The outlook for the energy drilling sector looks promising, driven by increased oil and gas production to cater to high energy demand. As a result, it seems wise to invest in fundamentally sound energy drilling stocks Patterson-UTI Energy, Inc. (PTEN), Precision Drilling Corporation (PDS), and Superior Drilling Products, Inc. (SDPI) this month for potential gains.

Let’s understand this in detail.

Russia’s invasion of Ukraine last year caused crude prices to skyrocket above $100 per barrel, resulting in lucrative profits for producers. Although prices have declined, they remain at or above pre-pandemic levels, consistently enabling most producers to engage in profitable drilling operations for new wells.

Under current market and policy conditions, the International Energy Agency (IEA) predicts a 6% increase in global oil demand from 2022 to reach 105.70 million bpd (barrels per day) in 2028. This growth is primarily expected to be driven by the petrochemical and aviation sectors, which could contribute significantly to the rising demand for oil.

The IEA also estimates global supply capacity to increase by 5.9 million bpd, reaching 111 million bpd by 2028. Increased oil and gas demand and supply could result in higher sales volumes, higher market prices, and more prospects for exploration and production, which could boost the energy drilling sector’s prospects.

Furthermore, the IEA anticipates the global upstream oil and gas investment to reach its highest since 2015 at $528 billion in 2023.

Meanwhile, the Energy Information Administration (EIA) forecasts current U.S. oil production to stand at 12.40 million bpd, marking a 400,000 bpd increase compared to the previous year. Moreover, year-to-date oil production has surpassed the record level of 12.30 million bpd achieved in 2019.

The primary driver of increased oil and gas production in the United States remains the tight oil and shale gas regions, with the Permian Basin reaching a record-breaking 5.8 million bpd, surpassing Saudi Arabia’s Ghawar field.

Against the backdrop, fundamentally sound energy drilling stocks PTEN, PDS, and SDPI could make ideal additions to your portfolio this month.

Patterson-UTI Energy, Inc. (PTEN)

PTEN is an oilfield services company that owns and operates land-based drilling rigs and pressure pumping equipment. It operates through three segments, Contract Drilling Services; Pressure Pumping Services; and Directional Drilling Services. It has marketed approximately 184 drilling rigs in the United States and eight in Colombia.

On June 15, PTEN disclosed its definitive merger agreement with NexTier Oilfield Solutions Inc. in an all-stock merger of equals transaction. Upon the transaction’s closure, PTEN shareholders will obtain 55% ownership, granting them significant influence over the combined company on a fully diluted basis.

The merger would facilitate an enlarged and comprehensive portfolio of oilfield services, encompassing the most active U.S. basins and extending operations into Latin America.

PTEN’s trailing-12-month levered FCF margin of 6.72% is 13.7% higher than the industry average of 5.91%. Likewise, the stock’s trailing-12-month CAPEX/Sales of 15.68% is 23.6% higher than the industry average of 12.69%.

For the first quarter that ended March 31, 2023, PTEN’s revenue increased 55.4% year-over-year to $791.80 million. Its adjusted EBITDA grew 156.6% from the year-ago value to $255.63 million. Also, the company’s net income and EPS came in at $99.68 million and $0.46, compared to a net loss and loss per share of $28.78 million and $0.13, in the prior year’s period.

The consensus revenue estimate of $3.13 billion for the fiscal year (ending December 2023) reflects an 18.1% year-over-year improvement. Likewise, the consensus EPS estimate of $1.71 for the ongoing year indicates a 139.3% rise year-over-year. Moreover, the company surpassed the consensus revenue estimates in all four trailing quarters, which is impressive.

The stock has gained 8% over the past month to close the last trading session at $11.51.

PTEN’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

PTEN has a B grade for Growth, Value, Quality, and Momentum. It has ranked #2 in the 17-stock Energy – Drilling industry.

In addition to the POWR Ratings I’ve just highlighted, you can see PTEN’s ratings for Stability and Sentiment here.

Precision Drilling Corporation (PDS)

Headquartered in Calgary, Canada, PDS provides contract drilling, completion, and production services to oil, natural gas, and geothermal exploration and production firms.  The company operates through two segments, Contract Drilling Services and Completion and Production Services.

