Exane BNP upgrades AMEC to neutral

LONDON (ShareCast) - The oil services sector has performed well recently on the back of the sharper-than-expected rebound in oil prices, but more is needed for the sector to achieve a fundamental improvement in its pricing power versus exploration and production customers, analysts at Exane BNP believe. Indeed, companies in the space have moved closer to capitulation - accepting that "difficult conditions" are here to stay - and progress has been made on the capacity-cut front. As well, the short-term demand/supply outlook for oil has improved.

Nonetheless, in a research note e-mailed to clients the broker stresses that the entire cost curve is seeing a reduction, and hence the relative position of offshore developments has not yet improved - even if further gains in the oil price could see stocks move higher.

In the case of offshore contractors, the analysts are concerned by the fact that reworking/efficiency can lead to deflation and hence lower revenues in the medium-term.

However, "in seismic, we see the first steps towards recovery in a world where exploration is still needed for new discoveries, but headwinds remain significant," the broker wrote in a research note e-mailed to clients.

Aker (Other OTC: AKAAF - news) remains a favoured name in the oil services patch while Seadrill (Munich: S9A.MU - news) and Saipem (Other OTC: SAPMY - news) are their least preferred names. They like Wood Group "but see near-term uncertainties on shale and the shares have been strong versus the sector." Lastly, Exane BNP has moved to upgrade AMEC to neutral from underperform.