3 Oil & Gas Drilling Stocks Bucking a Bearish Industry Trend

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 workforce 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 energy 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

Tight Supply of Advanced Rigs Strengthens Industry Pricing: Modern drilling programs increasingly involve deeper wells and longer horizontal sections, requiring larger, more capable rigs with better automation and digital technology. Yet, the supply of this high-end equipment is limited. In some U.S. regions, quality rigs are already effectively sold out, while super-spec utilization across the market is very high. This imbalance can give drilling contractors greater pricing power as activity rises. Importantly, operators also appear willing to sign longer-term contracts for upgraded equipment because more efficient rigs can lower drilling costs. Rising utilization, stronger day rates and longer contracts could therefore improve industry margins even without a dramatic increase in the overall rig count.

Commodity Volatility Could Quickly Cool Drilling Spending: The industry's improving outlook still depends heavily on supportive oil and gas prices. Recent geopolitical developments have caused sharp swings in crude prices, making future pricing and customer activity harder to predict. Smaller private producers, which have driven much of the recent U.S. rig recovery, are generally more sensitive to commodity prices. Meanwhile, larger producers continue to follow disciplined spending plans rather than immediately increasing drilling whenever oil rises. A sustained decline in crude prices could therefore weaken producer confidence, slow new rig additions and delay planned projects. Lower utilization would also reduce contractors' ability to raise day rates, putting pressure on industry revenue and margins.

Geopolitical and Policy Risks Can Disrupt International Growth: International markets offer meaningful drilling opportunities, but they also expose the industry to risks that contractors cannot easily control. The Middle East conflict has already disrupted logistics, strained supply chains and slowed some rig reactivations, even where underlying demand remains healthy. Political changes can create another problem. Shifts in government policy may reduce the attractiveness of oil and gas investment, causing drilling activity to fall and making expensive equipment upgrades harder to justify. These risks can delay projects, raise operating costs and leave rigs idle. As drilling contractors expand internationally, regional instability and changing energy policies could therefore offset some of the benefits from stronger global demand.

Zacks Industry Rank Indicates Bearish Outlook

The Zacks Oil and Gas - Drilling industry is a 10-stock group within the broader Zacks Oil - Energy sector. It currently carries a Zacks Industry Rank #185, which places it in the bottom 25% of 247 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates fairly 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. As a matter of fact, the industry’s earnings estimates for 2026 have gone down 56% in the past year.

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 Outperforms Sector & S&P 500

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

The industry has gone up 68.9% over this period compared with the broader sector’s increase of 33.6% and the S&P 500’s gain of 22%.

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 23.47X, higher than the S&P 500’s 18.03X. It is also significantly above the sector’s trailing 12-month EV/EBITDA of 6.06X.

Over the past five years, the industry has traded as high as 23.63X, as low as 4.16X, with a median of 13.59X, 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

Patterson-UTI Energy: Patterson-UTI Energy is an integrated oilfield services company with businesses covering drilling services, completion services and drilling products. Its offerings include Tier-1 super-spec rigs, directional drilling, hydraulic fracturing, wireline, cementing, natural gas fueling, drill bits and downhole tools. This broad portfolio allows the Zacks Rank #2 (Buy) company to serve customers across different stages of well development while generating cash flow from several business lines.

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

The company operates 137 Tier-1 super-spec drilling rigs and has 2.7 million hydraulic horsepower of completion capacity. Patterson-UTI focuses on high-quality assets, technology and operating efficiency. It is also upgrading its completion fleet toward natural gas-powered equipment while maintaining a disciplined capital-allocation approach.

Patterson-UTI has a market capitalization of $4.2 billion. Over the past 60 days, the Zacks Consensus Estimate for the firm’s 2026 bottom line has moved up 73.3%. PTEN stock has surged 102.6% in a year.

Price and Consensus: PTEN

Nabors Industries: Nabors Industries provides drilling and technology solutions to the oil and gas industry, combining drilling operations with specialized services and rig technologies. Its business spans U.S. and international drilling, Nabors Drilling Solutions and Rig Technologies. The integrated model is designed to improve drilling performance, reliability and customer outcomes through automation, advanced equipment and technology.

International drilling is its largest revenue contributor, accounting for 52% of the Zacks Rank #3 (Hold) company’s second-quarter 2026 revenues, followed by U.S. drilling at 30%. Nabors is selectively expanding internationally, particularly through its SANAD joint venture, while emphasizing operational efficiency in the U.S. Lower 48. Technology-led innovation and debt reduction also remain important priorities.

Nabors has a market capitalization of $1.3 billion. The Zacks Consensus Estimate for 2026 earnings for the firm indicates 75.8% growth. NBR stock has gained 181.5% in a year.

Price and Consensus: NBR

Helmerich & Payne: Helmerich & Payne is a drilling solutions provider serving customers across North America, international markets and offshore operations. Its portfolio includes North America Solutions, International Solutions and Offshore Solutions. The #3 Ranked company combines drilling rigs with technology aimed at improving efficiency and well performance. In the U.S. Lower 48, private-operator demand remains an important source of activity, while its FlexRobotics technology is being deployed on rigs in the Permian.

Internationally, H&P is expanding in Argentina’s Vaca Muerta, where multi-year contracts are set to increase its FlexRig count to 15. It also operates in Saudi Arabia, Bahrain and Australia. Offshore operations add further diversity, supported by long-term contracts and potential renewals.

The firm has a market capitalization of $4.3 billion. Over the past 60 days, the Zacks Consensus Estimate for Helmerich & Payne’s fiscal 2026 bottom line has moved up 30%. HP stock has surged 143.5% in a year.

Price and Consensus: HP

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

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