SteveGelsi

NEW YORK (MarketWatch) — Major oil-service firms, hailed as the tool providers for America’s shale-oil and gas boom, remain warmly regarded on Wall Street.

But the technique for extracting oil and gas by injecting water into horizontal wells deep underground has been drawing increasing scrutiny.

On one front, hydraulic fracturing has unlocked vast deposits of oil and natural gas in the United States — so much so that energy production in the Lower 48 is actually on the rise for the first time in decades.

Wilbur Ross on fracking for gas

Billionaire Investor Wilbur Ross discusses the process of fracking to search for shale oil and natural gas. (AP Photo/Ralph Wilson)

At the same time, the wider use of so-called fracking has triggered environmental concerns over the potential impacts on drinking water, as well as the handling of wastewater from the process.

These concerns haven’t affected Wall Street’s bullish view of the sector, with at least one analyst betting that worries over fracking could fade over time.

“New advancements in fracking technology yield big gains for customers and may help mitigate criticisms,” S&P Equity Research analyst Stewart Glickman said in an interview with MarketWatch.

In a recent note on new technology efforts in the oil-service arena, Glickman highlighted buy ratings by S&P Equity Research on Baker Hughes Inc. BHI, -0.73% Schlumberger Ltd. SLB, -0.41%  and Halliburton Co. HAL, -0.77%

For a wider exposure to the sector, Glickman tapped the iShares Dow Jones U.S. Oil Equipment & Services Index Fund IEZ, -0.78%  and the PowerShares Dynamic Oil & Gas Services Portfolio PXJ, -1.06% Both of these ETFs carry a market-weight rating by S&P Equity Research.

To be sure, these stocks and ETFs have not been spared from the strong selloff in recent days in the overall equities market, in the face of global economic uncertainty and the debate to raise the U.S. debt ceiling.

But even with nine straight days of steep losses, the Philadelphia Oil Service Index OSX, -1.41% which includes the largest oil-service firms, remains in positive territory for the year by about 7%.

S&P Equity’s Glickman said environmental issues remain on the radar for the related companies and investors.

“I think there’s a move toward trying to show you can do fracking in a responsible way,” he commented. “Anything that they can come up with that’s more surgical and cleaner will resonate well.”

One possible risk facing the oil-service sector would be a plunge in energy prices to points where shale gas and oil extraction becomes less economically appealing, according to Glickman. The last time oil prices took a big plunge was back in 2008 and 2009, causing a drop in bottom lines in the oil-service sector.

Still, Wall Street remains optimistic on the largest firms in the business given their latest earnings, as energy companies ramp up domestic oil and gas production and international pricing gains momentum.

Of the roughly 40 analysts surveyed by FactSet that cover Schlumberger, all but four have issued a buy or overweight rating on the stock. The company has four hold ratings and no sell or underweight ratings.

Halliburton also has coverage from about 40 analysts, 39 of which rate the company a buy or overweight; only one rates it a hold, according to FactSet Research.

Baker Hughes has only four hold ratings, no sell ratings and lots of buy or overweight ratings.

“We like the group,” said Canaccord Genuity’s Scott Burk, echoing Wall Street’s positive sentiment on the sector. Unlike other analysts, though, Burk issued a hold rating on Baker Hughes.

“We think Halliburton and Weatherford International WFT, +0.08%  have more relative upside than Baker Hughes,” he added.

Overall, energy companies continue to increase their spending for equipment to drill horizontal wells, and for multistage fracking to extract more oil and gas — a trend that’s expected to continue, analysts said.