The Wall Street Transcript Exclusive Interview: Increased Capex In Oil And Gas Expected In 2012 - Philip Weiss - Argus Research Group

67 WALL STREET, New York - January 19, 2012 - The Wall Street Transcript has just published its Oil & Gas: Refining, Independent and Major Integrated 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: Narrower Trading Range for Oil and Gas - Capital Expenditures and Consolidation Activity - Refining Crude Price Differentials - Frontier Exploration and Development

Companies include: Enterprise Products Partners (EPD); Aker (ASKO.OL); Anadarko (APC); Apache (APA); and many more.

In the following brief excerpt from the Oil And Gas Special Report, expert analysts discuss the outlook for the sector and for investors.

Philip Weiss is a Senior Analyst, who has been covering the energy sector since June 2006, at Argus Research Group. Before joining Argus, he worked as a Senior Institutional Writer for T. Rowe Price, where he wrote commentary for several of the firm's investment strategies and white papers on investment-related topics. He has a B.S. degree from Rutgers, The State University of New Jersey. He is a CFA charterholder, is a CPA in the state of New Jersey and is also a Member of the Baltimore Society of Security Analysts.

TWST: Looking at all of the companies you cover, what are your top two or three picks in this space right now and why?

Mr. Weiss: I'm going to start with ConocoPhillips. ConocoPhillips is a company that's going to split in two sometime in the second quarter. So it's going to have a separate upstream and downstream business. The announcement that they're going to split in two was proceeded by the beginning of a restructuring plan. The restructuring plan is a key part or a key element here because of what the company is doing. They talk about this kind of shrink-the-growth strategy, and so right now, I think production fell around 10%, 11% in the third quarter. But that's a lot about just projections and things like that. But the key thing to remember was its disposition program and where they're allocating their future capital is that they are getting rid of kind of the least profitable asset that they have in terms of profitability at a unit basis and they are putting all their money, or the bulk of their money, into those projects that deal with the best returns.

This is a company that - it's target over five years is to produce at least 4% production growth but then also 3% or 4% growth through better margins and then they are buying back shares to get another 3% to 4%. So if all those goals are achieved, you can see pretty big benefits from margins and per share production growth and things like that from this company over the next several years, which I don't think is fully appreciated by investors.

The second one I'm going to highlight will be Noble Corp. (NE), which is a rig company. In my view, they are doing a better job of managing and navigating the post-Macondo world and Transocean, which we talked about earlier. They do have a pretty aggressive new growth program going on. The one thing that does get little bit of a positive effect, they don't have contracts in place for these new builds, but what we are seeing is, I think, it's best seen in this post-Macondo world, there is somewhat of a bifurcated market, where operators are looking for mostly highly technical rigs. The new rigs will meet all of the technical needs of the operators. I think that they've been able to do this while the company's leverage has increased from pre-Macondo days, then they made the Frontier acquisition at a good price.

I think what Transocean paid for Aker to help increase the position. It also solidified the relationship with Shell. They didn't overpay for that. That helped add new rigs to its fleet, increase the deepwater presence, but they really did not expect jackups for building ultra-deepwater rigs, so they're going to have a bigger presence in those markets, which I think are important to cut this leverage. It's still reasonable, it hasn't leveraged. So what it's really doing is unlike what you typically see in this industry. It's adding business and capacity. It's adding to its fleet when the market is not as strong so that when the market gets better, which I think is going to happen, because I think that if you look around the world, there are so many offshore opportunities that it's going to be really well positioned because it's really going to have rigs in place when we hit the next upcycle as opposed to those that are maybe looking to build.

That's something that we see with Transocean too is that it's fleet is a little bit older, even it's ultra-deepwater fleet is older than what Noble's is going to be. So that's one of the things that's made it more difficult for Transocean to get through this post-Macondo world with increased standards. I think we'll go with Halliburton (HAL). Halliburton is a services company. It's got the leading position in the U.S., the onshore in these unconventional plays. I think that it's got opportunities over the next couple of years or the next few years to take that same expertise and knowledge and leadership position and use it to its advantage in places like Argentina and Poland, and ultimately, China. I think that Iraq is going to be better for this. Right now, to me Iraq looks better for the service companies than it does for the operators because of the terms of the contracts we're seen so far.

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.

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