瑞信-美股-石油服务与设备行业-石油服务与设备的重生-2019.12-212页.pdf

Oilfield Services&EquipmentOilfield Services&Equipment Rebirth:Separating the Wheat Rebirth:Separating the Wheat from the Chafffrom the Chaff DISCLOSUREDISCLOSURE APPENDIXAPPENDIX ATAT THETHE BACKBACK OFOF THISTHIS REPORTREPORT CONTAINSCONTAINS IMPORTANTIMPORTANT DISCLOSURES,DISCLOSURES,ANALYSTANALYST CERTIFICATIONS,CERTIFICATIONS,LEGALLEGAL ENTITYENTITY DISCLOSUREDISCLOSURE ANDAND THETHE STATUSSTATUS OFOF NONNON-USUS ANALYSTSANALYSTS.US Disclosure:Credit Suisse does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.Equity Research United States Jacob Lundberg Senior Research Analyst(212)325-6785 Jacob.Lundbergcredit- Radi Sultan,CFA Research Associate(212)538-8137 Radi.Sultancredit- December 2019 1 Executive Summary:N-T Trends Favor Intl&Offshore We outline our view on the OFS space and our stock selection framework.We roll out refreshed company models and unit economic models for land rigs,pressure pumping,and offshore rigs in addition to an interactive project-level LNG equipment model.US Market Faces Significant Headwinds,Making Stock Selection Important.The US market outlook continues to deteriorate driven by anemic oil prices,US E&P capital discipline,and efficiency gains.On the current futures strip,it appears likely that 2020 and 2021 see y/y contractions in US E&P spending.We model-10%(roughly 50/50 activity/price)and-5%(all activity driven,flat pricing).Among US OFS,we prefer high-quality and low leverage with idiosyncratic tailwinds(WHD,PUMP,SOI with avg YE20 net debt/NTM EBITDA of-0.8x),while we prefer to avoid those with leverage(NBR,PTEN,FTSI,NINE with avg YE20 net debt/NTM EBITDA of 2.5x).Intl/Offshore Show Signs of Growth.While the US market languishes,intl and,increasingly,offshore,show signs of growth.The intl rig count(ex-Ukraine gas rigs)YTD is tracking up 6%y/y(Baker Hughes)with recent Argentina weakness a 50bps drag.Intl YTD revenue growth for BKR/HAL/SLB is tracking 8%/10%/6%.Management,while hesitant to be precise,have largely endorsed mid-single-digit growth in intl markets in 2020(BKR explicitly stated mid-single digit or higher).On Wood Mackenzie data,of$50B of projects sanctioned in 1H19,$33B relate to deepwater led by Brazil,Guyana,and Mozambique.We are tracking a further$120B of potential 2019 sanctions,of which$35B is deepwater and$11B is shallow.For exposure to intl/offshore strength,we like BKR and RIG.LNG Cycle Uniquely Benefits BKR Among Our Coverage.We expect robust LNG sanctioning activity to continue.After a brief hiatus in 2016/17,which saw 8/3Mtpa of FIDs vs a 2004-15 median of 23Mtpa,FIDs picked up in 2018(21Mtpa)and have since surged.On Wood Mackenzie data,YTD FIDs represent 63Mtpa.We are tracking projects that represent an incremental 70Mtpa of capacity(largest contributors are Qatar,Rovuma,and Driftwood).In our coverage,this growth trend uniquely benefits BKR,which we estimate to have 85%market share of turbomachinery equipment in the LNG setting.On the Current Strip,We See Modest Further Negative Earnings Revisions.Our work implies that we need to see modest negative consensus earnings revisions.Across our coverage,our 2020/21 EBITDA forecasts are 5%/10%below consensus.We are closest to consensus in the pressure pumper group and our models imply the most aggressive consensus cuts need to occur among the Offshore Drillers(mostly DO).Over the past two years,on a y/y basis,SLBs and HALs share prices(used as proxies for the group)have exhibited 0.7/0.6 correlations to y/y changes in 2020 consensus EBITDA.We think these revisions will drive equity underperformance.Where Could We Be Wrong/What Could Change?We are keeping a close eye on US