Although one Wall Street analyst recently downgraded all the oil-service stocks under his coverage, other market seers see investment opportunities in the sector. "We now believe it's time to step in and do some selective buying," says Asit K. Sen, a New York-based Jefferies & Co. oil-service analyst. "With share prices down 40% to 50% from 52-week highs, the majority of the bad news is reflected in the stocks. In our opinion, investors in assessing the oil service group are beginning to look past the near-term earnings trough to a potential second-half 2002 cyclical recovery." The analyst says that with recent oil prices in the $18 to $19 range and composite natural gas prices around $2, he now sees limited downside risk in commodity pricing and favorable economics for most producer projects. Poe Fratt, St. Louis-based oil-service analyst for A.G. Edwards, advises investors to remain cautious on the U.S. onshore drilling market, due to weak near-term gas fundamentals, and remain focused on the offshore and international drilling markets. "Positive capital spending trends within the integrated oil group that have driven the strength of the international jackup market, as well as a strong focus on deepwater exploration and development efforts, should keep international floater utilization close to 90% through 2002 and maintain dayrates at or slightly above current levels," he says. The analyst notes that although effective jackup utilization in the Gulf of Mexico has been only 60% recently, demand should rebound as natural gas prices stabilize and as an expected net outflow of jackups from the region into international markets in 2002 reduces supply. Adds Fratt, "Offshore drilling stocks are trading near the low end of the historical percentage range of replacement cost valuation." Sums up Michael K. LaMotte, oil-service analyst for JPMorgan Securities in New York, "Conditions for a strong share-price recovery [in the service sector] in 2002 are being firmly established and...we are positioning ourselves for a broad-based upgrade of the sector." -Brian A. Toal

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