The relief in second quarter energy services company performance needs to be kept in context. While Baker Hughes (NYSE:BHI) and Halliburton (NYSE:HAL) did indeed do better than feared, revenue was still down sequentially in North America, and operating margins were still soft. As a smaller player with less leverage, it's not surprising that Basic Energy Services (NYSE:BAS) is also suffering. While conditions are indeed challenging, and likely to remain so for 2012, today's valuation seems to put little faith in a rebound and may be an appealing entry point for risk-seeking investors.

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More Erosion in Q2
There are not a lot of nice things to say about Basic Energy's second quarter. Utilization rates were hurt by lower activity in dry gas basins, while an industry-wide rush to move operations to oilier basins has led to price pressure.

Revenue fell 2.5% from the first quarter, as a modest improvement in well servicing (up almost 3%) could not overcome weaker performance in fluid services, completion or drilling. Cost inflation continues to be an issue for service providers, though, and the combination of lower revenue, tougher pricing, and higher costs served to drive operating income down almost one-quarter sequentially, with operating margin falling three points.

SEE: Zooming In On Net Operating Income

The Cavalry Is Still in the Barn
Unfortunately, there's no reason to expect operating conditions to get better quickly. There seems to be a general expectation out there that North American rig counts will decline throughout the rest of the year, and with everybody refocusing on oil (including Basic Energy competitors like Key Energy (NYSE:KEG) and Nabors (NYSE:NBR)), price competition is going to remain intense. Making matters worse for Basic, they lack the exposure to international markets that is buoying Key and the larger energy service companies.

However, I still wouldn't go so far as to say that Basic Energy's business is permanently impaired. Fracking and pressure pumping are not going to go away, and eventually there will be enough LNG terminals and natural gas switchovers to support prices again. With the third-largest well servicing fleet in the U.S., Basic Energy will have good years again.

SEE: Oil And Gas Industry Primer

The problem is that neither I, nor anybody else, knows when that's going to happen. There is still broad pessimism in the stocks of gas-heavy E&P companies like Ultra Petroleum (NYSE:UPL) and Chesapeake Energy (NYSE:CHK), and further risk to estimates.

The Bottom Line
Estimates have been sliding down on Basic Energy and I don't think we're quite past the point of maximum pessimism yet - particularly if there's a further slowdown in economic growth on the way. The good news, such as it is, is that expectations have cratered with this stock. Even with a 15% haircut to the current 2013 EBITDA estimate for Basic Energy, the stock would seem to be trading at less than half of its fair value.

SEE: A Clear Look At EBITDA

By no means is Basic Energy a safe play; there is a lot of debt here and both Key and Nabors have larger servicing fleets in North America (as well as more diverse businesses that could give more freedom to compete on price). Nevertheless, I do think these shares are undervalued and could represent appealing candidates for aggressive investors who can stomach the risk.

At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.