The oil and gas industries aren’t the only ones facing uncertainty in the aftermath of the Deepwater Horizon explosion and ensuing environmental crisis in the Gulf of Mexico; specialty chemical companies Nalco (NLC), TETRA Technologies (TTI) and Newpark Resources (NR) are also feeling the sting, as many of their principal customers are oil and gas companies.
“It’s a situation that still has a significant amount of uncertainty in terms of the economic impact, and the market seems to be baking in almost a worst-case scenario,” said Michael J. Harrison, CFA, a research analyst at First Analysis Securities Corp. “I look at a company like TETRA Technologies, which provides completion fluids and other services to the oil and gas industry, and I see the stock down close to 40% from its 52-week high, even though they’ve quantified their exposure as less than 10% of sales.”
Harrison is particularly concerned for Nalco, who counts BP (BP) as one of its principal customers, along with other energy firms currently operating in the Gulf of Mexico.
“I have a broader concern about how the oil spill and deepwater drilling moratorium affects their customers in the Gulf of Mexico,” he said, adding that Nalco was recently in the news for its supply of a potentially environmentally hazardous water dispersant chemical to break up BP’s oil spill.
“If those [drilling] operations are curtailed over time, if there is increased regulatory pressure and it makes it more difficult to conduct drilling activity and exploration in the Gulf – and particularly in deepwater, which we had thought would be a source of strengthening demand for chemicals and services into the oil and gas industry – it looks like this opportunity could be pushed out.”
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