production.The principle pushback that we hear from investors with a more positive outlook is that,in light of the significant decrease in US oilfield activity seen YTD in 2019 and those expected in 2020,there surely must be a production impact that can contribute to balancing global oil markets.A materialization of this risk represents upside risk to crude oil and our Oilfield Services earnings forecasts.Furthermore,we are tracking expectations for 2020 intl/offshore growth.Any negative revision to growth expectations represents downside risk to our forecasts.2 Executive Summary:N-T Trends Favor Intl&Offshore Refreshing Ratings,Price Targets,and Estimates across OFS.In the industry note,we are updating estimates and price targets across our coverage.We are downgrading RES and PTEN to Underperform from Neutral.We are downgrading NBR and NINE to Neutral from Outperform.Last,we are upgrading RNGR to Outperform from Neutral.We are also initiating on NEX with a$6 target price and Neutral rating(Link to Report)following CJs(previously covered)merger with FRAC(previously uncovered).Our earnings forecasts and ratings contemplate FY20/21 US spending-10%/-5%and intl spending+5%/+5%.Our 2020/2021 EBITDA forecast is on average 5%/10%below consensus(FactSet)across our coverage.See our note here for full details.Stock Selection Important in Light of Macro Headwinds.Given continued headwinds pressuring the US market in 2020(E&P capital discipline and efficiencies,principally)coupled with continued(albeit modest and declining)growth in international markets against a macro backdrop seemingly fraught with risks,we favor high-quality(strong,persistent,and improving returns)and low leverage with an international/offshore bent and a wide margin of safety.Our top picks are:Baker Hughes(Outperform),ProPetro(Outperform),and Diamond Offshore(Underperform).Time to Pay Attention Again.Taking a step back,we leverage our proprietary HOLT market-implied returns data to analyze the current state of OFS in its larger historical context.The long-term CFROI for large-cap Oilfield Services is 8%.However,the OFS industry is coming off a capex super cycle(global upstream spending grew at a 14%CAGR from 2000 to 2014 vs its long-term median of 7%)that drove outsized corporate returns(10%)and an over-capitalization of global service capacity from which the industry is still recovering.However,according to our HOLT team,large-cap OFS is currently discounting 6%CFROI,a 200bps discount to the long-term median.We see this repricing of the sector as a necessary,but insufficient clearing event to make the space investable.Given the aforementioned macro headwinds,we are not out of the woods yet.But it is time to pay attention again to a sector that has been strongly out of favor for the better part of the past five years.3 Source:Thompson Reuters,Credit Suisse estimates Ratings&Material Changes 4 US OFS Market to Remain Challenged Through 2020 Source:Credit Suisse,the BLOOMBERG PROFESSIONAL service,Baker Hughes,Rystad Energy Shale Intel,Primary Vision US Rig Count Y/Y Growth Has Been Slowing Since 2018&Turned Negative in 2Q19 With a Similar Trend on Frac Spreads We Model Continued Rig Count Declines for the Next Two Years as with Horsepower Demand Note:Figures for 4Q 2019 are YTD 5 Drilling Efficiencies Pressuring the Rig Market Source:Credit Suisse,the BLOOMBERG PROFESSIONAL service,Baker Hughes,Primary Vision,Rystad Energy Shale Intel Average Lateral Lengths Have Continued to Increase but Rigs Are Drilling Faster Pad Size Is Increasing(at Slowing Rate of Change)Aiding in Rigs Drilling Wells Faster&Faster 0%2%4%6%8%10%12%01,0002,0003,0004,0005,0006,0007,0008,0009,00010,00020112012201320142015201620172018201920202021Total