On June 1, PDS provided an update on its North American drilling operations. It currently operates 46 active rigs in Canada, expecting to surpass 60 by month-end. The impact of wildfires in Alberta and British Columbia has been limited, allowing for a 14% increase in second-quarter activity compared to last year, averaging roughly 42 rigs.

In the United States, PDS anticipates an average of 50 rigs for the second quarter. Moreover, the company is actively securing new customer contracts, leading to multiple rigs commencing operations in the latter half of the year. PDS remains optimistic about a resurgence in activity growth, supported by favorable commodity prices.

PDS’ trailing-12-month levered FCF margin of 8.79% is 48.8% higher than the 5.91% industry average. In addition, the stock’s trailing-12-month asset turnover ratio of 0.65x is 1.1% higher than the 0.65x industry average.

For the first quarter that ended March 31, 2023, PDS’ revenue increased 59% year-over-year to CAD 558.61 million ($424.56 million). Its adjusted EBITDA grew 451.4% from the year-ago value to CAD 203.22 million ($154.45 million).

Furthermore, the company’s net earnings and EPS came in at CAD 95.83 million ($72.83 million) and CAD 5.57, compared to a net loss and loss per share of CAD 43.84 million ($33.32 million) and CAD 3.25 in the prior year’s quarter, respectively.

PDS’ revenue is expected to grow 6.4% year-over-year to $1.61 billion for the fiscal year ending December 2024. The company’s EPS is expected to come in at $11.82 for the same period, a 5.7% rise year-over-year. Moreover, the company topped its consensus revenue estimates in all four trailing quarters, which is impressive.

The stock has gained marginally over the past five days to close the last trading session at $46.07.

PDS’ positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.

PDS has a B grade for Growth, Value, and Momentum. It has topped the 17-stock Energy – Drilling industry.

Click here to access additional PDS ratings (Stability, Sentiment, and Quality). 

Superior Drilling Products, Inc. (SDPI)

SDPI is a drilling and completion tool technology company. It provides cost-effective solutions that increase production efficiencies in the oil and natural gas drilling industries. Additionally, it manufactures and refurbishes Polycrystalline Diamond Compact (PDC) drill bits for oil field service providers.

On the back of strong first-quarter results, Troy Meier, Chairman and CEO of SDPI, said, “Looking ahead, we are making investments to support planned growth and are poised to capture greater share internationally as our strengthened Middle East team makes further inroads and leverages the new service and technology center in that region that is expected to come online by the end of the second quarter of 2023.”

The stock’s trailing-12-month gross profit margin of 58.58% is 24.5% higher than the industry average of 47.05%. Furthermore, its trailing-12-month ROCE, ROTC, and ROTA of 29.73%, 12.91%, and 12.35% compare to the industry averages of 23.48%, 11.21%, and 8.81%, respectively.

For the first quarter that ended March 31, 2023, SDPI’s revenue increased 52.1% year-over-year to $6.28 million. Its adjusted EBITDA grew 99.1% from the year-ago value to $2.02 million. In addition, the company’s net income and EPS rose 910% and 400% year-over-year to $1.51 million and $0.05, respectively.

Analysts expect SDPI’s revenue to increase 31.1% year-over-year to $25.03 million for the fiscal year ending December 2023. The company’s EPS for the current year is expected to grow 225% from the prior year to $0.13. Shares of SDPI have gained 34.9% over the past six months to close the last trading session at $1.16.

SDPI’s robust outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our pro­­­­­­­­­prietary rating system.

SDPI has an A grade for Momentum and Sentiment and a B for Quality. It has ranked #3 out of 17 stocks within the same industry.

Click here to access additional SDPI ratings for Quality, Growth, and Stability.

What To Do Next?

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PTEN shares were trading at $11.33 per share on Friday afternoon, down $0.18 (-1.56%). Year-to-date, PTEN has declined -31.79%, versus a 14.60% rise in the benchmark S&P 500 index during the same period.

About the Author: Aanchal Sugandh

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns. More...

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