Edward C. Muztafago, Vice President of Investment Research at Societe Generale, Interview with The Wall Street Transcript: Oil E&Ps Globally Shift Toward Integrated Servicing

Wall Street Transcript

67 WALL STREET, New York - July 2, 2013 - The Wall Street Transcript has just published its Oil & Gas Review 2013 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: Increasing Demand for Midstream Assets - U.S. Energy Infrastructure Build Out - Emerging Shale Plays - Oil and Gas Transportation Infrastructure Demand - Master Limited Partnerships Distribution Growth - Outlook for Natural Gas Liquids - Low Treasury Yields and MLP Dividends

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 Corporat (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 Review 2013 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 and you hear commentary that more widespread pricing improvement has kicked in that will be a catalyst for the stocks.

In North America, as I mentioned, it will be the recovery staying on track, as well as pricing bottoming. Certainly, a movement north in terms of pricing would move the North American-levered stocks higher, but we really don't see that until perhaps the second half of 2014. North America is still significantly overcapacitized, and even the 100 to 150-rig improvement that many of the service companies have been looking for in North America, in our mind, isn't enough to actually turn pricing the other way.

TWST: Who else do you like at this point?

Mr. Muztafago: Among the offshore drillers, our top pick is Noble Corp. Noble has...

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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