Deep Water Rig Fleet Drives Significant Upside for Selected Stocks: a Wall Street Transcript Interview with John Keller, Vice President in Equity Research with Stephens Inc.

Wall Street Transcript

67 WALL STREET, New York - February 1, 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: Schlumberger Limited (SLB), Halliburton Company (HAL), Basic Energy Services, Inc. (BAS), McDermott International Inc. (MDR), Helix Energy Solutions Group, (HLX), Oceaneering International, Inc (OII), Hornbeck Offshore Services, In (HOS), Helmerich & Payne Inc. (HP), Patterson-UTI Energy Inc. (PTEN), Atwood Oceanics Inc. (ATW), Diamond Offshore Drilling Inc. (DO), Ensco International Inc. (ESV), Transocean Ltd. (RIG), Exxon Mobil Corp. (XOM), Petroleo Brasileiro (PBR), Chevron Corp. (CVX), Total SA (TOT), Superior Energy Services Inc. (SPN), Hercules Offshore, Inc. (HERO)

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

TWST: Could you start with a snapshot of your coverage universe and maybe fill us into how the oil patch fits in there?

Mr. Keller: I'm one of two oilfield services analysts at Stephens. We cover about 30 companies, starting on the large-cap side, companies such as Schlumberger (SLB) and Halliburton (HAL), down to some of the smaller caps, including Basic Energy Services (BAS) and Pioneer Energy Services (PES). We also cover some offshore construction services names, including McDermott (MDR), Helix (HLX), Oceaneering (OII) and Hornbeck (HOS) of the world; land drilling companies such as Helmerich & Payne (HP) and Patterson (PTEN); as well as the offshore drilling group, including Atwood (ATW), Diamond (DO), Ensco (ESV) and Transocean (RIG). We've been covering the group for about three years here at Stephens, essentially ramping up over that period, but I think we're about built out to where we want to be on the coverage list.

TWST: What's your broad outlook for the industry as you look ahead to this year?

Mr. Keller: We broadly segment the industry into three parts: the North American or U.S. land and the companies that operate in that environment; global offshore, including the Gulf of Mexico; and then international markets. I think there are really two distinct pictures between the U.S. land and international, offshore markets.

On the U.S. land side, it's a muted or tepid outlook through the balance of this year. You've got divergent commodities, with oil prices that are supportive of higher activity levels and gas prices that are offsetting that. The other thing that you've got working against you from an oilfield services standpoint is the phenomenon of efficiencies. As you move past the exploration and delineation phase in many of these newer shale or unconventional basins, such as the Eagle Ford, the Bakken, and to a lesser degree the Permian, the E&P companies are really working to drive out costs via improved efficiency. You're seeing the rig fleet transform into a higher-spec rig fleet where drill times are meaningfully shorter. For example, we've seen E&Ps successfully cut Eagle Ford drilling programs from 30 days to under 20 days now.

Broadly speaking there has been a 10% to 15% increase in drilling efficiency throughout the industry. And it's not just happening at the land rig level but across other service lines as well. I think it's really going to take...

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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