UPDATE 1-UBS cuts small and mid cap oil services companies
May 14 (Reuters) - UBS downgraded U.S. small- and mid-cap oil services stocks, citing a likely drop in share prices as the companies struggle to find ways to put rigs back to work, return to profitability and keep balance sheets intact.
"Additionally, for the foreseeable future we believe exploration and production companies will hold more bargaining power in the market and that even when activity bottoms we will be left with an oversupplied service market," analyst Andrew Coleman wrote in a note to clients.
Coleman downgraded Bronco Drilling Co Inc (BRNC.O), Pioneer Drilling Co (PDC.A), Patterson-UTI Energy Inc (PTEN.O) and Basic Energy Services Inc (BAS.N) to "sell" from "neutral" and Helmerich & Payne Inc (HP.N) to "neutral" from "buy."
The analyst said a majority of the small- and mid-cap oilfield services companies missed estimates in the past quarter, largely due to a combination of pricing falling more quickly than expected and cost cuts failing to keep pace.
If the spot market does pick up, it will be at severely depressed rates that will further challenge rig companies to rein in capex and daily operating costs, the analyst added.
"Shares of onshore drilling and well servicing names have rallied 55 percent in the past 12 weeks and we believe that valuations are set to decline given continued secular weakness in the rig count and long-term negative implications for pricing," Coleman said.
For a summary of the rating and price-target changes made on the oil service stocks, please click on [ID:nWNAB9757] (Reporting by Antonita Madonna Devotta in Bangalore; Editing by Jarshad Kakkrakandy)
