After years of producing oil on their own, Iran and Mexico now want Western drilling expertise.
Regular readers know that new drilling technology has allowed Western companies to tap into incredible oil reserves in areas like the Eagle Ford, Cline, and Bakken shales. As I’ve showed you before, U.S. crude oil production has jumped by millions of barrels a day in just the last few years.
[ad#Google Adsense 336×280-IA]But Iran and Mexico have oil industries operated by state-owned oil companies.
The result of that isolation is that neither country benefited from the explosion in new technology over the past few years.
So after falling oil production, both countries have come to the same conclusion: They need outside help to keep that oil flowing.
And that’s good for the oil-services sector…
Mexico is the world’s ninth-largest producer of oil in the world.
But after decades of mismanagement by state-owned oil company Pemex, its oil output has plunged. It’s down 25% since 2004.
And the country doesn’t have the technology to tap into its remaining oil reserves.
That’s a problem, considering 34% of the government’s revenue was generated from oil in 2011.
So Mexican lawmakers are voting to allow private oil companies to invest and explore in the country for the first time in 75 years.
Iran’s situation is similar. The country is the world’s fourth-largest producer of oil. But decades of closed borders and international sanctions have crippled its oil and gas sector.
Iran’s oil exports collapsed 75% over the last two years. They fell from three million barrels per day in mid-2011 to about 750,000 barrels per day in October 2013, according to the Energy Information Administration.
Oil exports generate between 50% and 60% of Iran’s total government revenue. Losing that cash flow has crippled the country.
So Iran’s government recently agreed to terms from the United Nations that will lift sanctions on its oil exports. But like Mexico, Iran’s national oil company can’t do the job alone. It needs the cutting-edge drilling technologies developed by Western companies.
This news is bullish for the oil-services sector. This is the sector filled with companies that provide drilling and pumping services, sell drilling equipment, and dozens of other things that large oil companies need to produce crude oil.
As we’re seeing with Mexico and Iran, many countries have large oil reserves… But they don’t have the expertise, equipment, or access to capital that Western companies have accumulated over decades of doing business.
Large oil-services companies like Schlumberger (SLB) and Halliburton (HAL) have tremendous expertise, they’re well financed, and they have a global reach. They can help governments increase oil production, which increases tax revenue.
For example, in 2012, Halliburton generated $7.9 billion of its $28.5 billion in total revenue from the Middle East, Asia, and Latin America. And $16.7 billion of Schlumberger’s $42.1 billion in total revenue was from these areas. Oil-services giants like these are already major players with the know-how to help these countries.
And the oil-services sector already has a solid “trend tailwind” at its back. The PowerShares Oil & Gas Services Fund (PXJ) is up 28% in the past year. But as more business comes its way from places like Mexico and Iran, I expect this uptrend to keep running higher.
Source: The Growth Stock Wire