VAL Valaris Limited : Bullish and Bearish Analyst Opinions

Depletion is such 5% a year where if we don't keep drilling, we're going to start to have a decline. I was more into the services companies than I were the producers because that's really where the operating leverage is. Global oil depletion rates force exploration and production companies to continuously spend capital on drilling just to maintain flat output. This guaranteed capital expenditure flows directly to the top line of oilfield service providers, insulating them somewhat from short-term spot oil volatility. LONG. Oil services offer superior operating leverage and benefit from the structural necessity of continuous global drilling. A severe global recession that temporarily destroys oil demand and forces E&P companies to slash capital expenditure budgets.

Noble says, "I love energy... particularly like the oil service companies." He explicitly names Schlumberger (SLB), Tidewater (TDW), and Valaris (VAL). The sector is under-owned (3% of S&P). Global depletion rates (~5% annually) necessitate constant drilling activity regardless of short-term oil price fluctuations. Service companies have pricing power due to equipment shortages. Long Oil Services for a valuation mean reversion and activity super-cycle. A deep global recession crushing energy demand.