Oil & Gas Drilling Is Struggling - But These 3 Names Stand Out

The Zacks Oil and Gas - Drilling industry is feeling the squeeze as shifting market dynamics challenge even the most seasoned players. Despite their vital role in energy development, the industry faces headwinds from contracting delays, soft gas prices, and broader macro uncertainty. The group’s Zacks Industry Rank sits near the bottom, reflecting shrinking earnings estimates and lagging stock performance. Offshore drillers face risks from premature rig reactivation, while land-based operators remain exposed to fragile gas economics. Yet, beneath the gloom lies a glimmer of long-term promise. Deepwater demand is quietly rebuilding, fueled by large untapped reserves and major project approvals. Companies like Transocean Ltd. RIG Patterson-UTI Energy PTEN and Precision Drilling Corporation PDS are beginning to emerge from the pack. Their scale, advanced capabilities, and strategic positioning could help them weather near-term challenges and seize opportunities as the cycle turns.

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 natural 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 natural gas. Within the industry, it's interesting to note that the volatility associated with offshore drilling companies is much higher than their onshore or land-based counterparts, and their share prices are more correlated to the price of oil and gas. Overall, drilling stocks are among the most volatile in the entire equity market.

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

Market Volatility Is Clouding Near-Term Visibility: Macroeconomic uncertainty is creating hesitation in customer decision-making. Some companies have flagged that elevated geopolitical risk, fluctuating oil prices, and trade tensions have introduced fresh volatility into an already cautious environment. While no major projects have been canceled, the pace of tenders and contract awards has slowed. Operators are increasingly focused on capital discipline and delaying activity where possible. This environment makes near-term earnings visibility harder for drillers and could weigh on fleet utilization if the uncertainty persists.

Premature Rig Reentry Risks Oversupply: There are apprehensions about premature supply returning to the market before demand is fully in place. This caution is especially relevant in deepwater and ultra-deepwater segments, where reactivating idle rigs carries high costs. If the reactivation trend continues without adequate dayrate support, it could undermine pricing power and margin expansion just as the market begins to stabilize. Maintaining capital discipline is key, but some smaller or financially weaker players may jump in early, disrupting the balance and increasing competitive pressure.

Long-Term Deepwater Demand Looks Constructive: Despite near-term uncertainty, the deepwater drilling outlook appears increasingly resilient. In particular, the operators emphasize strong fundamentals: large undeveloped reserves, production declines in shale and the growing capital commitment of major operators to offshore basins. Third-party forecasts project deepwater investment to rise 40% by 2030, with most projects economical above $50 oil. Multiple FIDs across the Gulf of Mexico, Brazil and Africa support this view. With proven reserves falling and replacement cycles overdue, deepwater projects could see sustained momentum, offering long-cycle visibility for drillers.

Weak Gas Prices May Delay Shale Activity: It has been noted that while natural gas basins have shown signs of life, the recovery is still fragile. Gas prices remain soft, and if they stay depressed for an extended period, it could dampen the momentum in U.S. shale plays. The risk is that upstream firms pull back on gas-directed drilling programs, delaying demand for high-spec rigs and completions equipment. For land drillers with material exposure to gas-weighted basins, this poses a near-term earnings and utilization risk — particularly as visibility into H2 remains limited.

Zacks Industry Rank Indicates Bearish Outlook

The Zacks Oil and Gas - Drilling industry is a nine-stock group within the broader Zacks Oil - Energy sector. It currently carries a Zacks Industry Rank #235, which places it in the bottom 4% of 245 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 85.2% in the past year, the same for 2026 have fallen 51.7% 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 38.6% over this period compared with the broader sector’s increase of 2.1%. Meanwhile, the S&P 500 has gained 9.1%.

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 just 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 7.86X, significantly lower than the S&P 500’s 16.87X. It is, however, well above the sector’s trailing 12-month EV/EBITDA of 4.88X.

Over the past five years, the industry has traded as high as 24.81X, as low as 6.53X, 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 provides rigs on a contractual basis to explore and develop oil and gas. Transocean offers offshore drilling rigs, equipment, services and manpower, with particular emphasis on ultra-deepwater and harsh environment drilling services, to exploration and production companies worldwide. Transocean's fleet is considered one of the most modern and versatile in the world due to its emphasis on technically demanding segments of the offshore drilling business.

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

During the first quarter of 2025, Transocean reported contract drilling revenues of $906 million, up 18.7% from the prior-year figure. Notably, several rigs began operations ahead of schedule, and others exceeded performance expectations. This operational reliability enhances customer confidence and supports premium day rates. The firm has a market capitalization of $2.9 billion. The Zacks Consensus Estimate for 2025 earnings for Transocean indicates 123.1% growth. The RIG stock has decreased 38.8% in a year.

Price and Consensus: RIG

Patterson-UTI Energy: Patterson-UTI Energy's business is set to benefit from its proprietary design and technologically advanced ‘Apex’ rigs that can move faster than conventional rigs, drill quicker and are better suited to new-age drilling. Meanwhile, the company's strategic acquisitions of Ulterra and NexTier Oilfield Solutions have boosted its scale, service offerings and geographic presence. The company is also set to gain from its investment in advanced technologies and robust free cash flow-generating ability.

Patterson-UTI is prioritizing shareholder value through disciplined capital allocation. In the first quarter of 2025, the company generated $51 million in adjusted free cash flow, reducing its total share count by more than 8% since late 2023 and is offering a compelling dividend yield of nearly 5%. This Houston, TX-based firm has a Value and Growth score of A and B, respectively. The #3 Ranked company has a market capitalization of $2.5 billion. Patterson-UTI stock has lost 33.4% in a year.

Price and Consensus: PTEN

Precision Drilling: Headquartered in Calgary, Alberta, it is Canada’s largest drilling rig contractor and a top operator in the United States and the Middle East. With over 210 rigs globally, including 98 in Canada and 104 in the United States, PDS leads in advanced drilling through its Alpha automation platform and EverGreen environmental solutions. Precision Drilling also operates 153 well service rigs in Canada, delivering completion, workover and abandonment services.

Its offerings include rental equipment, camp services and expert field support. Backed by innovation and scale, Precision Drilling continues to set high standards in safety, performance, and environmental responsibility across the energy sector. PDS beat the Zacks Consensus Estimate for earnings in two of the last four quarters and missed in the other two. It has a trailing four-quarter earnings surprise of roughly 57.5%, on average. Additionally, the Zacks Consensus Estimate for Precision Drilling’s 2025 earnings has moved up from $3.84 per share to $4.13 in the past 60 days. The company has a market capitalization of $687.3 million. PDS, carrying a Zacks Rank of 3, has lost 21.6% in a year.

Price and Consensus: PDS

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Transocean Ltd. (RIG): Free Stock Analysis Report
 
Patterson-UTI Energy, Inc. (PTEN): Free Stock Analysis Report
 
Precision Drilling Corporation (PDS): Free Stock Analysis Report

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

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