Company Stands to Benefit

With the price of oil receding, oil and gas stocks aren’t doing great. In fact, they haven’t been doing great for quite some time. It really is close to a perfect market out there as investors speculate in advance of reality.

It’s hard to know definitively if the bull market in oil and gas stocks is over, but I think it is fair to conclude that the big money has already been made.

So here’s the dilemma–oil and gas stocks aren’t going up anymore, but they are literally awash in cash. So, where are they going to invest this cash over the coming years? Well, they really only have two options. They can increase their dividends paid to stockholders, or they can increase their capital expenditures to find more of the black gold.

So, who benefits when oil and gas companies spend money on development? The answer is simple–oil and gas service companies.

One company stands out in the current environment as an attractive player in this industry. Allis-Chalmers Energy Inc. (AMEX/ALY) is based in Houston and sells specialized equipment to install casing and production tubing required to drill and complete oil and gas wells. Other services include directional and horizontal drilling, compressed air drilling, work-over services with coiled tubing units, and the rental of specialized tools. The company recently joined the Russell 2000 small-cap index.

Its revenues for the second quarter of 2006 grew 156% to $60.5 million, up from revenues of $23.6 million generated in the second quarter of 2005. The company’s top-line growth was due to acquisitions and organic growth from existing operations.

Net income for the quarter grew 442% to $9.6 million, or $0.50 per diluted share, as compared to $1.8 million, or $0.12 per diluted share, generated in the second quarter of 2005.

For the first half of 2006, the company’s revenues grew 150% to $107.5 million, up from revenues of $42.9 million generated in the first six months of 2005.

Net income for the period grew 320% to $14.0 million, or $0.74 per diluted shares, up from net income of $3.3 million, or $0.22 per diluted share, generated in the first six months of 2005.

Allis-Chalmers Energy is a small player in the oil and gas services industry, but it distinguishes itself as a successful one. If you’re looking for a way to cash in on the oil industry’s riches, consider a services company like Allis-Chalmers Energy which stands to benefit from increased capital spending.