BUY OR SELL-Can Basic Energy shrs recover lost ground?

By Arup Roychoudhury

BANGALORE, April 9 (Reuters) - The economic downturn and the resultant steep decline in oil and gas prices have meant leaner captial expenditure budgets for oil companies, hurting enterprises that depend on them for revenue.

Oil services company Basic Energy Services Inc's (BAS.N) story has been no different.

Its clients, the exploration and production companies, cut spending and cancelled projects as U.S. natural gas prices NGc1 fell more than 60 percent from highs hit in July, while crude prices CLc1 dropped as much as $110 a barrel in the same period.

With oil companies slashing capital expenditure, the drillers and oilfield service providers that help them extract hydrocarbons were forced to reduce day rates and scale back on operations.

Basic Energy, which provides well-completion and fluid services, has seen its shares drop over 77 percent since their highs in June.

The company's fourth-quarter earnings per share fell almost 80 percent sequentially. It forecast a sequential drop of 33 to 35 percent for its first-quarter earnings.

Faced with shrinking margins, Basic Energy said it was reducing operating costs and downsizing its workforce to offset falling prices and utilization.

Basic Energy reported utilization of 22 percent for February, a 44 percent decrease sequentially and a 75 percent fall year-over-year.

Eight analysts have taken a wait and watch approach on the stock, rating it "hold" and are looking for further signs of recovery in the commodity markets. Only one has a "buy" rating, while two have an "underperform/reduce" rating.

So should investors keep away from the stock, or is this the right time to buy it, despite the weak commodity markets and outlook?

BUY ON EXPECTED RECOVERY, CASH POSITION

"We do have a buy rating and that is more under the premise that at some point down the summer, activity levels start to stabilize in which case there could be a decent move off the bottom," said Jefferies and Co analyst Judson Bailey.

The analyst said although the North American rig and workover market, to which Basic Energy is highly leveraged, will get weaker before any sort of an uplift, the company had already touched a bottom and was on the way to a recovery.

"In our rating system, we see some upside... If North American activity stabilizes it should be one of the stocks that should have a decent recovery."

The company has a stable cash position and balance sheet, and the weakness in its first-quarter outlook was well known and discounted into its share price, Bailey said.