Average Hz Lateral Lengthy/y change-20%-18%-16%-14%-12%-10%-8%-6%-4%-2%0%0.01.02.03.04.05.06.07.0201120122013201420152016201720182019Drilling Days per 1,000 Feety/y change0%1%2%3%4%5%6%7%2.12.22.32.42.52.62.72.82.92013201420152016201720182019Average Well Pad Sizey/y change-20%-15%-10%-5%0%5%10%0.05.010.015.020.025.030.035.020112012201320142015201620172018201920202021Total Hz Rig Days per Hz Well Spudy/yNote:2019-21 are Rystad Energy estimates 6 And We See Similar Trends in Completions Source:Credit Suisse,the BLOOMBERG PROFESSIONAL service,Baker Hughes,Primary Vision,Rystad Energy Shale Intel Despite Lateral Length Continuing to Grow&Stages per Well Continuing to Increase Alongside Increased Proppant Loadings Horsepower Demand Normalized for Well Size Has Been Falling 0%2%4%6%8%10%12%01,0002,0003,0004,0005,0006,0007,0008,0009,00010,00020112012201320142015201620172018201920202021Total Average Hz Lateral Lengthy/y change0%2%4%6%8%10%12%14%16%05101520253035404520112012201320142015201620172018201920202021Total Stages per Hz Welly/y-10%-5%0%5%10%15%20%25%0.00.20.40.60.81.01.21.420112012201320142015201620172018201920202021Total Frac Sand Demand per Hz Foot(Tons)y/y-20%-15%-10%-5%0%5%10%15%20%0.0000.0200.0400.0600.0800.1000.1200.1400.16020112012201320142015201620172018201920202021Total HHP per Lateral Footy/yNote:2019-21 are Rystad Energy estimates 7 Gas Underperforming Oil Since 2018,Set to Continue Source:Credit Suisse estimates,Baker Hughes,The Gas Rig Count Has Been Underperforming the Oil Rig Count Indexed to 4Q17 the Oil Rig Count Is-10%vs Gas-26%Which We See in E&P Capex Data And Looks Set to Continue into 2020-20%-15%-10%-5%0%5%10%0200400600800100012001Q182Q183Q184Q181Q192Q193Q194Q19 toDateOilGasGas Q/QOil Q/Q607080901001101201304Q171Q182Q183Q184Q181Q192Q193Q194Q19 toDateGasOil-13%-6%-29%-15%-35%-30%-25%-20%-15%-10%-5%0%20192020US Capex Ex-Majors,Ex-Gas WeightedGas Weighted-50%-40%-30%-20%-10%0%10%20%30%02,0004,0006,0008,00010,00012,00014,00016,00018,00020,0001Q182Q183Q184Q181Q192Q193Q194Q19US Capex Ex-Majors,Ex-Gas WeightedGas WeightedOil Weighted Q/QGas Weighted Q/QNote:2019 and 2020 are CS estimates 8 Near-Term Trends Favor Intl Source:Credit Suisse estimates,Baker Hughes Rig Count,Wood Mackenzie The Intl Rig Count Continues to Grind Higher Which We See in HAL+SLB Intl Revenues FIDs Showing Positive Momentum(Even if Some Project Sanctioning Activity Slips into 2020)Potential Future FIDs Look Strong As Well(20%)(15%)(10%)(5%)0%5%10%02004006008001,0001,2001,4001,600201420152016201720182019LatAmEuropeAfricaMiddle EastFar Easty/y-25%-20%-15%-10%-5%0%5%10%05,00010,00015,00020,00025,00030,00035,00040,00045,00050,000201420152016201720182019(ann)HAL+SLB(USD M)growth47,692 87,301 74,934 157,383 44,369-20,00040,00060,00080,000100,000120,000140,000160,000180,00020152016201720182019Intl FIDsWoodmac Expected 19 FIDs$120B of potential 19 FIDs 265,925 94,537 151,338 21,663 5,997 2,860-50,000100,000150,000200,000250,000300,000202020212022202320242025North AmericaIntlNote:2019-25 are Wood Mackenzie estimates 9&Offshore Source:Credit Suisse estimates,Baker Hughes Rig Count,Wood Mackenzie,IHS Petrodata Offshore Rig Activity Has Been Grinding Higher by All Measures.Translating into Strong Utilization Gains in Core Offshore Submarkets(High-Spec Jackups and Drillships)Jackup Fixture Activity Continues to Look Strong.While Floater Fixtures Have Been Better,but Slow to Move 50607080901002013201420152016201720182019Premium JU Utilization7G UDW Utilization3004005006007008002013201420152016201720182019Total Contracted RigsTotal Working Rigs16999494969841000204060801001201401601802013201420152016201720182019 