Downside Risk to North American Deepwater-Levered Stocks if Recovery Fails to Materialize

Wall Street Transcript

67 WALL STREET, New York - February 27, 2013 - 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 and Equity Analysts. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Capital Expenditures and Consolidation Activity - Frontier Exploration and Development - Shale Drilling Capital Expenditures - Oil Price Expectations - Shale Drilling Dynamics - Shale, Offshore and Deepwater Drilling - Oil and Gas Price Divergence - Offshore Deepwater Oil Discoveries

Companies include: Halliburton Company (HAL), Schlumberger Limited (SLB), Baker Hughes Inc. (BHI), Weatherford International Ltd. (WFT), National Oilwell Varco, Incorp (NOV), FMC Technologies, Inc. (FTI), Cameron International Corporation (CAM), Oceaneering International, Inc (OII), Noble Corp. (NE), Ensco International Inc. (ESV), Rowan Companies Inc. (RDC) and many more.

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: Where are you pointing investors now? What are some of your favorite stories now?

Mr. Muztafago: Cameron is and has been our top pick in the equipment space since we initiated, and we're sticking with that. I think the company has gone through some real step changes in its business with the joint venture with Schlumberger, as well as developing its first integrated deepwater rig package. I think the company really is looking at rerating of its overall business. I think its market position has strengthened.

When you go to the services side, the only services company that we have "buy" rated right now is Schlumberger. It hasn't benefited as much from the run-up in the North American levered stocks, because it is more internationally levered, and internationally, pricing has still yet to turn the corner.

I think you have the potential to see an international recovery kick in as you get into the back half of the year, and I think that gives Schlumberger a lot of tailwind on a relative basis. They generate about 70% of their revenue from international, where Baker and Halliburton are a little closer to 45% or 50%.

TWST: What needs to happen for Schlumberger and their peers to get some more pricing power?

Mr. Muztafago: Internationally, I think what you need to see is a lot of the large equipment awards occur for these big offshore projects that have been tendered. There is a pretty identifiable lag effect between when the equipment awards are let, and when the services contracts are let. It's generally about 12 months, so once the equipment awards get let, you'll start to see more of the service contracts tendered, and that will tighten up pricing, I think, fairly quickly. Once pricing moves internationally...

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.

View Comments (0)