For the oil and natural gas industry, the spot prices of crude oil and natural gas are usually not as important as the long term trend, mainly due to hedging and locking in forward prices. However, in the case of onshore oil and natural gas drillers, their contracts tend to be short term and sometimes tailored for spot pricing. Many exploration and production companies are taking advantage of lowering costs for shale play drilling, and have switched many of their operations from unprofitable natural gas to crude oil production.
U.S. onshore drillers such as Helmerich & Payne (HP) had $819.8 MM in revenue or a growth of 27.28% year-over-year (YoY), and an EBITDA margin of $39.8 MM or a growth of 2.43% YoY. HP stated that its 3rd quarter better-than-expected results were due to higher drilling activity and lower rig expenses. Other companies that have seen increased revenue from drilling contracts include Nabors Industries Ltd. (NBR) with revenue of 7,128.6 MM and a YoY growth of 26.3% and Precision Drilling Corporation (PDS) with revenue of $2,094.2 MM and a YoY growth of 16.4%.
ETFs diversify while taking advantage of these gains
Exchange traded funds who has a portfolio of these companies, such as Market Vectors Oil Services ETF (OIH), hedge away the commodity price risk through diversifying past drilling services, and even has a profitable 5.07% year-to-date return. The State Street SPDR XLE Energy ETF is another option for investors that are looking for more broad energy exposure.