Gregory Lewis, Senior Research Analyst at Credit Suisse Group: When Investing in Oilfield Services, Evaluate the Overall Rig Supply Versus Demand and Keep an Eye on Supply of New Rigs

Wall Street Transcript

67 WALL STREET, New York - July 10, 2014 - The Wall Street Transcript has just published its Oil & Gas Review 2014 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: Oil & Gas Review 2014

Companies include: Total SA (TOT), BP plc (BP), Rowan Companies Inc. (RDC), Gulfmark Offshore Inc. (GLF), Noble Corp. (NE), Transocean Ltd. (RIG) and many more.

In the following excerpt from the Oil & Gas Review 2014 Report, an expert analyst discusses the outlook for the sector for investors:

TWST: For investors looking at the space, what do you think are the most critical factors they should be evaluating?

Mr. Lewis: Investors should be evaluating the overall rig supply versus demand. The supply/demand balance will drive the direction of day rates.

Thinking about it more granularly, things such as increased permitting in offshore basins is something to keep an eye on. For instance, later this year Brazil is going to be putting up blocks or areas offshore for bidding to international oil companies. If permitting increases, eventually that should translate to increased offshore activity.

I would also keep an eye on the supply of new rigs coming to the market. I think one of the issues impacting 2014, and part of the reason we have hit a soft patch, is that we see a pickup in new rig deliveries; however, over the next two years supply growth slows.

TWST: Is there anything else dominant in this space that we should be watching?

Mr. Lewis: Beyond oil prices and capex by the customers, which is out of the control of contract drillers, the one thing an offshore driller can do is focus on operational performance and its shareholders. Rig efficiency is an area where a company can maximize the earnings power of its fleet, which should have a positive impact on earnings.

Also, capital efficiency is also key to the success of these companies. The offshore drilling sector is a cyclical business, and maximizing returns on capital will be a focus over the next two years. Finally, despite day rates, many of the offshore drilling companies will generate a lot of cash over the next two years, and their decisions to pay dividends, buy back stock or order...

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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