The Hindu Business Line : Strong demand, asset growth buoy oil service stocks

Kolkata, Feb. 18 Oil services companies are now fetching improved prices on the market. However, the counters still need to recover quite a lot of ground compared to the valuations a month ago.

Aban Offshore, which is part of the BSE Oil & Gas Index, has moved up over 9 per cent in the last one week. This is a relative underperformance since the index during this time has recovered by 13 per cent. However, the counter’s performance is better in relation to the weekly Sensex gain of 8.42 per cent.

Two other sector players, Garware Offshore and Shiv Vani, have also been showing similar price actions.

According to analysts, re-pricing of services and asset growth has created strong potential for growth in the top and bottomline.

Contract renewal

According to industry insiders, majority of the Indian players in this segment have been seeing renewal of long-term contracts in the last six to eight months. This is going to continue through this year besides obtaining new contracts in case of both rigs, support vessels, anchor handling equipment and related services.

Spot rate higher

The long-term contract rate for both off-shore and on-shore rigs, according industry analyst, has witnessed an average increase 40 per cent, while the rates for anchor handling services have gone up by about 60 per cent against that in the previous contract period. However, spot rates are ruling even higher.

According to ODS Petrodata, jack up rigs supply globally is expected to move up 10.1 per cent in 2008 and 7.4 per cent in 2009. Supply of floaters is expected to increase by 8.9 per cent in 2008 and 12.5 per cent in 2009. Similarly, Clarksons’ Research suggests global order book for AHTSVs and PSVs with delivery in the next three years have been growing 24 and 15.7 per cent respectively.

Strong demand

But growing demand for the services by the Indian companies for rigs, equipment and services are likely to absorb much of the supplies, according to a recent ABN Amro Asia Securities report.

Of this pack, the Alphageo stock was up five per cent, the biggest gainer today.

Aban Offshore gained 2 per cent today marking a gain of 9.34 per cent weekly gain. Great Offshore today closed flat, but has recovered over 8.5 per cent in the last one week. Though it closed unchanged today, Shiv Vani’s weekly gain is 9.94 per cent.

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