3 Oil & Gas Drillers That Look Resilient Despite Pressure

Industry Overview

The Zacks Oil and Gas - Drilling industry consists of companies that provide rigs (or specialized vehicles) on a contractual basis to explore and develop oil and gas. These operators offer drilling rigs (both land-based/onshore and offshore), equipment, services and manpower to exploration and production companies worldwide. Drilling for hydrocarbons is costly and technically difficult, and its future primarily depends on contracting activity and the total number of available rigs at a given time rather than the price of oil or gas. Within the industry, it's interesting to note that the volatility associated with offshore drilling companies is much higher than that of their onshore counterparts, and their share prices are more correlated to the price of oil. Overall, drilling stocks are among the most volatile in the entire equity market.

3 Trends Defining the Oil and Gas - Drilling Industry's Future

Slower Near-Term Contracting Due to Capital Caution: Even with a constructive longer-term outlook, the near-term picture is less supportive. Many operators remain cautious amid fluctuating commodity prices and shifting global economic signals. This caution shows up as delayed contracting decisions, fewer new project sanctions, and slower progress on early-stage exploration programs. A pullback in discretionary spending — combined with a preference for deferring riskier investments — can create gaps in rig calendars and weaken short-cycle demand. In such periods, drillers often face tougher negotiations, softer spot pricing and tighter operating budgets, which pressure both utilization and profitability before the market fully rebalances.

Deepwater Demand Strengthening: Global deepwater activity is quietly building momentum, and that trend offers a constructive backdrop for drilling contractors. As operators face shrinking reserve-to-production ratios and years of underinvestment, the appetite for large offshore projects is rising again. Multiple regions — from the Gulf of America to Africa, Brazil and parts of Asia — are preparing multi-year tenders that could absorb much of the available high-spec fleet. When utilization tightens past the 90% mark, dayrates typically firm, giving drillers better visibility on cash generation and stronger pricing leverage for longer programs.

Rising Operating Complexity and Cost Pressures: A second challenge is the growing complexity of modern drilling programs, which increases operating risk and cost exposure across the industry. Wells are getting deeper, laterals are extending, and environmental requirements are tightening. These shifts demand more maintenance, more downtime planning and higher technical support, all while customers push for faster cycle times. This combination can strain margins, especially when dayrates lag behind rising labor, logistics and equipment-repair expenses. In a market where operators remain selective and capital-focused, drillers must absorb much of this complexity, creating pressure on returns and limiting operating flexibility.

Zacks Industry Rank Indicates Bearish Outlook

The Zacks Oil and Gas - Drilling industry is an eight-stock group within the broader Zacks Oil - Energy sector. It currently carries a Zacks Industry Rank #226, which places it in the bottom 6% of 243 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates challenging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are becoming pessimistic about this group’s earnings growth potential. While the industry’s earnings estimates for 2025 have gone down 90% in the past year, the same for 2026 have fallen 82.4% over the same timeframe.

Despite the dim near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.

Industry Underperforms Sector & S&P 500

The Zacks Oil and Gas - Drilling industry has fared worse than the broader Zacks Oil – Energy sector as well as the Zacks S&P 500 composite over the past year.

The industry has gone down 6.8% over this period compared with the broader sector’s increase of 3.8%. Meanwhile, the S&P 500 has gained more than 15%.

One-Year Price Performance

Industry's Current Valuation

Since oil and gas drilling companies are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio. This is because the valuation metric takes into account not only equity but also the level of debt. For capital-intensive companies, EV/EBITDA is a better valuation metric because it is not influenced by changing capital structures and ignores the effect of non-cash expenses.

On the basis of the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), the industry is currently trading at 4.99X, significantly lower than the S&P 500’s 18.66X. It is also below the sector’s trailing 12-month EV/EBITDA of 5.51X.

Over the past five years, the industry has traded as high as 24.81X, as low as 4.16X, with a median of 14.54X, as the chart below shows.

Trailing 12-Month Enterprise Value-to-EBITDA (EV/EBITDA) Ratio (Past Five Years)

3 Oil and Gas - Drilling Stocks to Watch

Transocean: This Zacks Rank #3 (Hold) company is a global offshore drilling contractor known for its technically advanced fleet and deep expertise in complex environments. The company operates one of the highest-specification floating drilling fleets in the world, including ultra-deepwater and harsh-environment units designed to handle high-pressure, high-temperature reservoirs. With a strong presence in demanding offshore markets, Transocean continues to be a preferred partner for operators seeking safe, reliable and efficient well-construction capabilities.

You can see the complete list of today’s Zacks #1 Rank stocks here.

The company owns or has stakes in 27 mobile offshore drilling units — 20 ultra-deepwater floaters and seven harsh-environment floaters — supported by a highly skilled operating team. Transocean benefits from rising offshore activity, a sizeable backlog, and a focused approach to cost efficiency and deleveraging. These strengths position it well for long-term value creation as global oil and gas demand sustains offshore investment.

The firm has a market capitalization of $4.9 billion. The Zacks Consensus Estimate for 2025 earnings for Transocean indicates 119.2% growth. The RIG stock has increased 10.2% in a year.

Price and Consensus: RIG

Helmerich & Payne: It is the largest land drilling contractor in the United States, known for its vertically integrated model and proprietary FlexRig fleet. The company designs, builds and upgrades its rigs in-house, pairing them with automation and real-time analytics software that enhance efficiency and consistency in the field. Founded in 1920 and headquartered in Tulsa, it has built a strong reputation for safety, reliability and steady technological advancement.

Beyond the United States, Helmerich & Payne operates sizeable land-rig fleets across key Middle East and North Africa and South American markets and provides offshore platform management services in the Gulf of America. Its portfolio also includes BENTEC, a manufacturer of drilling equipment. With more than 300 land rigs and a long operating history, the Zacks #3 Ranked company remains a major player in both domestic and international drilling.

The firm has a Value Score of A. The #3 Ranked company has a market capitalization of nearly $3 billion. Helmerich & Payne’s stock has lost 9.5% in a year.

Price and Consensus: HP

Patterson-UTI Energy: Patterson-UTI Energy is one of the largest drilling and completions service providers in the United States, offering land drilling, pressure pumping, directional drilling and specialized drilling products. Headquartered in Houston, the company operates a sizeable fleet of high-spec rigs and delivers technology-driven services across major U.S. basins and select international markets. Its vertically integrated model allows it to support customers through multiple stages of well development.

Following its merger with NexTier, Patterson-UTI now controls one of the country’s largest pressure pumping fleets, with more than 3 million hydraulic horsepower. The company also markets over 190 land rigs in the United States and Colombia, most of which are Tier-1, super-spec units. By combining advanced rig designs, completions expertise and data-driven drilling technologies, Patterson-UTI remains a key player in North American oilfield services.

PTEN beat the Zacks Consensus Estimate for earnings in two of the last four quarters and missed in the other two, with the average being 17.5%. It has a VGM Score of A. Shares of Patterson-UTI have lost 13.5% in a year.

Price and Consensus: PTEN

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This article originally published on Zacks Investment Research (zacks.com).

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