- Fiscal discipline and restrained capital spending by US shale producers is the most important driver of the rally in oil and energy stocks this year.
- With the US active rig count at 438 and closing in on a maintenance level of 500, the bulk of recovery in US drilling activity is in the rearview mirror.
- Slowing US drilling activity is a headwind for North America-focused oil services and contract drilling firms, which will struggle to maintain their recent earnings growth momentum through 2021.
- HP shares are trading at levels which suggest the stock has priced in the recovery in US drilling activity, setting up the stock for downside as growth slows.
- To guard against broader upside in energy stocks which drags HP higher, consider pairing a short position in HP with a long position in internationally-focused SLB.
For further details see:
Helmerich & Payne: Slowing U.S. Drilling Activity Is A Headwind This Year