With the widespread sell-off in energy, no space has been hit harder than that of Canadian oilfield services sector, writes Scotia Capital analyst Vladislav Vlad in a research report.
Since early July, the WTI crude oil price is down 21%, while our coverage universe is down 31%,’’ he said.
He went on to say that while there is uncertainty to how low oil prices will go near term (and thus degree of negative earnings revisions), Scotia Capital believes break-even supply costs will ultimately dictate long term fundamentals.
Given the substantial pullback in the space, Vlad says he continues to prefer quality volumes-based names including
Canadian Energy Services & Technology Corp. (
TSX: T.CEU,
Stock Forum)
Secure Energy Services Inc. (
TSX: T.SES,
Stock Forum) and
Enerflex Ltd. (
TSX: T.EFX,
Stock Forum) which have stickier earnings profile and benefit from pad-drilling and improving efficiencies.
From a deeper value perspective (price to book value near 1X) names such as
Trinidad Drilling Ltd. (
TSX: T.TDG,
Stock Forum),
Western Energy Services Corp. (
TSX: T.WRG,
Stock Forum)
Ensign Energy Services Inc. (
TSX: T.ESI,
Stock Forum)
Trican Well Services Ltd. (
TSX: T.TCW,
Stock Forum) and
Cathedral Energy Services Ltd. (
TSX: T.CET,
Stock Forum) stand out, he writes.
Canadian Energy Services led the recovery Thursday, rising 10% to $8.74, leaving a market cap of $1.9 billion, based on 213.5 million shares outstanding. The 52-week range is $11.68 and $5.52.
Enerflex jumped 6.1% to $17.19, leaving a market cap of $1.4 billion, based on 78.6 million shares outstanding. The 52-week range is $21.50 and $13.42.
Cathedral Energy Services advanced by almost 3% to $3.47, leaving a market cap of $125.8 million, based on 36.3 million shares outstanding. The 52-week range is $6.25 and $3.35.
Scotiabank commodity specialist Patricia Mohr is predicting that crude oil should bottom out at around US$80 per barrel, with a seasonal improvement in demand getting underway in the fourth quarter.
As Stockhouse has already noted, she believes that in the absence of a significant production cut by the OPEC cartel, oil prices are likely to average about US$85 a barrel in 2015.