Encouraging oil and gas fundamentals are likely to increase oil service companies' earnings in coming years, along with the value of oil service stocks, predicts Nicholas L. Swyka, vice chairman and managing partner of Simmons & Co. International. "Oil service stocks could jump 250% over a period of a number of years." Swyka bases that prediction upon oil service stock prices seen between 1995 and 1997 when oil prices were strong. Meanwhile, the sector's short-term concerns are price volatility and the fact that many oil and gas company expenditures were put on hold because of the majors' merger-related activities. Swyka spoke to oil-sector investors and executives at Arthur Andersen & Co.'s 20th annual energy symposium in Houston recently. "We are where we need to be on oil prices today. Today, the big concern is the gas price." Grant A. Porter, managing director of Lehman Brothers Inc., expects continued consolidation within the oilfield service sector. "The importance of technology and research and development hasn't changed there," he told conference attendees. "It's fundamentally a technology, science-driven business, engineering-driven business for the most part. Therefore, those R&D expenditures are all sort of fixed costs so if they can be applied against a larger pool of business, it makes sense to combine," he said. -Paula Dittrick
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