Logic suggests that the slow rebound in the oil price, cemented by Opec’s aforementioned agreement to curtail daily global output, has put oil services companies on surer footing. Because of its reliance on capital expenditure budgets, the sector has arguably had a worse time than its clients. Consequently, the rebound in the share prices of the FTSE 350 oil equipment and services companies in the past year should also be seen in a wider context.
Hunting (HTG), whose shares were one of the best performers among the industry’s established operators last year, started 2016 “without a single path to guide” it, in the words of chief executive Dennis Proctor. In effect, a path emerged in the form of a nascent US shale recovery; this regional exposure also benefited John Wood (WG) and bodes well for the first half of this year, during which time analysts at SEB expect tight oil producers to add 30 rigs a week.
The timing of Hunting’s $71m equity placing in October could not have been better, with improving market confidence that the oil market would start to rebalance in 2017, and that projects may once again have a chance of being commissioned. The group’s focus on manufacturing and well construction puts it in a capital-intensive portion of the sector, although equipment pricing has held up relative to areas such as staffing.