Morgan Stanley: Here's How To Play Upstream Oil

In a new report, analysts at Morgan Stanley focused on the reeling North American oil industry. In the report, analysts further reduced their North American onshore spending forecast and discussed key themes investors should watch for in the space.

The Numbers

Analysts lowered their expectations for 2015 North American well-related spending from -27 percent year-over-year(Y/Y) to -35 percent. Analysts also expect 5-16 percent declines in international well spending this year.

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Supply And Demand

Analysts believe that $50 Brent would likely mean that incremental oil production would fall below incremental demand in the second half of 2015. They forecast that Brent would need to reach $90 per barrel to balance incremental supply and demand in the long-term.

Themes

Analysts see four major themes playing out in the oil sector in coming months: international consolidation, company-specific catalysts, low premium steel prices and increasing well optimization. Despite the recent turmoil within the sector, analysts believe that there are plenty of stocks worth buying in the space.

Stock Plays

Morgan Stanley lists the following stocks as their top North American upstream plays:

• Atwood Oceanics, Inc. (NYSE: ATW)
• Baker Hughes Incorporated (NYSE: BHI)
• C&J Energy Services Ltd (NYSE: CJES)
• Core Laboratories N.V. (NYSE: CLB)
• FMSA Holdings Inc (NYSE: FMSA)
• Halliburton Company (NYSE: HAL)
• Independence Contract Drilling Inc (NYSE: ICD)
• Nabors Industries Ltd. (NYSE: NBR)
• Pacific Drilling SA (NYSE: PACD)
• Precision Drilling Corp (NYSE: PDS)
• Patterson-UTI Energy Inc (NASDAQ: PTEN)
• RPC Inc (NYSE: RES)
• SeaDrill Ltd (NYSE: SDRL)
• Schlumberger Limited (NYSE: SLB)
• U.S. Silica Holdings Inc (NYSE: SLCA)
• Superior Energy Services, Inc. (NYSE: SPN)
• Weatherford International Plc (NYSE: WFT)