYSE:BHI) are down 15%-20%. In the same period, the S&P 500index is down about 10%.

The continued decline in oilfield services stocks must be due to theknock-on effect to the drop in crude oil and natural gas prices.Logically, though, that doesn’t make sense. E&P companies stillmake a handsome profit with crude at $100/b and natural gas at$7/thousand cubic feet. They’re not going to stop drilling, especiallyonshore in the US, which is probably the safest place in the world topoke a new hole in the ground.

The one caveat regarding the oilfield services companies is how theymanage their operating expenses, which are rising fairly sharply. Butday-rates are also rising, and that should offset some of the negativenews on expenses.

So far this morning, Foster Wheeler up about 5%,National Oilwell Varco jumped nearly 3%, Schlumberger is up nearly 5%,Baker Hughes gained nearly 2%, and Weatherford is up about 1%. Apparently we weren’t the only ones who noticed that there wassomething out-of-kilter in this sector.

• T. Boone Pickens expects high oil to remain.
• This is also why Ken Heebner has stuck with many services names.

Paul Ausick
September 10, 2008

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