Firms providing services to the oil and gas industry have experienced more than a year operating in a lower oil price environment. That strikes me as a good test of the resilience of their operations.

Companies such as Petrofac Limited (LSE: PFC), Hunting (LSE: HTG) and John Wood Group (LSE: WG) have coped well during 2015. All still pay dividends, for example, although Hunting has reduced and rebased the payout by what City analysts predict will be around 60% for 2016. There has been a mixed performance from the companies’ share prices.

An ongoing contrarian opportunity

A year ago, I suggested that these firms might rebound during 2015. Since then the price of oil has slipped further. But total returns for investors buying these companies’ shares on the first trading day of January 2015, and holding them until now, look like this: 


Share price 2/1/15

Share price change to 6/1/16

Dividends       paid

Total return














John Wood Group






That’s a respectable performance from Petrofac and John Wood Group with Hunting letting the side down. Stock pickers buying only Hunting would have been badly burnt, but those putting an equal sum into all three firms on 2 January 2015 would have seen an overall loss of 6.5% – perhaps a lesson in the advantages of diversification.

I did wonder whether Hunting’s poorer performance might be down to a higher debt load. However, the firm seems to carry a modest debt with net gearing around 12%, or expressed another way, net borrowings running at about 29% of annual revenue. Petrofac’s debt is far higher with net gearing at around 67%, while John Wood Group carries a similar level of debt to Hunting.

The underperformance at Hunting seems to come down to a much larger plunge in profits than the other two. In 2015, Hunting’s earnings collapsed by 90%, which compares to Petrofac’s 71% fall and John Wood Group’s 28% decline.

The outlook now

I’d argue that the oil service firms are more attractive now than they were a year ago. The price of oil has been on its knees for longer and we’ve seen how operations have adjusted in each business – they’re coping and the shares have settled. Now could be a good time to jump in to capture any upside potential that develops from an improving oil price, while harvesting a stream of dividends.

Petrofac updated the market on 15 December and the firm’s chief executive said: “We have taken steps to maintain our cost-effectiveness and sustain our strong competitive position, which gives us confidence that we can continue to deliver value for both our clients and our shareholders.”

On 3 November, Hunting said: “While the Group has reported a quarter-on-quarter reduction in trading, the majority of business units continue to generate free cash flows principally through a reduction in working capital, staffing levels and margin protection. The Group is also delaying certain of its capital investment programmes…”

John Wood Group reported progress on 10 December saying: “In what is expected to be a prolonged period of challenging market conditions we are benefiting from our flexible business model and are focused on managing utilisation, delivering overhead cost savings in excess of estimates at the half year and working with customers to develop efficient solutions. Our balance sheet and cash flow generation remain strong, supporting the delivery of strategic acquisitions and our previously stated intention to increase the dividend by a double-digit percentage in 2015.

The timing seems right

With their strong balance sheets, ongoing cash generation and their ability to acquire distressed assets from others through the industry downturn, Petrofac, Hunting and John Wood Group look like decent contrarian investment opportunities right now.

However, one of The Motley Fool's top investors believes the best days for the business featured in this free report still lie ahead.

Overall, turnover has been growing at around 10% a year for this business, with profit growth not far behind. The firm has a decent record of rising dividends that looks set to continue, given its clearly identified path to growth. If the dividend keeps rising, share-price appreciation could follow.

The report is called A Top Income Share From The Motley Fool. For a short while longer, it's free to download. You can get your copy now by clicking here.

Kevin Godbold has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Petrofac. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.