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Earnings per share by members of the Philadelphia Oil Service Index (OSX) could reach $7 in 2003 as the sector increases its revenue potential by nearly 40%, suggests Michael K. LaMotte, senior oil services analyst for Banc of America Securities LLC. The cycle's length depends on the macro-issues of supply and demand. Its strength, however, will depend on the sector's capacity, LaMotte told investors and industry executives during the investment bank's annual energy conference in Houston. Oilfield service companies' revenue potential could hit $115 billion by 2003, up from $85 billion currently, because more capacity will move to higher grades, he says. The day-rate difference between a deepwater and shallow-water rig is an example of capacity upgrade. Without any margin expansions, LaMotte would expect OSX earnings per share to be $6.15 in 2003. However, margins should expand this cycle because of higher pricing, such as in the deepwater oil and deep gas markets; productivity gains, as more companies look to information technology solutions; and the benefits of sector consolidation. "Therefore, a $7 [earnings per share] target for 2003 looks conservative," he says. By comparison, the group's highest earnings per share in recent years was just under $5, in 1998. -Jodi Wetuski
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