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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: Dennis Roth who wrote (125548)	11/17/2009 10:27:16 AM
From: Dennis Roth	1 Recommendation Read Replies (2) \| Respond to of 206184

Logging While Investing OFS Weekly Analysis Vertical Tour Take-aways 36 pages, 28 exhibits, 530 KB Link: sendspace.com Excerpt: Last week, Credit Suisse Energy Equity Research hosted its annual "Vertical Tour" in Houston. Some take-aways from our tour and other events of the week. U.S. land rig count still bodes positive. The tone from PTEN, RDC, and E&Ps on the tour was, not surprisingly, consistent with that of 3Q09 earnings calls: the rig count likely rises near term. The rig count growth is largely couched in technical success around E&Ps' key plays, although PTEN maintains the growth is coming from many plays/basins and is far more than just oily/shaley. Meanwhile, RDC expects its entire fleet of 19 high-spec land rigs to be contracted near-term (up from 16 rigs per the latest fleet status report). As it relates to service companies, we heard how the near term help from the rising rig count can be supplemented by improving costs bases; in SII's case from the greater cost absorption of re-ramping manufacturing and from lower line pipe purchasing cost as inventory has been sold (see our company note raising estimates published this morning). Asset sellers' list grows. Aside from continued concerns about natural gas production/price through 2010, the only "negative" with respect to the near term spending outlook are the growing list of U.S. land asset sellers. We had two representatives of this group on our tour, HK ($1B of planned sales that are very near their "core" areas) and SWN (unquantified). The longer list includes ECA ($1.5B planned sales), DNR($0.5B), RRC ($0.25B), CHK ($1-2B) and, outside of U.S. land, COP ($0.5-$1.0 upstream) and now DVN ($4.5-7.5B). Our point is churn can slow near-term spending, although not necessarily from this low a base and we acknowledge that especially in the case of DVN the implication is a sizeable uptick in spending in U.S. land. Completions techniques continue to evolve. U.S. E&Ps spoke of still lengthening laterals in some cases – NFX mentioned testing laterals up to 10K feet and thinks every 1K feet of lateral length adds 1 Bcf gross. SWN is lengthening laterals as well (expecting to to end up with 4,500-6,000 feet). HK seems to believe its Haynesville technique is largely set, while in the Eagle Ford the company is testing fewer frac stages (18 stages were said not to be cost effective) but with higher sand concentration and longer laterals. U.S. Offshore uptick—outlook strengthens. U.S. GoM rig count trends continue to trend positively, with 6 new commitments in the GoM last week and stepped-up inquiry levels, per our meetings with HAWK management last week in the Midwest. In the last 8 weeks, the jackup rigcount has moved from 18 to 24. RDC said that with the pick up in interest in the jackup market, $100K dayrates for ILCs may be possible. A reminder that we upgraded HERO last week largely on the back of this improving demand outlook for jackups and inland barges. The shallow GoM may (or may not) get a lift from some incremental demand in Mexico's shallow waters. RDC says the operating companies are pointing to a need for 15 units, but are seeking approval for an incremental 7-9 rigs in 2010. More deliberate Mexico observers might likely haircut that demand further, but as the budget is approved by month-end, we would suspect there is room for at least some additional spending offshore. Whether this offshore spending somehow comes from monies that were "allocated" to onshore in 2009 is yet to be seen – we see in the trade press today that an outstanding tender for southern onshore drilling has been canceled and the outlook for Chicontepec is still subject to at least weekly discussion. Delays continue, but FTI adds to its large subsea prospect list. FTI last week indicated the Petrobras manifold tender (12 manifolds, to be split into a package of eight and one of four) was experiencing delays as there is dissent within PBR of the ability to indeed standardize on the design. Otherwise, FTI remains encouraged about a resumption of order activity in the latter half of 2010 and beyond and it has added seven projects to its $150MM+, awarded-within-15-months prospect list including CVX's Lucapa field in Angola (28 trees), Gazprom's Shtokman field in Russia (20) and RDS's Prelude in Australia (14 trees). Our take on the group. As we have for some time, we remain wary of the U.S. landscape for much beyond a trade to take advantage of the very near term pick up expected in U.S. activity. But the global 2010 outlook for OFS continues to trickle more positive. As this earnings season appears to be demonstrating, including via the demand step-up witnessed in the jackup market, the tone on international spending is improving and we take greater confidence in an outlook of flat-to-modestly-up spending. The companies are generally exhibiting solid cost control, which lends itself to some upside bias to our generally still-below-the-Street estimates. However, we continue to struggle, with how much of this better outlook has been reflected in shares for some time and thus we remain very selective. In diversified service large caps, HAL (top pick) and SLB appear well positioned to outperform. And we continue to prefer free cash flow generative drillers with healthy deepwater exposure including RIG and NE.