Cautious Overall Outlook for E&Ps as Rig Day Rates Stop Rising: a Wall Street Transcript Interview with Longdley Zephirin, Chief Executive Officer, Director of Research and Senior Analyst at The Zephirin Group

Wall Street Transcript

67 WALL STREET, New York - February 5, 2013 - The Wall Street Transcript has just published its Oil & Gas: Exploration & Production Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Capital Expenditures and Consolidation Activity - Refining Crude Price Differentials - Frontier Exploration and Development - Shale Drilling Capital Expenditures - Oil Price Expectations - Oil and Gas Transportation Infrastructure Demand - Shale Drilling Dynamics - Shale, Offshore and Deepwater Drilling

Companies include: Hercules Offshore, Inc. (HERO), BP plc (BP), Petroleo Brasileiro (PBR), Transocean Ltd. (RIG), Ensco International Inc. (ESV), Diamond Offshore Drilling Inc. (DO)

In the following excerpt from the Oil & Gas: Exploration & Production Report, an expert analyst discusses the outlook for the sector for investors:

TWST: What's the day-rate picture at the moment with an eye toward this year?

Mr. Zephirin: Day rates now are still strong. You have ultradeepwater rigs at about $550,000 per day. There are some rigs that are earning above $600,000 based on their location and the high risk to drill in certain regions and harsh environments. For the midwater market, day rates are averaging between $280,000 and $330,000, and then jackups, which has seen a huge uptick in day rates in the last 12 months, are running above $180,000 for low $200,000s per day.

Shallow water has seen some huge increases, from the low $20,000s to as high as $80,000. I think the increase in the shallow water market is because you don't have that many players in that market. A lot of the drillers have spun off, sold off or retired their shallow water rigs, so the only player in that market is Hercules Offshore (HERO).

They've seen an uptick in demand in the U.S. Gulf of Mexico for their asset class, but I'm being very cautious in that sector because most of the shallow water market rigs are more than 30 years old, and there are not going to be any new fixtures coming to that marketplace because demand has shifted toward the midwater and deepwater market environment. Having said that, the U.S. market is a strong gas market and a strong oil market. There will always be demand on the shallow side and that should continue to benefit Hercules.

TWST: Expectations seem to be for oil and gas prices to be relatively range-bound this year. What kind of catalysts do you look for in that kind of environment as you evaluate companies?

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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