In spite of sliding commodity prices and labor constraints, more than 90% of the oilfield-service companies on the Oil and Gas Investor This Week scoreboard reported noteworthy growth in earnings per share and quarterly revenues for the third quarter, compared with the same period in 2005.

Drilling activity remained robust. According to Baker Hughes Inc., the worldwide rig count grew by 328 rigs sequentially and 333 rigs year-over-year to 3,154, representing an 11.6% quarter-over-quarter increase and 11.8% year-over-year. Canada drove the sequential increase and the U.S. and international markets pushed the annual growth, says Caylon Securities (USA) Inc. analyst Mark Urness.

Still, weaker North American gas prices dampened the pace of overall improvement during the quarter, particularly in Canada, he adds. "The oil-service group remained under pressure during the third-quarter, [as the Philadelphia OSX] slipped 11.5% to 186.10 as of September 29."

Urness doesn't expect the earnings momentum for the group to lag remarkably anytime soon, as long as rig counts go up and dayrates stay strong. He warns that, while dayrates haven't started to slip, the three necessary conditions for lower rates-less-efficient rigs and crews, contractors continuing to push rates higher, and lower commodity prices-are already in place.

"We believe the North American market is due for a breather, and we will probably see one by first-quarter 2007." He has an Overweight rating on the sector.

Scoreboard leaders in earnings-per-share growth include Gulfmark Offshore with growth of 203%; Todco, 197%; Ensco International Inc., 186%; Noble Corp., 175%; and Helmerich & Payne Inc., 174%.

Gulfmark's president and chief operating officer, Bruce Streeter, says the company has completed as much of its dry-dock schedule as possible to increase the number of vessels available for the spot market.

Carl Thorne, Ensco chairman and chief executive, says dayrates in the Gulf of Mexico have softened, but improved in Europe/Africa and in Asia-Pacific. "The average dayrate for our worldwide jackup fleet in the third quarter increased sequentially by 3% over the prior quarter." A dozen of the company's jackup rigs are scheduled to depart the Gulf for international commitments by early 2007.

Onshore-rig manufacturer Helmerich & Payne snagged seven more FlexRig orders during the third quarter, bringing its new-build book to 73. President and CEO Hans Helmerich says, "Our contention is that customer demand for drilling rigs that provide improved efficiencies, safety, and reliability will continue to push opportunities for HP and provide us with attractive growth prospects."

Lewis Kreps, an analyst with Dallas-based Aperion Group LLC, has his eye on Nabors Industries Ltd., which reported year-over-year earnings-per-share growth of 85%. He has a Buy rating and $60 price target on the shares.

Kreps says, "All major business lines showed significant improvement over the prior year except for the domestic offshore segment, which was negatively impacted by a deferral of work during the hurricane season..."

Overall, the group still has room to run. Urness forecasts, "In our opinion, oil and gas prices are sufficiently high to support continued spending growth as we move into 2007. We believe that this sentiment shift, together with strong earnings and historically low valuations, will act as catalysts for the group in the fourth quarter."

He adds, "The oil-service sector will become a contrarian story, attracting new value investors to support the group...We believe that current valuations represent a compelling entry point for investors."

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