Offshore Drillers Trade at Lower Beta: Larger Backlogs Than Historically for These Oil and Gas Companies

Wall Street Transcript

67 WALL STREET, New York - March 7, 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 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: Drilling Equipment and Services Report, an expert analyst discusses the outlook for the sector for investors:

TWST: Is there a lot of variation in the valuation levels?

Mr. Muztafago: Yes, there is. When you look at what people might consider to be the pure play proxies - the FTIs and the Oceaneerings of the world, where you can tie very large portions of their earnings stream to deepwater secular growth - they tend to trade at substantially higher multiples than the more North American-centric companies. Those would be Halliburton, Baker Hughes and, to a lesser extent, National Oilwell Varco, that have large components of its revenue come from North America. These companies tend to trade at much lower valuations.

The offshore drillers do tend to trade at fairly steep discounts to what they have historically, but I think that's largely warranted, because those companies have multiple times the backlog levels than they used to many years ago; they no longer have what you might consider to be the ephemeral earnings leverage to changes in day rates. I think they trade more like capital equipment companies than they do higher beta stocks now, and I think that continues going forward.

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...

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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