Deepwater Drilling Services Exceed Expectations in Managing Opex: A Wall Street Transcript Interview with Trey Stolz, Managing Director of Oilfield Services Research for IBERIA Capital Partners

Wall Street Transcript

67 WALL STREET, New York - January 10, 2014 - The Wall Street Transcript has just published its Oil & Gas: Drilling Equipment and Services 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 - Bundled Oil and Gas Services - Oil and Gas Transportation Services - Dividend Yields for Energy Investors - Domestic Crude Prices - International Energy Opportunities

Companies include: Transocean Ltd. (RIG), Noble Corp. (NE), Diamond Offshore Drilling Inc. (DO), Helix Energy Solutions Group, (HLX), Hornbeck Offshore Services, In (HOS) and many others.

In the following excerpt from the Oil & Gas: Drilling Equipment and Services Report, an expert analyst discusses the outlook for the sector for investors:

TWST: When you spoke to us at the beginning of this year, you said one of the things you'd be watching for 2013 was how the deepwater drillers manage their expenses. How have they performed? Who's done a good job and who hasn't?

Mr. Stolz: Well, by and large the deepwater drillers have impressed on that front. On average that industry has exceeded expectation in managing opex for the year. In particular, a couple of names that stand out for me would be Transocean (RIG) recently, Noble Corp. (NE) and Pacific Drilling (PACD).

TWST: What have they done differently than some of their peers?

Mr. Stolz: It's been a little different I think for each of these companies. For example, Pacific Drilling is relatively new player on the block. They have a younger fleet, a lot of new builds, and frankly we did not expect them to do as well as they had. Not that we were expecting them to have issues while operating efficiently, but generally when you have bigger rigs you go through shakedown periods, you have got a lot of the efficiency you built into over time. As crews get more familiar with equipment, you get accustomed with what spare parts inventory you need to maintain.

But Pacific Drilling really has come out of the gates - come along pretty well, and the last few quarters have suffered very, very few downtime days across the fleet, and it's been very impressive in that has resulted in not only better revenue from missing fewer days of operations but lower opex, as well as lot of times when there are issues and maybe little repairs or things that need to be done, that will pass through the operating expense line of the P&L. And Pacific Drilling has really surprised on that front.

When you look at some of the other companies, the bigger companies, more established like Noble and Transocean, I think part of the outperformance can be due to the fact that these companies, ever since Macondo, really haven't been able to forecast very accurately what they are going to be dealing with, because you are dealing with lower tolerances from new clients. They will put rigs half a rate, making them stand down for any kind of situation or issue on pressure control equipment or on anything that I guess could be perceived as a problem mechanically. So with that said, perhaps guidance has been a bit conservative from the standpoint of the companies and setting expectations somewhat low. But I don't think there is anything sinister to that, just that it's been a learning process in the new environment post-Macondo.

That said, both of those companies have impressed and done a better job of avoiding downtime, of avoiding costly lost days and higher expenses. For example, Noble has a SWOT team that is deployable worldwide to their fleet; they can address equipment issues, with spare parts, with on-site repairs...

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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