Following a turbulent period in the Gulf of Mexico after the Macondo well blowout in April 2010, offshore drilling companies have rebounded and are outperforming the top land service providers, according to IHS Inc.

In a review of drilling service activity, IHS researchers found that the top four multi-service providers in North America’s onshore — Schlumberger Ltd., Halliburton Co., Baker Hughes Inc. and National Oil Well Varco Inc. (NOV) — are not hitting the marks as well as those in the offshore. The management teams at Schlumberger, Halliburton and Baker all said they were negatively impacted in 2012 by the volatile North American onshore market (see Daily GPI, Jan. 28; Jan. 24; Jan. 22). NOV, the largest U.S. oilfield equipment manufacturer, on Friday said the deepwater operations — not onshore — lifted quarterly net income year/year to $668 million ($1.56/share) from $574 million ($1.35).

IHS noted that the Philadelphia Oil Service Index last year trailed the S&P 500 by about 10% and and by around 20% in 2011. Shares of the “big four” providers slid an average of 13% during 2011 to 2012; NOV was the only one to exhibit positive returns of 3%.

Meanwhile, the six top offshore drillers had an average return of 2% in 2011, jumping to 9% when Transocean Ltd. was excluded. Transocean was hobbled by the Macondo well blowout, which destroyed its Deepwater Horizon rig.

“In 2012, the offshore drillers’ peer group started to show signs of recovery and reinvestment, which is continuing in 2013,” said IHS’ John B. Parry, a principal analyst who authored the IHS Herold Offshore Contract Drillers Peer Group Analysis.

“With the exception of litigation-plagued Transocean, the public equities of offshore drilling industry appear to have largely adjusted to the post-Macondo environment, helped by rising rig utilization and strong day rates for rig contract renewals. We expect these favorable renewals to lead to improved operating margins for all of the offshore drillers in 2013 and 2014.”

The recovery comes “in large part thanks to higher day rates for rigs and demand for drilling in deepwater environments, notably Brazil, East and West Africa and the Gulf of Mexico. Energy companies are paying higher day rates, particularly for the newer offshore rigs, and firms that have been upgrading their fleets are likely to see significant returns on their investments.”

Offshore service providers, including Ensco and Noble Corp., have been upgrading their fleets and appear to hold a competitive advantage, according to IHS. Those upgrading their fleets are aided by their rising exposure to deepwater and ultra deepwater markets, where operators continue to tally up new discoveries.

Late last month, Noble CEO David Williams said the company was continuing its transformation, which involves making over its global drilling suite to meet the needs of clients (see Daily GPI, Jan. 25). Rowan Cos., a major player in the premium jack-up market, also has undergone a restructuring by shedding long-held manufacturing and land rigs and reinvesting in the deepwater market.

“In general, Ensco and Noble, thanks to their rising inventory of newer rigs, saw the strongest margin recovery in 2012 and, along with Diamond Offshore, we expect them to continue to perform well in 2013 and 2014,” said Parry. “Conversely, the softness in the relative 2012 performance of the six multi-service providers, notably the ‘big four,’ is primarily the result of their large exposure to the softening North American onshore market for oilfield services, particularly pricing competition in important pumping/hydraulic fracturing operations.”

The price competition, as well as “slipping onshore activity and weaker than expected activity in certain operations outside North America in late 2012, means that these service companies will continue to face operating margin pressures into mid-2013.”

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