Investment summary
A seismic downturn is looming, but operators are better placed
than in previous cycles – cash-rich & able to rationalise capacity
Well services already heading south, but cost-cuts could make
2009 the trough for margins; main risks for US activity from LNG
Prefer CGGVeritas / PGS and Cameron / TGS – but a reasonable
recovery already priced in at Fugro, FMC and Schlumberger
In the minds of many observers, oilfield services
is a sector that swings rapidly (and frequently)
between financial mediocrity and excess. We
don’t think this is appropriate for the entire sector,
but it is certainly coming true for the shorter cycle
businesses like seismic, which is facing vessel
oversupply in H2 2009, and onshore well services
and equipment, which is already well into its own
down cycle. But with oil moving to USD60/bbl,
share prices have in recent weeks reflected a
decidedly “glass half full” view on the world.
In some cases, we feel this has moved a little
ahead of some fundamentals – hence our
downgrades of Fugro and FMC, and neutral view
on Schlumberger - in others, we see hints that the
trough is just starting to become visible,
particularly in seismic. With substantial upside to
our fair value, we think investors should look
more closely at seismic in the coming months.
What’s different this time in seismic – this has
been a fairly regular “boom & bust” industry ever
since its inception in 1920. But although a
downturn is looming, we think the industry is
better-placed than in previous cycles. The
companies have cash (between 15-25% of their
current market values), the main players have
absorbed most new entrants (75% of the marine
market is in the hands of the “big three”), we
think the industry will rationalise capacity quickly
(we see 22% of marine capacity out by mid-2010,
roughly in line with our expectations for activity
declines), and we see an improved business mix
(more non-exploration work in high-end 4D /
complex azimuth). Visibility of the trough
remains the key, but there are datapoints on the
horizon – activity is improving in multiclient and
land seismic, and marine tendering activity is
picking up, albeit at low levels of profitability.
Another seismic update, another seismic
downgrade – we’ve effected 2 major downgrades
of our forecasts for seismic in the last 6-9 months,
and this third cut is just as material, taking around
25% off earnings for 2010e (for some it looks
worse due to the already lowered earnings base
for 2010e). But given current seismic activity, we
think we are not too far from sighting the trough
of this cycle - further near-term downgrades are
likely to be met with multiple expansion, not
share price downside. With recovering oil prices
and seismic capacity cuts, we think an “up year”
for seismic in 2010e is not out of the question.
目录
Investment summary 3
Short cycle industries 5
Short cycle themes 5
Short cycle share prices 6
Short cycle services: relative views and relative
positioning 6
Seismic – is it different this time? 7
In the event of a recovery . . . 9
Industry outlook - seismic 13
Activity in contract marine seismic 14
Activity in multiclient marine seismic 14
High-end seismic - the ups and downs of complex
azimuth work 16
Activity in land seismic 19
Land seismic technology trends 21
Activity in seismic equipment 22
Updating our “synthetic seismic” scenario analysis 26
What this means for our forecasts 28
A seismic fleet update for 2009 31
Industry views – well services 39
Developments in Q1 2009 40
The issue with natural gas 42
The offshore trend 44
Short cycle companies 46
Short cycles over the cycle 47
The importance of oil prices 49
CAMERON 53
Cameron – assumptions for 2009 54
Cameron’s subsea story 56
Cameron – views on valuation 58
CGGVeritas 61
Some views on valuation 64
FMC TECHNOLOGIES 66
FMC’s subsea story 68
FMC – Views on valuation 70
FUGRO 72
Some views on valuation 75
PGS 77
Some views on valuation 80
SCHLUMBERGER 83
Schlumberger – main assumptions 84
International OFS markets outlook 86
Schlumberger’s business portfolio 87
TGS NOPEC 94
Some views on valuation 96
Valuations & risks 99
Company financials 109
Disclosure appendix 160
Disclaimer 163
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