As Costs for Complex Projects Mount, Offshore Oil Services Fundamentals Are Crumbling: A Wall Street Transcript Interview with Truls Olsen, Head of Research at Fearnley Securities Covering the Offshore and Oil Services Segment

Wall Street Transcript

67 WALL STREET, New York - February 4, 2014 - 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: Oil Price Expectations - Shale, Offshore and Deepwater Drilling - Unconventional Resources - Domestic Crude Prices - Capital Expenditures and Consolidation Activity - Frontier Exploration and Development - Offshore Deepwater Oil Discoveries - Offshore Capex Growth

Companies include: Oil Services and Oil Exploration & Production Companies

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

TWST: Please start by giving us a sense of the situation with the offshore and oil services stocks right now. What are the overarching issues you are watching in the space?

Mr. Olsen: I think the biggest issue is the negative momentum happening in the space right now. The oil companies are struggling with high costs meaning that cash flow is not able to keep up with spending, capital expenditures, dividends and share buyback. This is a big challenge for the oil companies.

Meanwhile, the activity level offshore is at all-time high. When coupled with increased technical complexity, more deepwater/remote operations and more stringent regulations in the post-Macondo world and increasing local content requirements, costs have been pushed up to what appears to be unsustainable levels. We are seeing a significant amount of project delays, and we are seeing some projects being reworked or terminated altogether.

And then at the same time on the services side, we have a lot of new capacity coming onstream, so for some of the service companies, especially those on the offshore side, they are starting to struggle a bit. So when you take all that together, you see the momentum is not in offshore oil service favor right now. I would say that 2014 looks more challenging for these companies overall.

TWST: What can these companies do at this point to improve the situation, or is it just going to entail waiting out 2014?

Mr. Olsen: Looking at the overall industry complex, the ultimate implication is that the oil price is too low. On individual company basis it depends across the segments and sectors that you are looking at. Until recent many of the management teams of the offshore leverage names have been very bullish and appeared to be planning accordingly. However, as I see it the fundamentals are crumbling...

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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