HOUSTON, Jan 14: Energy stocks were among the market’s best performers in 2005, and analysts say high oil and gas prices should continue that bullish trend, especially for energy services companies.

Service companies, which help oil and gas producers drill and operate wells, have benefited from the surge in spending by cash-rich energy companies eager to increase their output to capture the high energy prices.

Energy prices would have to drop a great deal before there is any drop in (producers’) budgets, said Bob Gillon, analyst with research firm John S. Herold. It seems to us the service sector is really poised to outperform.

Crude oil reached $70 a barrel in September and natural gas topped $15 per million British thermal units last month. That helped the energy sector boost its market capitalization by $500 billion, according to a report issued by Gillon.

Refiners were the best performers in the sector in 2005, with stock prices rising an average of 93 per cent, topping the median sector rise of 44 per cent.

Exploration and production companies, especially the Canadian players, were the next best performers, followed by drilling and services companies.

Coal producers and master limited partnerships were the worst performers, according to Gillon, with average share price increases of 8.8 per cent and 3 per cent, respectively.

Burgeoning exploration and production budgets have created a boom time for the services companies, which have easily pushed through prices increases to customers.

Calyon Securities and Lehman Brothers recently issued reports highlighting the services sector, whose largest companies are Schlumberger Ltd. and Halliburton Co.

RBC Capital Markets analyst Kurt Hallead forecast the Philadelphia Oil Service index would rise nearly 36 per cent this year to 254. The index ended 2005 at 187 and stood at 201.59 on Friday.

Hallead said he expects exploration and production company spending to rise by 25pc in 2006, well above the 15 per cent anticipated by many other analysts.

At the moment, energy services stocks should be appealing to a variety of investment strategies, including value, growth and momentum, he said.

Service companies have been trading on average at 16 to 17 times earnings, he said, below historical levels near 21 times.

Sometimes, that gives people the opinion these stocks are expensive. They’re not, he said.

Exploration and production companies, which have recorded stock price gains of more than 50pc in each of the last three years, are still expected to prosper in the bullish market, according to Irene Haas, analyst with Sanders Morris Harris.—Reuters