Fractioning Optimization Using Microseismic and Data Suites Causing Shifts in Oil Services Market Toward Large Integrated Services Companies

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: Who else do you like at this point?

Mr. Muztafago: Among the offshore drillers, our top pick is Noble Corp. Noble has had a number of issues with execution in terms of bringing newbuild rigs into the market and getting them to operate smoothly. If you go back to past newbuild cycles, we saw this with many of the rig companies. Generally, it takes several quarters to work through these newbuild efficiency issues.

I think as Noble works through those issues, and the fact that the stock has been so heavily discounted due to the cost associated with newbuild downtime, some of the valuation discrepancy will go away. The stock has been a pretty solid performer since we initiated about a month and a half ago, but on a valuation basis it still trades at a pretty decent discount to its peer Ensco, and an even greater discount to its peer Rowan.

We also have Ensco "buy" rated. I think Ensco is probably one of the highest quality drillers in the subsector, and they have by far the youngest rig fleet of the three we cover. They have had a fairly good success at not encountering execution issues with their newbuilds, and it's largely been through doing it a bit more of a standardized rig design than what the other drillers have typically done.

We do have Rowan "hold" rated, and I think the issue with Rowan is really just the fact that valuations have run up a lot, and there are some real concerns about a lot of un-contracted high-spec jackup supply coming into the market this year and next year. I think you could see day rate momentum for the shallow water rigs stall out a little bit as these newbuilds come in and try to find work, and that could act as a relative headwind versus the other companies. Day rates remain strong...

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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