Oil prices have reached their highest levels of the year, with the possibility of hitting $100 per barrel in focus. This rally is driven by expectations of tighter supply as Saudi Arabia and Russia extend their oil output cuts through the end of the year.
So, investors could consider watching quality energy stocks Schlumberger Limited (SLB), Oceaneering International, Inc. (OII), and Archrock, Inc. (AROC), which are poised for growth in the coming months.
Saudi Arabia has extended its voluntary crude oil production cut of 1 million barrels per day until the end of the year, with monthly reviews. Russia, part of the OPEC+ coalition, also pledged to reduce exports by 300,000 barrels per day until December 2023. These cuts are outside of OPEC+ policy but aim to stabilize global oil prices.
Moreover, energy as a service (EAAS) is a rapidly emerging model that offers a range of energy services and optimization solutions for businesses of all sizes. It promotes better energy management and the adoption of distributed generation sources.
The global energy as a service (EaaS) industry is projected to reach $147.56 billion by 2029, expanding at a CAGR of 11.1%.
In addition, With the rising number of maturing onshore oilfields in recent years, there has been growth in offshore exploration and production (E&P) activities. Also, the improving viability of offshore projects and rising activity in deepwater and ultra-deepwater reserves are likely to boost the market.
The Subsea systems market size is expected to grow from $18.73 billion in 2023 to $25.04 billion by 2028 at a CAGR of 6%.
In light of these encouraging trends, let's look at the fundamentals of the three best Energy – Services stocks, beginning with number 3.
Stock #3: Schlumberger Limited (SLB)
SLB provides technology for the energy industry worldwide. The company operates through four divisions: Digital & Integration; Reservoir Performance; Well Construction; and Production Systems.
SLB has seen impressive growth in its EBIT and EBITDA in the past three years, at CAGRs of 28.7% and 7%, respectively.
On September 5, SLB announced its collaboration with LithiumBank Resources Corp. to provide detailed reservoir modeling for their Park Place lithium brine project in west-central Alberta. This project is a crucial addition to LithiumBank's expanding portfolio and holds significant promise in the lithium industry.
SLB is proud to contribute its expertise to this innovative project and looks forward to the successful outcome of this partnership.
Moreover, on July 6, SLB announced that it had been awarded a five-year contract by Petroleo Brasileiro S/A (PBR) for a comprehensive deployment of its Delfi™ digital platform. The contract encompasses the migration of subsurface workflows to the cloud, enabling rapid decision-making.
It pays $1 as dividend annually, translating to a dividend yield of 1.65%, compared to a four-year dividend yield of 3.60%.
SLB’s revenue rose 19.6% year-over-year to $8.10 billion for the second quarter that ended June 30, 2023. Its adjusted EBITDA increased 28% from the previous-year quarter to $1.96 billion. The company’s net income attributable to SLB, excluding charges & credits came in at $1.03 billion and $0.72 per share, up 44% year-over-year.
SLB’s EPS is expected to increase 23.3% year-over-year to $0.78 in the fiscal third quarter ending September 2023. Its revenue is expected to increase 11.7% year-over-year to $8.35 billion in the same quarter. It surpassed EPS estimates in all four trailing quarters, which is impressive.
Over the past year, the stock has gained 55.3% to close the last trading session at $59.79.
SLB’s POWR Ratings reflect this promising outlook. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
SLB has an A grade for Momentum and a B for Growth and Sentiment. Within the 48-stock Energy – Services industry, it is ranked #20.
Click here to see SLB’s additional POWR Ratings for Value, Stability, and Quality.
Stock #2: Oceaneering International, Inc. (OII)
OII specializes in providing engineered services and products to the offshore oil and gas industry globally. It operates through five segments: Subsea Robotics; Manufactured Products; Offshore Projects Group; Integrity Management & Digital Solutions; and Aerospace and Defense Technologies.
OII’s EBITDA and levered free cash flow have grown at 47.5% and 259.2% CAGR over the past three years.
On September 20, OII announced its plan to offer $200,000,000 in additional 6.000% Senior Notes due 2028 in a private placement. These notes will be used, along with available cash, to fund the purchase of its 4.650% Senior Notes due 2024 as part of a concurrent cash tender offer.
On August 31, OII announced that its Offshore Projects Group (OPG) segment had been awarded two international contracts, with combined total value in excess of $100 million. OII is expected to provide its services in various phases, to commence in late 2023, lasting into late 2025.
OII’s revenue increased 14.1% year-over-year to $597.91 million in the second quarter ended June 30, 2023. The company’s income from operations increased 115.3% from its year-ago quarter to $749.20 million. Its adjusted net income grew 150.5% and 157.1% year-over-year to $18.65 million and $0.18 per share.
The $0.31 consensus EPS estimate for its fiscal third quarter (ending September 2023) represents a 33.7% improvement year-over-year. The $637.35 million consensus revenue estimate for the same quarter indicates a 13.9% increase from the same quarter last year.
Shares of OII have risen 177.7% over the past year to close the last trading session at $24.02.
OII’s POWR Ratings reflect this robust outlook. It has an A grade for Growth and Momentum. Also, it is ranked #19 in the same industry.
In addition to the POWR Ratings grades just highlighted, one can see additional OII ratings for Value, Quality, Sentiment, and Stability here.
Stock #1: Archrock, Inc. (AROC)
AROC sources, installs, operates, repairs, and maintains a proprietary fleet of natural gas compression equipment. This infrastructure facilitates the delivery of high-quality natural gas compression services to clientele within the oil and natural gas sector. The company’s segments include Contract Operations and Aftermarket Services.
AROC’s EBIT and net income have shown strong growth, with 12.1% and 13.6% CAGRs over the past five years.
On August 15, AROC paid an increased quarterly dividend of $0.155 per share of common stock. The company pays an annual dividend of $0.62, which translates to a yield of 5.05% on the prevailing price level. It has a four-year average dividend yield of 7.25%.
During the fiscal second quarter that ended June 30, 2023, AROC’s total revenue increased 14.7% year-over-year to $247.54 million. Its adjusted EBITDA rose 13.3% from the year-ago quarter to $112.78 million.
Moreover, the company’s net income and net income per common share grew 47.2% and 45.5% from the prior year’s quarter to $24.65 million and $0.16, respectively.
Analysts expect AROC’s EPS to rise 90% year-over-year to $0.19 in the fiscal third quarter ending September 2023. Its revenue is likely to amount to $252.04 million in the same quarter. Moreover, the company surpassed the consensus revenue estimates in three of the trailing four quarters.
The stock gained 73.8% over the past year to close the last trading session at $12.20.
The stock has an A grade for Growth and Momentum and a B for Sentiment. AROC is ranked #18 in the Energy – Services industry.
Access AROC’s other ratings for Value, Stability, and Quality here.
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SLB shares were trading at $58.97 per share on Thursday morning, down $0.82 (-1.37%). Year-to-date, SLB has gained 11.90%, versus a 14.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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