NEW YORK (Reuters) - Oilfield services company stocks look like the "sweetest investing spot" in the energy industry, even with a likely pullback in crude oil prices, fund manager John Olson said on Wednesday.
"With this run-up in crude prices and natural gas prices ... the revenue base in this industry has grown exponentially just in the last four or five months," Olson, who manages $150 million at Houston Energy Partners, told the Reuters Global Energy Summit in Houston.
Crude oil prices have shed more than $12 from their record high above $135 a barrel earlier this month, and natural gas reached new long-time highs above $12 per million British thermal units this week.
And even with a continued drop in those prices, this year's rally will send revenue for oil and gas producers skyrocketing to about $478 billion this year, Olson predicted, nearly $200 billion more than last year.
The U.S. industry typically spends about 35 to 40 percent of its revenue on incremental drilling -- money that flows largely to the oilfield service companies that help pull the oil and gas out of the ground.
"That is probably the sweetest investing spot in the entire energy industry right now," he said.
Among his favorites are Key Energy Services Inc (KEG.N: Quote, Profile, Research, Stock Buzz), which is expanding its business in Mexico; and Unit Corp (UNT.N: Quote, Profile, Research, Stock Buzz), an onshore driller and exploration and production company. Both stocks are trading at attractive valuations and have room to grow, Olson said.
For example, Unit is trading at about 11 times 2008 earnings when it should be trading at 14 times 2008 earnings, he said.
Houston Energy Partners is also looking for a slight rebound in refining margins in the second half of the year and has been adding shares of Marathon Oil Corp (MRO.N: Quote, Profile, Research, Stock Buzz) to its portfolio.
"I do think that refiners will have to get their gasoline prices back right, or it's going to continue to be loss-leader business," the fund manager said. "I'm sure there's a lot of pressure at the big oil level to get those margins back to something better."
Marathon is trading at about eight times earnings compared with its peers, which are trading at about 10 times earnings, implying the stock could rise about 20 percent, he said.
In afternoon New York Stock Exchange trading, Marathon was down 88 cents or 1.7 percent at $50.90, while Key was up 11 cents at $17.08 and Unit was up 91 cents or 1.2 percent at $76.98.
(For summit blog: summitnotebook.reuters.com/)
(Reporting by Matt Daily in New York and Anna Driver in Houston, editing by Gerald E. McCormick)
© Thomson Reuters 2009. All rights reserved.
| Japan Investment | Jul 07 - 8, 2009 | Country Summits |
| Global Real Estate | Jun 22 - 24, 2009 | Real Estate |
| Investment Outlook | Jun 15 - 18, 2009 | Financial Services / Exchanges |
| Global Retail | Jun 10 - 12, 2009 | Consumer & Retail |
| Global Luxury | Jun 08 - 10, 2009 | Hotels/Casinos |
