23 January 2009
European Oil Services
Clean slate
Christyan Malek
Research Analyst
(44) 20 754 58249
christyan.malek@db.com
Lucas Herrmann, ACA
Research Analyst
(44) 20754 73636
lucas.herrmann@db.com
Jonathan Copus
Research Analyst
(44) 20754 51202
jonathan.copus@db.com
Not all boats rise with the same tide: top picks Saipem and Amec
Points of differentiation that would have arguably gone unnoticed last year are
now key to an oil service company's ability to outperform in an industry that is set
to become more challenging mid-term. We have developed a framework that aims
to 'test' every company data point accessible to us; against which we reveal
Saipem and Amec to demonstrate sector leading characteristics.
Deutsche Bank AG/London
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, 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. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1.
Strategy Update
Key changes (ratings unchanged)
Rating/TP changes From To
Acergy - TP NOK 90 NOK 40
Aker Solutions - TP NOK 85 NOK 40
Amec - TP 760p Unch
Lamprell - TP 400p 285p
Petrofac - TP 500p Unch
Saipem - TP EUR 22 EUR 15
Seadrill - TP NOK 170 NOK 120
Subsea 7 - TP NOK 100 NOK 50
Technip - TP EUR 55 EUR 30
Tecnicas Reunidas - TP EUR 43 EUR 25
Wood Group - TP 215p 150p
Backlog longevity measured by average
contract duration (2007/08 rolling av.)*
3.6
3.4 3.3
3.0 3.0
2.4 2.4
2.1
1.9 1.9
4.2
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Seadrill
AMEC *
Subsea 7
Saipem
Tecnicas
Wood
Group *
Petrofac
Aker
Solutions
Acergy
Technip
Lamprell
Average contract duration (yrs)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Segment split by value *
E&C (capex) E&C (opex) Power Drilling Company average
Source: Deutsche Bank and company data; *based on contracts
disclosed
Average utilisations of vessels and
depreciation/EBITDA
40%
45%
50%
55%
60%
65%
70%
75%
80%
Subsea 7 Acergy Technip Seadrill Saipem
Average utilisation 09-11
0%
5%
10%
15%
20%
25%
30%
35%
40%
Avg. Depreciation/ EBITDA 09-11
Average utilisation 09-11 (LHS) Avg. 2009-11 Depreciation/EBITDA
Source: Deutsche Bank and company data
Enterprise value/backlog and
concentration of backlog on contracts
7
6
12
4
6
13
2
13
5
51
0%
10%
20%
30%
40%
50%
60%
70%
80%
Seadrill
Saipem
AMEC
Acergy
Petrofac
Subsea 7
Aker
Solutions
Lamprell
Technip
Tecnicas
Reunidas
EV/ Backlog No. of contracts that form 50% of backlog ( group avg.: 9 )
Source: Deutsche Bank and company data
Global Markets Research Company
Selecting the ‘fittest’ – our contract and asset analysis reveals all
In a year where near term visibility is simply a luxury, the starting point in 2009 for
analysis of the Oil Services’ outlook assumes just that. Exactly when and where
the next contract award will emerge from (and at what margin?) remains difficult
to gauge at present (despite our access to Wood Mackenzie’s extensive database
of near to medium term capex). We have therefore re-defined the framework with
which to assess the Euro Oil Services and developed a list of criteria that aims to
differentiate stocks across the group in this new challenging environment. We
leverage our exhaustive contract and asset database to measure each company’s
‘backlog longevity’, asset utilisation, balance sheet strength, level of
diversification, contract strategy, NOC exposure and degree of ‘elasticity’ to oil
price. With every data point accessible effectively placed under a ‘microscope’ the
emphasis is, not surprisingly, on visibility of earnings and financials.
Time to ‘recalibrate’ – trusting what we know (in a world of limited visibility)
We have taken our earnings across the sector down an average of 15% for 2009
and 28% for 2010. This takes 2009E/08E and 2010E/09E EPS growth to 19% and
1% respectively (vs. previous forecast of 30% and 19%). We have extended our
forecast horizon to 2011 where we show, on average, moderate EPS growth
relative to 2010 (10%). These revisions aim to capture each company’s relative
performance on the metrics described in this report and not least their exposure
across the oil chain. Overall, the companies that measure consistently well across
all of our criteria are Amec and Saipem. This is reflected in the fact that they are
our top picks for this year. In contrast, Wood Group (Sell) is most at risk.
Valuation and risks (detailed further on pages 3-4 and 26)
Our 2010E EV/DACF for the sector is currently 3.3x (mcap-weighted) which
represents c. 68% discount to the sector’s historical average (2000-08E) of 10.3x.
Given the positive momentum in both exploration and E&C capex we expect over
the mid to longer term against the material slowdown we now forecast in
earnings momentum, we believe on balance that our target sector multiple (2010)
should trade at a moderate discount to historical multiples. However taken
together with 1) the heightened lack of visibility surrounding credit markets
particularly in the emerging nations 2) uncertainty around the timing of contract
awards and the degree of pricing deflation impacted on the group 3) the risk of
macro conditions deteriorating further, on balance we argue that our sector target
multiple should trade at a 50% discount (vs. 15% discount previously) to the
historical average. This in part drives our PT revisions (-ve 35% on average) across
the group (see pg 30). Nonetheless, we still see significant upside potential to our
top picks. Key downside risks include oil prices sinking lower than $50/bbl for a
sustained period, macro conditions deteriorating significantly and poor execution

Table of Contents
Investment thesis .............................................................................. 3
Outlook ....................................................................................................................................3
Valuation ..................................................................................................................................3
Risks ........................................................................................................................................4
Not all boats rise with the same tide............................................... 5
First let’s be realistic .................................................................................................................5
Re-defining the ‘fittest’ .............................................................................................................5
Time to ‘recalibrate’ ........................................................................ 18
Trusting what we know (in a world of limited visibility) ..........................................................18
Re-setting our earnings outlook ..............................................................................................19
Valuation – more cautious view on sector target multiple linked to the risk of a further
deterioration of macro conditions ...........................................................................................23
Key recommendations and company specific overview.............. 24
Saipem, PT E15 (previously 22); ‘fittest’ company across the Euro oil services and a top pick
...............................................................................................................................................24
Amec, PT 760p (unchanged); ‘fittest’ company across the Euro oil services and a top pick ..24
Conviction Buys that with improved visibility (particularly around credit availability and
contract awards) should outperform.......................................................................................25
Appendix A: Valuation matrices..................................................... 28
Appendix B: DBe vs Consensus...................................................... 30
Appendix C: Performance & valuation........................................... 32
Appendix D: Laying the ground rules: the contract ‘life cycle’
explained.......................................................................................... 33
The services offered? Defining the workscope.......................................................................33
Who does what? Defining the delivery system ......................................................................33
How will it be paid for? Defining the contract strategy...........................................................34
Appendix E: Snapshot of each company’s financing ................... 36
Appendix F: ‘Backlog longevity’ calculation explained................ 41
Appendix G: Detailed description of asset utilisations by
company........................................................................................... 43
Appendix H: Lamprell yard utilisation & field trip update........... 51
Key points-from the recent field trip to Lamprell (Nov’ 2008) .................................................52
Appendix I: Largest clients schedule ............................................. 53
Appendix J: Petrofac Valuation and ED division field schedules 54
Appendix K: Company P&Ls........................................................... 60