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In the Sweet Spot

By Elliott H. Gue on Oct. 28, 2013

Each earnings season, we look forward to poring over quarterly results from the big four oil-field services companies–Schlumberger (NYSE: SLB), Halliburton (NYSE: HAL), Baker Hughes (NYSE: BHI) and Weatherford International (NYSE: WFT).

Part of this anticipation reflects our bullish outlook for the industry, which stands to benefit over the long term from the end of easy oil–an important secular trend that’s one of the founding precepts of Energy & Income Advisor. For the uninitiated, this thesis holds that declining production from the world’s major oil fields has forced the industry to pursue deepwater developments and other complex, expensive-to-produce plays that require higher levels of service intensity. (See Going Long: The End of Easy Oil.)

The big four’s conference calls to discuss quarterly earnings–particularly the wide-ranging calls hosted by Schlumberger, the world’s largest oil-field services company–provide invaluable insights into other aspects of the energy patch.

In the past, closely listening to Schlumberger’s quarterly conference calls has helped us to profit from rapidly improving margins in the marine-seismic services segment in 2010 and to avoid much of the fallout from the collapse in pressure-pumping prices that occurred in 2012. More recently, trends identified by the major oil-field services firms prompted our bullish stance on proppant producers, US Silica (NYSE: SLCA) and Hi-Crush Partners LP (NYSE: HCLP).

The read-through from Schlumberger and the other major oil-field services companies’ earnings reports and subsequent conference calls are particularly useful because they occur before many other energy-related names announce quarterly results.

Schlumberger and Baker Hughes reported third-quarter results on Oct. 18, while Halliburton released earnings and hosted its conference call on Oct. 21. Weatherford International won’t issue its results until Nov. 4.

We also delve into results and management comments from Core Laboratories (NYSE: CLB), which specializes in reservoir description and production enhancement. The company’s quarterly conference calls have become must-listen events because of management’s forthright commentary on exploration and production trends in US shale oil and gas plays.

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In October 2012, renowned energy expert Elliott Gue launched the Energy & Income Advisor, a twice-monthly investment advisory that's dedicated to unearthing the most profitable opportunities in the sector, from growth stocks to high-yielding utilities, royalty trusts and master limited partnerships.

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