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

The Zacks Oil and Gas Drilling Industry is facing headwinds due to contracting delays, soft gas prices, and macroeconomic uncertainty, reflected in its bottom 4% Zacks Industry Rank and negative earnings revisions, with 2025 and 2026 earnings estimates down 85.2% and 51.7% respectively. While near-term visibility is clouded by market volatility and potential rig oversupply, long-term deepwater demand is projected to rise 40% by 2030, potentially benefiting companies like Transocean (RIG), Patterson-UTI Energy (PTEN), and Precision Drilling Corporation (PDS) that have scale and strategic positioning.

Analysis

The Zacks Oil and Gas - Drilling industry is currently navigating a challenging environment, evidenced by its Zacks Industry Rank of #235, placing it in the bottom 4% of 245 industries, and significant negative revisions to aggregate earnings estimates, with 2025 estimates down 85.2% and 2026 estimates down 51.7% over the past year. This poor outlook is driven by headwinds including contracting delays, soft natural gas prices impacting shale activity, broader macroeconomic uncertainty slowing customer decision-making, and risks of premature rig reactivation potentially leading to oversupply, especially in deepwater segments. Consequently, the industry has underperformed, declining 38.6% over the past year, in stark contrast to the broader Zacks Oil – Energy sector's 2.1% increase and the S&P 500's 9.1% gain. The industry's current trailing 12-month EV/EBITDA valuation of 7.86X is substantially below the S&P 500's 16.87X and its own five-year median of 14.54X, though it is above the sector's 4.88X. Despite these industry-wide difficulties, a constructive long-term outlook for deepwater drilling persists, with forecasts projecting a 40% rise in investment by 2030, supported by large undeveloped reserves and major project approvals. Specific companies like Transocean (RIG), Patterson-UTI Energy (PTEN), and Precision Drilling (PDS) are highlighted as potentially better positioned due to scale, advanced capabilities, and strategic initiatives. Transocean reported a 18.7% year-over-year increase in Q1 2025 contract drilling revenues to $906 million and has a 2025 consensus earnings growth estimate of 123.1%. Patterson-UTI generated $51 million in adjusted free cash flow in Q1 2025, reduced its share count by over 8% since late 2023, and offers a dividend yield near 5%. Precision Drilling has seen its 2025 earnings consensus estimate increase from $3.84 to $4.13 per share in the past 60 days and reported an average trailing four-quarter earnings surprise of approximately 57.5%. However, these companies' stocks have also experienced significant declines over the past year: RIG by 38.8%, PTEN by 33.4%, and PDS by 21.6%.

Key Decisions for Investors

• Given the Oil and Gas - Drilling industry's current underperformance, low Zacks Industry Rank, and significant near-term headwinds such as contracting delays and soft gas prices, investors should exercise caution and recognize the sector's inherent volatility.
• For investors with a longer-term perspective and higher risk appetite, select companies like Transocean, Patterson-UTI Energy, and Precision Drilling may warrant consideration due to their specific operational strengths, strategic positioning for a potential deepwater recovery, and individual positive financial metrics, despite the broader industry slump.
• Investors should closely monitor key industry catalysts, including trends in contracting activity, day rates, rig utilization (especially in deepwater), natural gas price movements, and the pace of final investment decisions for major offshore projects, as these will be critical indicators for a potential cyclical turn.