UBS says oil services profits at risk after crude collapse

The outlook for the European oil and gas sector in 2015 is “not encouraging”, according to UBS which cut target prices for a number of energy services stocks on Tuesday.

Brent crude prices almost halved over 2014 and are currently trading at around $51-52 a barrel (bbl), a level not seen since May 2009.

“If OPEC is to stay true to its strategy of reducing non-OPEC investment then 2015-16 seem likely to see prices well below normal levels. We think ultimately prices will need to return to ~$90/bbl but this could take some time,” UBS said.

It said that given that the oil and gas sector couldn’t sustainably outperform in a high-price environment, the next two years “could be a struggle”.

The bank believes that low and volatile pricing is likely to the next six to 12 months.

Crude is likely be below $70/bbl in 2015 before rising only slowly to the $90/bbl level by 2018.

UBS said: “We remain cautious on [oil] services despite share price declines as capex delays and reductions are likely to impact earnings and sentiment across the sector.

“We prefer asset-light engineering companies such as Wood Group and Amec, with Amec being our lone ‘buy’." Wood Group was left at ‘neutral’.

However, the bank has slashed its target prices for Petrofac (‘neutral’) from 1,020p to 725p and Hunting (‘neutral’) from 735p to 525p.