Until the current downturn, things have been going so well for so long in the energy sector that many investors may not even remember the duration or intensity of previous downturns in the industry. Thankfully, the energy sector has many management teams that have seen several cycles, and this knowledge and insight is shared during earning season on conference calls.

IN PICTURES: Digging Out Of Debt In 8 Steps

First Up
Halliburton (NYSE:HAL) was one of the first oil service companies to report earnings, and Timothy J. Probert, the President of the Drilling and Evaluation Division, provided his thoughts on the current cycle in the North American oil services market. Probert feels that the current cycle is most reminiscent of the 2001-2002 cycle in oil services.

"In 2002 gas directed rig counts rebounded from trough levels and were then range bound for around 33 weeks versus being range bound for around 17 weeks at this point in the 2009 cycle," said Probert.

If this pattern holds and Probert is correct, the rig count will stay relatively flat in the first half of 2010, before increasing sharply. Probert also cited the inventory of drilled but not yet completed wells, which now totals 1300-1500. When these wells get completed, it will boost supplies and perhaps send natural gas prices down.

However, Probert said that most of the wells are in the Barnett Shale, and thus represent a large backlog of hydraulic fracturing work to be done. This will help Halliburton, as well as its competitor BJ Services (NYSE:BJS), which has a high percentage of revenue from hydraulic fracturing.

Baker Hughes (NYSE:BHI) is purchasing BJ Services in exchange for $5.5 billion in a cash and stock deal. (For more on M&A's, see What Makes An M&A Deal Work?)

Cautious Optimism
Schlumberger (NYSE:SLB) is another oil service company that usually makes extensive comments on the oil services cycle during conference calls.

Andrew F. Gould, the CEO of Schlumberger, said that oil and gas saw strengthening demand during the third quarter of 2009, and that "the demand for oil and gas will increase somewhat over the coming months."

This will lead to higher demand for the company's services.

Gould said that this demand increase would not be "uniform across either geographies or for services by commodity type." Natural gas activity is expected to be weak, citing the lack of an increase in industrial demand for the commodity. He is more optimistic about oil, citing the robust price and the continued long-term deepwater activity.

The Bottom Line
Executives in the energy industry have a long memory and remember the intense cyclical nature of previous downturns in the sector. Investors should pay attention to this perspective and use the knowledge to their benefit. (Learn about factors that affect oil prices in our article, What Determines Oil Prices?)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing

    Have Commodities Bottomed?

    Commodity prices have been heading lower for more than four years, being the worst performing asset class of 2015 with more losses in cyclical commodities.
  2. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  3. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  4. Investing

    The Quinoa Quandary for Bolivian Farmers

    Growing global demand for quinoa has impacted Bolivian farmers' way of life. Should the American consumer be wary of buying this product?
  5. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  6. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  7. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  8. Investing

    A Look at 6 Leading Female Value Investors

    In an industry still largely predominated by men, we look at 6 leading female value investors working today.
  9. Stock Analysis

    Top 3 Stocks for the Coming Holiday Season

    If you want to buck the bear market trend by going long on consumer stocks, these three might be your best bets.
  10. Investing News

    Could a Rate Hike Send Stocks Higher?

    A rate hike would certainly alter the investment scene, but would it be for the better or worse?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!