Wall St Consensus vs. Performance For fiscal year 2008, analysts estimate that DPDW will earn $0.05. For fiscal year 2009, analysts estimate that DPDW's earnings per share will grow by 120% to $0.11.
Sub-Industry Outlook Our fundamental outlook for the oil and gas equipment and services sub-industry is positive. Our view is based on continued high levels of capital spending by oil and gas producers, which we think will bolster demand, including directional drilling and other high-technology-content services, although demand is likely to be stronger in frontier regions with low-cost and high-growth opportunities.
We anticipate that oil and U.S. natural gas prices will remain relatively high by historical standards. Oil supplies are expected to remain relatively tight, with little in the way of spare capacity. In the Gulf of Mexico, the expected migration of rigs to other regions should help maintain utilization for the remaining rig fleet, and dayrates exhibited a slight uptick in the first half of 2008, after a prolonged malaise in 2007. The Middle East, Mediterranean, India, North Africa, West Africa and South America are expected to perform well, with rising demand. We see more modest growth in the North Sea and Asia-Pacific. Onshore North America, where land rig activity surged from 2004 to 2006, saw a slowdown in 2007 (mainly in Canada, and to a lesser extent in portions of the U.S., such as the Rockies), but we expect rising natural gas prices and increased demand for unconventional natural gas to generate healthy gains in activity levels in 2008.
Over the longer term, we expect demand for drilling services to increase. In the U.S., we believe high field depletion rates and increasing demand for natural gas will continue to support healthy drilling activity. Overseas, we expect that higher spending by major oil companies and state-owned oil companies will be the main growth driver for drilling, as they continue to search for low-cost drilling opportunities, mainly in new regions around the world, with greater emphasis on the deepwater. While there is some risk that operators may choose to expand via acquisition rather than through the drillbit, given tremendous increases in service costs over the past several years, we think demand for higher-technology-content services will remain high, especially in frontier regions that have historically lacked such technology. As of late July 2008, using data from Global Insight and the EIA, we project WTI oil prices averaging $131.34/bbl. in 2008, with Henry Hub natural gas prices averaging $10.95/MMBtu.
Year to date through July 18, the S&P Oil & Gas Equipment & Services Index rose 8.0%, versus a 13.3% drop for the S&P 1500 Index.
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