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Raymond James Energy Stat of the Week
by J. Marshall Adkins

Energy Stat: North American Oilfield Services Set to Rise as Permian Completions Rebound
October 15, 2018

We think the U.S. centric completions stocks have already passed the point of maximum pain! Yes, sell-side estimates for the rest of 2018 still need to fall further, but we believe most of that is already priced into the stocks. More importantly, we think the pain of the past few months should translate into even better earnings and stock price gains in 2019. This is because a reversal in the backlog of drilled but uncompleted wells (or DUC's) will likely swamp the ability of the U.S. oilfield service industry to complete these wells as completions activity resumes in early 2019.

Given the lack of current incentive to defer wells, we believe the turn in U.S. activity will likely be much faster than the current consensus expectations. That means 2019 oilfield prices should move higher sooner than most are expecting. As such, we believe that the near-term concerns facing the NAM pressure pumping market are overdone. Again, we expect 2H18 consensus estimates must still move lower, but the next several years is setting up to be veryprofitable for U.S. oilfield service names. Accordingly, we believe that investors should be jumping into the NAM oil service market ahead of the U.S. recovery that we expect to see starting in early 2019. Put simply, given the coming improvement in NAM oilfield service activity we think investors should be buying U.S. oilfield completions on any weakness created by late 2018 earnings estimate reductions. Finally, it appears that the oilfield completion stock technicals are beginning to align with our bullish fundamental outlook adding further support to our bullish outlook.

This is a summary of a much more detailed commentary. Please contact your financial advisor for the full report.

There is no assurance any of the trends mentioned will continue in the future. Past performance is not indicative of future results. Investing involves risk and investors may incur a profit or a loss. Specific sector investing can be subject to different and greater risks than more diversified investments. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Commodities are volatile investments and should only form a small part of a diversified portfolio. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising.

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