Sector Watch: Drilling services stocks

You hear that? It’s a collective moan heard from drivers across the country, after oil hit another record high of $129 on Tuesday, no doubt translating to yet another price hike at the pump.

Oil prices are expected to remain at high levels for the foreseeable future; some experts are even predicting $150 per barrel oil before year-end. While recording-setting oil prices are disgruntling to many, they are supporting strong exploration trends and feeding nicely into the demand for the tools and services of Bolt Technology (Nasdaq:BOLT) and WSP Holdings (NYSE:WH).

Bolt Technology develops, manufactures and markets marine seismic tools such as air guns and hydrophones used to locate energy reservoirs on the ocean’s floor. The company also operates an industrial products segment that develops, manufactures and sells miniature industrial clutches, brakes and sub-fractional horsepower electric motors.

Bolt Technology should benefit from an 11% increase in worldwide exploration spending forecasted to reach $369 billion in 2008. Deepwater spending will be a major growth area, with 85% of over 200 oil and gas exploration and production companies surveyed indicating a heightened focus on deepwater drilling in 2008. These companies also identified 3-D/4-D seismic as the most important technology influencing their E&P business.

Bolt Technology derives approximately 90% of revenues from sales of marine seismic tools. Drillers use the company’s marine air guns to create acoustic waves that travel to great depths in the earth. Portions of the wave, reflected back by the underlying rock layers, are received as signals by hydrophone devices. Using these tools, drillers can identify formations likely to contain oil. A seismic exploration vessel can tow as many as 60 to 70 air guns along with multiple hydrophone streamers. The air guns are fired simultaneously every 75 feet . . .

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