Is the Future In Onshore Drilling?

With offshore drilling's future now in question due to the massive Gulf oil spill, analysts see opportunity in onshore drilling.

Analysts at Canaccord Genuity believe onshore oilfield services stocks have been "thrown out with the bathwater" related to the massive Gulf oil spill and they see upside in the stocks.

The firm notes the OSX is down 27% since April 23. In that time, the offshore bucket of stocks they track is down 30%, while the onshore bucket is down 15%.

The firm believes the growth in onshore drilling in US and Canada focused on horizontal completions in oil and liquid-rich natural gas plays and dry gas shale will remain intact. Even with the relative outperformance versus the offshore group, many onshore-focused stocks have been oversold, the firm argues.

With costs going up in the Gulf of Mexico, many more dollars will be focused on onshore North American drilling opportunities, the firm suggests.

The firm's favorite onshore stocks are Trican Well Service Ltd. (TSE: TCW), Calfrac Well Services Ltd. (TSE: CFW), Phoenix Technology Income Fund (TSE: PHX.U), RPC, Inc. (NYSE: RES), Superior Well Services Inc. (Nasdaq: SWSI), Complete Production Services, Inc. (NYSE: CPX), Key Energy Services Inc. (NYSE: KEG).

The firm also likes select land drillers including Helmerich & Payne Inc. (NYSE: HP), Nabors Industries Ltd. (NYSE: NBR) and TransDigm Group Incorporated (NYSE: TDG). They also said they are warming up to Precision Drilling Trust (NYSE: PDS).

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