Canaccord Genuity Energy Analyst Scott Burk cut the target prices for the majority of his coverage universe as he believes further sustained declines in oil prices could put his current earnings estimates at risk, especially for North America land focused providers. Burk says that if the world is beginning a recession, he would expect oil prices to have downside to the $50-60/bbl range. He would not anticipate as much downside as 2009 in oil prices because OECD oil demand never recovered significantly from lower 2009 levels.
China and other developing countries make up an increasing share of world oil demand, so an OECD demand slowdown is likely to have a smaller negative impact than prior recessions. Also, he believes that reduced drilling and competition activity below $70-80/bbl would lead to reduced oil output from OPEC and high cost oil basins that would provide long-term support for oil prices. Additionally, he believes that oilfield service stocks have largely priced in a
Burk believes that oilfield balance sheets are much improved in the last two years as increased cash flow and the availability of credit to large companies has allowed his covered companies to reduce debt significantly and/or lengthen the term of debt repayment commitments.
In addition to Halliburton and Schlumberger, Burk has cut his target price for Baker Hughes (BHI), Weatherford International (WFT), Basic Energy Services (BAS), Complete Production Services (CPX), Key Energy (KEG), RPC (RES), Diamond Offshore (DO), Ensco International (ESV), Nobel (NE) and Transocean (RIG). Atwood Oceanics (ATW) was the loan stock not to have its target reduced, instead seeing it increased.
Halliburton (HAL : NYSE : US$34.46), Net Change: 0.72, % Change: 2.13%, Volume: 21,785,971
Schlumberger (SLB : NYSE : US$63.42), Net Change: 0.15, % Change: 0.24%, Volume: 16,443,988
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