A Wall Street Transcript Interview with Robert Connors of Stifel, Nicolaus & Co., Inc., Covering the Engineering & Construction and Oilfield Equipment Sectors: Downstream Oil & Gas E&C Capex Grows to Profit from Cheaper Domestic Crudes

Wall Street Transcript

67 WALL STREET, New York - January 6, 2014 - 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, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Oil Price Expectations - Shale, Offshore and Deepwater Drilling - Unconventional Resources - Bundled Oil and Gas Services - Oil and Gas Transportation Services - Dividend Yields for Energy Investors - Domestic Crude Prices - International Energy Opportunities

Companies include: Dresser-Rand Group Inc. (DRC), FMC Technologies, Inc. (FTI), Fluor Corporation (FLR), Dow Chemical Co. (DOW) and many others.

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: Can you begin with an overview of your coverage of the oilfield services sector, including the specific names you follow?

Mr. Connors: The majority of what I cover are the petroleum-related engineering and construction stocks. They specialize in the construction of downstream facilities, so refineries, petrochemical facilities and LNG facilities. The two oilfield equipment names that I cover are Dresser-Rand (DRC), a provider of equipment across the whole spectrum of up, mid and downstream of compression equipment and turbines in the oil and gas field sector, and also FMC Technologies (FTI), which provides a lot of the subsea infrastructure for deepwater offshore oil and gas fields.

TWST: You have "hold" ratings on both of your oilfield services companies. What are some of your key concerns about the sector, and what changes could be catalysts for you to consider upgrading either or both stocks?

Mr. Connors: In a lot of the work that I've done, I see at this point what I consider a structural shift into where some of the oil and gas capex is going to. For the past three to four years, it's been pretty strong on the upstream side of the business and what we're going to start to see, I think, is a reacceleration within the downstream capex side of things particularly as it relates to North America. That involves monetizing the spread between international crude and liquid prices and very cheap domestic natural gas and NGL prices.

So my "buy" ratings are concentrated within the E&C names, because I see downstream spend rates catching up and accelerating from here. There is some exposure into that. I mean, people forget that Dresser-Rand was at one point 40% to 50% exposed to North America refining and chemicals. But where we're at in the cycle, a lot of the E&Cs first need to start booking up a lot of the work, and then Dresser-Rand - you'll see their backlog begin to fill up. So it's a timing aspect.

TWST: What are your thoughts on Subtech adding aftermarket and service capabilities? Is it something you think they should do and can do successfully?

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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