As the market continues to reward companies with little to no earnings or growth, one sector that continues to get punished for producing record profits is the oil and gas services industry. RPC, Inc (RES) is a holding company whose operating units, Cudd Energy Services, Patterson Rental and Fishing Tools, Bronco Oilfield Services, and Thru Tubing Solutions are very well respected in the industry. These units continue to rack in tons of revenue despite the slowdown in dry gas. They have handled the transition from the Haynesville to the Eagle Ford and Permian Basin extremely well. This stock will likely perform well as the market realizes that concerns over hydraulic fracturing are overblown.
First and foremost, the world needs oil and natural gas. Despite dry gas prices falling off a cliff, the oil and gas services sector has been saved by the abundance of oil located in America's soil. Halliburton (HAL) CEO Dave Lesar said ,"the record North American revenue of $4.2 billion came as new oil drilling activity in the United States helped offset the decrease in natural gas drilling." The profitability of the oil and gas services industry despite low natural gas prices is a testament to the strength of the industry. The only long term threat to the oil service sector and to the companies who focus on fracking is a nationwide moratorium.
Ask anybody who first is extremely knowledgeable in the industry and/or currently works in the industry and they will point blank tell you that if you place fracking under a nationwide moratorium the world economy will plummet into a deep recession. The magnitude of jobs provided by U.S. energy production is constantly understated. A World Economic Forum report released in March of 2012 said, "the oil and gas industry contributed 37,000 direct jobs in 2011, which led to the creation of an additional 111,000 indirect jobs during the same period." The oil and gas industry alone created 9% of the jobs created in 2011 with three indirect jobs created for every one directly involved in the industry. Those involved with the energy industry work hard, get paid very well, and more importantly love to spend money. Looking at the oil rig count growth over last year it is easy to see why the energy industry is responsible for the majority of the push towards economic recovery.
Even the current administration realizes that outlawing hydraulic fracturing will seriously damage the country. We recommend buying dips of this great American company that pays a hefty and historically speaking rising dividend which will eventually be rewarded.
Most of our industry's indicators continued to improve during 2011. The average U.S. domestic rig count during 2011 was 1,877, or 21.7 percent higher than 2010. The average price of oil during 2011 was $94.94 per barrel, a 19.6 percent increase compared to 2010. However, the price of natural gas fell during 2011. Its average price declined by 9.0 percent, from $4.34 per Mcf in 2010 to $3.95 per Mcf in 2011. The price of natural gas has declined fairly steadily during 2010 and 2011, falling to a low of $2.56 per Mcf during the fourth quarter of 2011. - RPC 2011 Annual Report
RPC, Inc has been doing nothing but increasing sales, EBITDA and most importantly net income over a 20% clip in all those categories over the last 5 years. This company is a highly profitable business that will over the next few years continue to reward shareholders with dividend increase and share buybacks while the shareholders wait for the market to reward this company with a market multiple.