NorthAmericaEquityResearch13December20192020OilServices&EquipmentOutlookYouCanOnlyReapWhatYouSow;CashHarvestingCycletoSorttheWheatfromtheChaffOilServicesandEquipmentSeanCMeakim,CFAAC(1-212)622-6684sean.meakim@jpmorgan.comBloombergJPMAMEAKIMJ.P.MorganSecuritiesLLCDanyelJDesa(91-22)6157-3301danyel.j.desa@jpmchase.comJ.P.MorganIndiaPrivateLimitedAndrewPHerring,CFA(1-212)622-8585andrew.p.herring@jpmorgan.comJ.P.MorganSecuritiesLLCCoreyMergenthaler,CFA(1-212)622-1167corey.mergenthaler@jpmchase.comJ.P.MorganSecuritiesLLCSeepage231foranalystcertificationandimportantdisclosures,includingnon-USanalystdisclosures.J.P.Morgandoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.www.jpmorganmarkets.com“Youmustneverconfusefaiththatyouwillprevailintheend–whichyoucanneveraffordtolose–withthedisciplinetoconfrontthemostbrutalfactsofyourcurrentreality,whatevertheymightbe.”–TheStockdaleParadoxOursupply-driven,range-boundoilthesisappearsincreasinglyconsensus.Forthethirdconsecutiveyear,theOilServicessectorispoisedtolagthebroadermarketby35-40%,anditsrelativevaluev.theS&Phasshrunkby-85%since2014.Fiveyearsintoourbearishcallonthestocks,ourattentionisshiftingawayfrom“howlow”canthestocksfallto“howlong”untilfundamentalsshifttosupportaproperupcycle.Twoyearsagowecalledoutthesector’sstructuralnegativeearningsrevisions(“AWatchedPotNeverBoils”)inthiscycleofabundance(ofbarrels,equipmentandcapital).Lastyearwehighlightedthathalfadecadepast2014’speak,multiplecompressionwasunderway(“BetweentheDevilandtheDeepBlueSea”).Lookingahead,wethinkarolloverinshaleproductivityisthefirstfundamentalsteptowardsthestocksbecominginvestableagain(amultiyearprocessinourview);aswedetailinside,shale’snotquitethereyet.Inthemeantime,withanemicE&Pspendingglobally,aidedbytech-inducedseculardeflation(cost/...
