With energy demand and oil prices rising quickly, energy companies are looking to extract more fossil fuels here in the U.S. -- a boon for companies that own the rigs needed to reach domestic oil and gas.
U.S. drilling companies such as Nabors Industries Ltd., Helmerich & Payne Inc. and Patterson-UTI Energy Inc. will see demand increase in the next three years as spending on exploration and production rises by more than half, analysts with Macquarie Capital said in a report Friday. The number of onshore horizontal rigs also is expected to rise by more than half, they said.
The analysts upgraded all three companies to "Outperform" from "Neutral," "Neutral" and "Underperform," respectively. The rating upgrades jolted shares of the companies, which increased by as much as 5 percent.
High oil prices also are spurring demand for oil produced offshore and overseas, confirming the analysts' high expectations for diversified oil services companies such as Halliburton Co., Baker Hughes Inc., Schlumberger Ltd. and Complete Production Services Inc.
Shares of those companies traded higher Friday, as well.
Oil surged above $112 per barrel Friday following a drop in the dollar and worries about shipments from the world's major oil suppliers. Benchmark West Texas Intermediate for May delivery jumped $2.45, or 2.2 percent, to $112.75 per barrel in afternoon trading on the New York Mercantile Exchange. Crude oil set new 30-month highs almost every day this week.
Oil's rise was prompted in part by the plunging value of the dollar. Oil is traded in dollars. When the dollar falls, oil tends to rise, making crude cheaper for investors holding foreign currency.
Oil also climbed on fears that violence in Nigeria ahead of the country's national election this weekend could lead to supply interruptions. In Venezuela, a massive blackout appears to have affected some refineries, analysts said. The two countries supply a combined 2 million barrels of oil per day to the U.S.
Oil and gas prices have been increasing since February, when the Libyan rebellion shut down that country's daily exports of 1.5 million barrels of oil. Libyan oil satisfies about 2 percent of world demand, and analysts say making up for those losses will severely reduce the ability of other oil-producing countries to increase overall supplies in the future.
In the U.S., the economy is recovering and adding jobs, increasing demand for gasoline that workers use to power their commutes. In Japan, where some nuclear plants are offline, oil and gas imports are expected to rise.
All those developments have energy companies looking to increase U.S. production. Companies that control the equipment needed to boost production are likely to profit massively, the Macquarie analysts said.
"Despite the recent runup in these stocks, we believe that their earnings potential is not fully realized" in Thursday's share prices, they said in the report.
The same goes for larger, integrated companies that operate here and overseas. Halliburton and its cohort control specialized pressure-pumping equipment needed to extract oil and gas from the massive domestic shale plays. Interest in those deposits of oil and gas has grown quickly as technology improves and prices rise.
Oil also has become a more popular focus of drillers, relative to natural gas. Oil drilling now accounts for half of all domestic drilling, up from 20 percent in 2008, the analysts said. That gives the nation's oil drillers a larger base of customers competing for their services.
Among U.S.-focused drilling companies, shares of Nabors gained 88 cents, or 3 percent, to $31.38 in late trading. Helmerich & Payne shares rose $1.20, or 2 percent, to $68.70. Patterson-UTI shares leaped $1.03, or 4 percent, to $29.05. Pioneer Drilling Co. rose 88 cents, or 6 percent, to $14.81. Precision Drilling Corp. added 57 cents, or 5 percent, to $15.04. Basic Energy Services Inc., increased $1.87, or 7 percent, to $26.03.
Among diversified oilfield services companies, Halliburton shares lost 5 cents to $48.18. Baker Hughes shares edged down 7 cents to $71.15. Schlumberger gave up 93 cents to $90.69. Shares of Complete Production Services shot up $1.35, or 5 percent, to $29.85.