This story was originally published on RealMoney on June 29 at 3:03 p.m. EDT.With the midyear point fast approaching, energy remains a powerful investment theme. Certainly, $60 oil and $7-plus natural gas haven't hurt, but even at prices a good 10%-15% below current commodity levels, there are still plenty of opportunities to make money in the energy patch. That said, all investors know it isn't where prices have been that is important; it's where they are going. And many investors believe it will be harder to make money in the energy space in the second half of the year than it was in the first. While selectivity may be more important, there will be plenty of opportunities to capture profits in the coming six months. Here's a quick look at three themes that should matter in the back half of 2005.
Drilling for DollarsI continue to like the drillers, especially the land-based contractors of drilling rigs. With effectively every rig in the U.S. that is available to drill currently at work, day rates should continue to work higher. While there was a widespread belief that margins for companies like Nabors ( NBR - Get Report) and Patterson-UTI ( PTEN - Get Report) could not keep accelerating at the pace seen in the first quarter, second-quarter results may well be just as stout, something most estimates don't currently anticipate. In addition, there is a growing need for land rigs in international markets, which will tighten domestic markets even more. Nabors continues to see the need for 45 to 60 additional land rigs in foreign markets in the coming months, an estimate that may prove conservative. Given that there is very little additional global spare capacity, rigs may well move from the U.S. to foreign countries and work at higher day rates. The going rate for rigs in Saudi Arabia today is $20,000-plus per day with a three-year term contact. I continue to think the best way to play the land drilling market is with Nabors, the leader of the group. However, smaller step-out plays like Grey Wolf and Pioneer Drilling also hold promise as rates and utilization continue to press higher, something that appears likely to continue over the next 6 to 12 months.