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Schlumberger Limited. (SLB), Transocean LTD (RIG): How Oilfield-Services Stocks Can Bolster Your Returns

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Don’t let pressured stock prices in the oilfield-services sector deter you from considering them to be good long-term holdings. Crude oil prices have been hovering above $90 a barrel, spurring demand from the major oil and gas companies for drilling equipment. In the past, prices of above $80 had been conducive to the drilling of new wells. Selecting holdings from the oilfield-services industry will require an overview of the best choices at this time, whether it be based on their customer relationships, geographical presence, or expansion initiatives.

Ensco, geographically well positioned

ENSCO PLC (NYSE:ESV)‘s bottom-line results are benefiting from rising day rates (pricing) and a modestly increased rig count. What I think sets it apart, though, is its presence in the North American and South American markets, including Brazil, where 32 of its 73 rigs were located as of March 31. This means it is experiencing growth from the recent discoveries in the Gulf of Mexico and high utilization levels there, as well as from its business with Mexican state-owned oil firm Pemex and Brazilian state-owned Petrobras. Both of those customers are expanding their equipment counts and plan to do so over the coming years.

The company has about seven rigs under construction, including ultra-deepwater drillships and jack-ups scheduled for service beginning in late 2014 and early 2015. ENSCO PLC (NYSE:ESV)’s shares may well be a good turnaround choice, given favorable operating conditions. Plus, the board pays out a dividend that amounts to about a 3.5% yield at this price.

Schlumberger, strong discovery and drilling businesses

Schlumberger Limited. (NYSE:SLB)

Schlumberger Limited. (NYSE:SLB) earns a large proportion of income from a high-margin reservoir characterization business that provides services for the finding and defining of hydrocarbon deposits. Profits from that, along with its drilling segment have jumped of late. On that note, Schlumberger Limited. (NYSE:SLB) also operates a production arm that is marked by cyclicality in profitability. In this way, it is similar to Helix Energy Solutions Group Inc. (NYSE:HLX), a driller that owns production assets such as well intervention, robotics, and sub-sea construction operations. Overall, Schlumberger appears to be on a growth path.

Geographically, Schlumberger Limited. (NYSE:SLB) is generating income from North America, though gains have stemmed from the European, Middle East and Latin American markets. The company is poised for continued share-net gains year-over-year, and the shares are thus a worthwhile selection. The forward P/E is about 12.7, based on share-earnings growth of 10% to 15% in 2013.

Transocean, back to the basics

Returning to the traditional offshore and deepwater drilling sector, Transocean LTD (NYSE:RIG)‘s top and bottom lines are climbing behind increased utilization, particularly for its deepwater fleet. This is in contrast to Ensco, where pricing has been the key factor. Accordingly, revenue and margins are expanding thanks to the improved market conditions versus a year ago.

Once again, demand is likely to rise in Latin American markets, such as Venezuela, where Transocean LTD (NYSE:RIG) is contracted with PDVSA, the state-owned firm. Plus, it is seeing improved results in the Middle East and Asia, owing to heightened activity in those regions.

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