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Bonds Are a 'Safe' Investment: A Big Lie Gets Even Bigger"One of my favorite indicators for the energy markets is the quarterly conference calls and earnings releases from Schlumberger (NYSE: SLB)," says energy sector expert Elliott Gue.
In his The Energy Strategist, he explains, "In this quarter's call, Schlumberger's management team was notably upbeat, the most positive on industry growth expectations in more than a year. This is a key shift in sentiment that has broader implications for the energy patch at large."
"Schlumberger's reports and conference calls have proved extraordinarily useful in the past for determining the most profitable trends and investment themes. The reason for that is simple: Schlumberger is the largest oilfield services company and has its hand in just about every imaginable market all over the world.
"In addition, the company has traditionally offered long, detailed conference calls; CEO Andrew Gould often relates far more than the outlook for Schlumberger and offers considerable color and detail concerning trends for the industry in general.
"This quarter's conference call was no exception. Schlumberger's outlook this quarter was far more upbeat than in its third and fourth quarter 2007 earnings calls.
"Gould backed away from comments he made in prior earnings calls that 2008 would be a 'transition year for the industry. Instead, he forecast a growth reacceleration in the second half of the year. Schlumberger's comments were so positive, in fact, that I'm adding the stock back to the growth-oriented Wildcatters Portfolio.
"Offshore drilling, particularly in deepwater fields, has been the source of considerable growth for oil services firms such as Schlumberger in recent years.
"There are a couple reasons for that. First, the deepwater is one of the only regions of the world where producers have been finding truly large oil and gas fields. It's one of only a few potential plays where there will be meaningful oil and gas production growth over the next decade.
"Another reason offshore operations are so important is complexity. The new deepwater fields discovered in Brazil offer a perfect example. Tupi is located in water two miles deep; production of the field requires drilling through a one-mile thick salt layer and into extremely high-pressure, high-temperature environments.
"Drilling wells in this field requires the most advanced technology available today; in fact, some believe that drilling Brazil's recently announced Carioca field may require some new technological developments before production is even possible.
"Only a handful of firms, such as Schlumberger, own such technology and can actually drill those wells. Therefore, these high-tech service firms can charge a high price for the work they do.
"This is precisely why offshore profit margins have been steadily rising for the big services firms over the past five years. Increasing reliance by producers on more-complex, land-based reservoirs and deepwater fields is extremely bullish for the services firms."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
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