EFloater Fixtures(Years)3392722071482172882510501001502002503003504002013201420152016201720182019EJackup Fixtures(Years)10 LNG Offers Secular Growth Source:Credit Suisse estimates,Wood Mackenzie YTD 2019 LNG FIDs Are Strongest Year in Our Dataset and Set to Continue to Robust Levels CS Forecasts 180Mtpa Demand Growth(5%CAGR)2018-28 Asia Drives Outsized Demand Growth&China Represents 40%of Asia Demand -10 20 30 40 50 60 702004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019YTD*MtpaLNG FIDs01002003004005006007008009002010A2012A2014A2016A2018A2020E2022E2024E2026E2028E2030EMTPA Producing Construction Possible SpeculativeDemand base41 17 14 11 9 7 6 6 4 1(10)(20)(10)01020304050MtpaAsia Incremental 2018-28 LNG Demand by Country11 Strong Correlation Between Earnings Revisions and Share Price Performance Source:Credit Suisse estimates,the BLOOMBERG PROFESSIONAL service SLB Y/Y Share Price Performance Exhibits a 0.6 Correlation to Changes in EBITDA Consensus and HAL Shows a 0.7 Correlation We Expect Continued Negative Earnings Revisions Across Most Groups -10 20 30 40 50 60 70 80-2,000 4,000 6,000 8,000 10,000 12,000 14,000Oct-17Jan-18Apr-18Jul-18Oct-18Jan-19Apr-19Jul-19Oct-19SLB 20 Cons EBITDAShare Price-10 20 30 40 50 60-1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000Oct-17Jan-18Apr-18Jul-18Oct-18Jan-19Apr-19Jul-19Oct-19HAL 20 Cons EBITDAShare Price2%(1%)(1%)(2%)(2%)(5%)(12%)(16%)(18%)(16%)(14%)(12%)(10%)(8%)(6%)(4%)(2%)0%2%4%Pressure PumpingLand DrillingManufacturingCompletion/ProductionLC OFSCoverage AvgOffshore DrillingOther Completions12 Rate of US Production Growth Slowing Source:EIA,Credit Suisse estimates Our E&P Team Models US Production Growth Continuing to Moderate After Having Peaked in Late 2018-1,000-50005001,0001,5002,0002,50002,0004,0006,0008,00010,00012,00014,00016,0001Q163Q161Q173Q171Q183Q181Q193Q191Q203Q201Q213Q211Q223Q22Total US ProductionY/Y Change13 Top Picks:Baker Hughes,ProPetro,Diamond Offshore TickerNameRatingPricePrice TargetUpside/DownsideElevator PitchBKRBaker HughesOutperform$22.4$28.025%PUMPProPetroOutperform$8.6$14.062%DODiamond OffshoreUnderperform$5.7$4.5-20%BKR is the most diversified large-cap OFS name(60%upstream)&has a dominant position in the LNG equipment market(85%market share),which is in a secular growth cycle.We expect idiosyncratic tailwinds from OFS margin expansion as well as growth in the Digital business.We recently spent time with C3.ai leadership and see the offering(C3-BKR-Microsft)as significantly advantaged vs peers.Despite the long tail of high-margin service work associated with recent LNG equipment orders,the stock currently trades in line with HAL and a 2.5x discount to SLB on 2021 EBITDA.PUMP is a pure-play Permian(advantageous 2020 capex outlook vs broad market),best-in-class(best historical returns,utilization,and profitability)pressure pumper.Shares currently trade at a discount vs peers(2.5x 21 EBITDA vs group at 3.5x;implied normalized EBITDA/spread(ex-Durastim)of$9M vs group at$10M).In stark contrast,we expect much of PUMPs core customer(Parsley,Pioneer,Exxon)base to grow capex in 2020 y/y vs the broad market at-10%y/y,which should drive significant outperformance in results vs peers.DO is the most expensive offshore driller on a relative valuation basis(implied DR of$360k vs CSe group avg$300k)with the least favorably positioned fleet(most exposure to midwater which has the least upside and slowest rate of improvement),most downside to consensus 2020/21 estimates(CSe-50%/-33%downside,respectively)and a deteriorating liquidity/balance sheet position(at 22x/17x FY19/20 NTM Net Debt to EBITDA,respectively)which should leave it as the worst positioned offsh