PebbledsPicks (90.82)

April 2009: Superior Energy Services Inc. (SPN)

April 01, 2009 – Comments (0) | RELATED TICKERS: SPN

Superior Energy Services, Inc. provides oilfield services and equipment to serve drilling and production-related needs of oil and gas companies. The company operates in three segments: Well Intervention Services, Rental Tools, and Marine Services.

Comments: The market just doesn't understand Superior.  In the wake of the massive decline in oil prices after spiking last summer many oil service stocks have been slaughtered, including SPN.  Sure, SPN's business is tied to oil demand and prices, but not as much as the market currently thinks given SPN's ridiculously low stock price.  The thesis with SPN is simple.  Here are a few snippets I wrote a year ago about SPN, which, BTW, is still my largest position.

Superior Energy Services is the leading supplier of production-related services, specializing in post-wellhead intervention, evaluation, maintenance and abandonment services in the Gulf of Mexico. Superior is the only company offering this particular suite of services to Gulf of Mexico producers, which include coiled tubing, pumping and stimulation, electric line, plug and abandonment, hydraulic workover, sidetrack drilling, mechanical wireline, tool and equipment rental, field management and environmental services – all at a single source bundled on a liftboat.

The virtual collapse at Cantarell -- the world's second-biggest oil field in terms of output at the start of last year -- is unfolding much faster than projections from Mexico's state-run oil giant Petroleos Mexicanos, or Pemex.

Who stands to benefit from the decline of production in the Gulf? SPN. Thus the $750 million contract announced in January 2008. And that's just the beginning, I'm sure, for these kinds of contracts in the Gulf. SPN is not stupid. They know the Gulf will play itself out and moving into the "rest of the world" is a necessity, which they have been doing the last few years. They're growing ROW at a good clip.

SPN has industry-beating margins, ROE, and happens to be much cheaper than the industry average based on P/E. BHI and HAL are cheap, too, but not nearly as cheap as SPN versus growth. SPN is, of course, much smaller than BHI, HAL, and SLB, the granddaddy of them all. I like that. They're still flying under the radar a bit, and I think the Street doesn't understand SPN, as I said. The Street doesn't like Gulf plays because the Gulf is in decline.  As the numbers roll in for SPN the Street will ultimately see that SPN's performance is actually slightly inversely related to the Gulf's decline in production. If SPN does not get bought, they will continue to diversify into ROW, bring their expertise with them, and hopefully land one big contract after another as post peak oil plays out over the next 2-3 decades.