3 Onshore Stocks Set to Outperform in 2022

  • Helmerich & Payne (HP): Strong balance sheet and modern fleet should help the company to capture incremental market share
  • Patterson-UTI Energy (PTEN).: Acquisition of Pioneer Energy has strengthened it capabilities while enhancing geographical reach.
  • Nabors Industries Ltd (NBR): Technologically advanced rigs should help the company expand in shale gas production. International expansion is another growth catalyst.
oil stocks: stacks of oil barrels
Source: Shutterstock

The stocks of onshore drilling companies have been among the major gainers on Wall Street on the back of rising oil price.

Geo-political tensions between Russia and Ukraine have been one of the factors attributing to energy price spike. Many countries are seeking to reduce their energy-dependence from Russia.

President Joe Biden has urged U.S. oil companies to step-up production. In a poll conducted by the US government, consumers are ready to pay higher oil prices at a cost of reducing their dependence on Russian crude.

The International Energy Agency expects global demand for oil and gas to exceed pre-Covid-19 levels during 2022. Lack of economic activity during pandemic led to a lower investment in oil and gas production worldwide, leading to its scarcity.

Most onshore drilling companies faltered, with annual revenues declining by around 40% in 2020, due to the coronavirus pandemic. The revenues have still not returned to their pre-pandemic levels even in 2021.

Energy industry experts believe that operators will respond to the favorable commodity environment with higher drilling activity in 2022. It’s expected that between 2021 and 2025, onshore drilling expenditure is likely to be $34 billion.

Below is a list of three onshore drilling stocks that should benefit from the positive industry tailwinds.

HP Helmerich & Payne $43.36
PTEN Patterson-UTI Energy $15.80
NBR Nabors Industries Ltd $158.58

Helmerich & Payne Inc. (HP)

miniature oil barrel and oil well figures on top of stack of money
Source: Shutterstock

Helmerich & Payne (NYSE:HP) is one of my favorite picks among the onshore drilling providers.

HP is one of the leading onshore drillers in the United States. Further, the company has presence in Argentina, Bahrain, and Columbia. The company provides offshore drilling services in the Gulf of Mexico. It has a fleet size of 271 rigs, of which 174 are contracted of January 2022.

HP’s FlexiRigs is a popular choice among drillers as its technically more advanced and provides customization. Since August 2020, H&P skidding FlexRig design has increased market share. Moreover, most of its rigs are modernized with latest technology.

Last two years had been challenging for the industry as lower economic activity declined oil prices. Several companies lost contracts and had to resort to external financing to keep going.

Despite this, Helmerich and Payne was able to maintain a healthy balance sheet. As of December 2021, Helmerich reported liquidity of $1.2 billion and a debt-to-capitalization of 17%. Most of the company’s peers are overleveraged with debts, accounting for around 50% of their total capital structure.

Further, the company has a dividend yield of 2.19% and is creating value for investors through stock repurchases.

Going forward, the company should benefit from the rising oil prices with resurging economic activity. This is already reflected in the fleet utilization rates. At the end of its fiscal first quarter in January, utilization had surged to 70% from 43% in 2020 and 67% in 2019.

Overall, HP stock looks attractive with the company positioned to benefit from positive industry trend.

Patterson-UTI Energy Inc. (PTEN)

Black oil barrel that reads "oil" on the side in a pool of oil with other barrels
Source: Shutterstock

Patterson-UTI Energy, Inc (NASDAQ:PTEN) provides land-based drilling rigs for producing oil and gas in the United States and Canada. As of March 2022, the company had 117 drillings rigs, of which 115 are operating in the United States.

Its Apex rigs are mechanically advanced that facilitates quicker drilling and faster movement of rigs than the conventional rigs.

The acquisition of Pioneer Energy Services has expanded the company’s operating scale and enhanced its reach to include the Columbian market. Pioneer operated eight rigs in the country over a span of 14 years and already has a well-recognized team of operating staff.

The resurging economy is creating opportunities for future growth. Patterson-UTI is experiencing an increase in average number of operating rigs contracted each quarter.

Active rigs have increased from a low of 60 during Q3 2020 to 106 rigs in Q4 2021 and 117 in March 2022, reflecting spiking oil prices.

I expect this growth momentum to continue with Brent trading above $100 per barrel. This will also help in sustaining the positive momentum for PTEN stock. With the stock having surged by 150% in the last 12-months, I would look to buy on intermediate corrections.

Nabors Industries Ltd. (NBR)

NBR stock
Source: Novikov Aleksey / Shutterstock.com

Nabors Industries (NYSE:NBR) is one of the leading providers of  high-specification onshore drilling rigs in the world. The company operates in over 15 countries for carrying out oil, gas and geothermal land-drilling operations.

NBR’s rigs are high specification rigs that can withstand extreme weather conditions such as extreme cold or hot desert like conditions. It can also cater to the complex shale plays like Bakken and Permian.

As of Dec. 31, 2021, NBR operated 301 rigs for land-based drilling operations in the United States and Canada. The company had another 20 rigs operating internationally for onshore operations and 29 rigs for offshore drilling operations both domestically and internationally.

In 2021, the firm completed investments in three geothermal companies with disruptive technological capabilities. Management’s decision to advance technological capabilities of its rigs should reap significant long-term benefits.

The rising oil prices have fueled drilling activities. Nabors’ initiatives to expand its geographical footprints along with diversification of its operating assets beyond land rigs are positives.

After an almost two years of sluggish growth, the firm has seen positive earnings estimate revision activity over the past month. This implies analysts are becoming a more bullish on the company’s growth prospects.

On the date of publication, Sakshi Agarwalla did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Sakshi Agarwalla has more than eight years of experience writing equity research reports and preparing financial models for companies across various industries, as well as writing newsletters and financial articles. Recently, she assisted her Fund manager in executing trades, preparing weekly, monthly NAVs and writing newsletters. She has a postgraduate degree in finance and has completed CFA.


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