Business
3 Potential Opportunities in the Oil & Gas Drilling Industry
3 Potential Opportunities in the Oil & Gas Drilling Industry
About this update from Saipem S.p.a.
Lately, the Zacks Oil and Gas - Drilling industry has faced setbacks due to the conclusion of their lucrative legacy contracts, uncertainties surrounding the slowdown in upstream capital spending growth, and inflationary pressures. Despite these macro challenges causing a slowdown in activity, we believe there are opportunities for growth-oriented operators focused on efficiency initiatives. Our watchlist for investors includes Saipem SpA SAPMF, Helmerich & Payne HP and Precision Drilling Corporation PDS.Industry OverviewThe Zacks Oil and Gas - Drilling industry consists of companies that provide rigs (or specialized vehicles) on a contractual basis to explore and develop oil and gas. These operators offer drilling rigs (both land-based/onshore and offshore), equipment, services and manpower to exploration and production companies worldwide. Drilling for hydrocarbons is costly and technically difficult, and its future primarily depends on contracting activity and the total number of available rigs at a given time rather than the price of oil or gas. Within the industry, it's interesting to note that the volatility associated with offshore drilling companies is much higher than their onshore counterparts, and their share prices are more correlated to the price of oil. Overall, drilling stocks are among the most volatile in the entire equity market.4 Trends Defining the Oil and Gas - Drilling Industry's FutureCapital Budget Constraint: Despite the rise in oil prices, upstream operators prioritize maintaining reduced spending, lowering breakeven costs and ensuring financial stability. While costs have been cut and completion activity is increasing, overcapacity and pricing pressures limit the benefits. Reduced drilling by customers affects demand for oilfield services, leaving the sentiment toward the industry uncertain and unclear.Step Up in Costs: Most energy companies (including drilling operators) have been experiencing rising costs in the form of increased expenses related to maintenance and inventory. Despite moderating from the record levels, U.S. inflation is still running above the Fed's target. This, together with supply-chain tightness, is not only pushing costs higher but also affecting the capital programs of the industry players. Apart from being hard to ignore, escalation in expenses is also drowning out the benefits of any commodity price inc...