Marketing communication produced and issued by: ABN AMRO Bank NV+
This document has not been produced in accordance with legal
requirements designed to promote the independence of research
Equity | United Kingdom
This document must be treated as a marketing communication for the purposes of Directive 2004/39/EC as it
has not been prepared in accordance with legal requirements designed to promote the independence of
research; and it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
*RBS Hoare Govett Ltd, a member of the ABN AMRO group, is broker to this company
Important disclosures can be found in the Disclosures Appendix.
+ABN AMRO group companies are subsidiary undertakings of The Royal Bank of Scotland Group plc.
Oil Equipment & Services
Destination unknown
Significant cuts in oil and gas industry capital expenditure could lead to a supply
crunch in the long term, but this should have a geared impact on oil services
company earnings in 2009/10. We make significant downward revisions to our
forecasts and move to a neutral stance.
Key recommendations & forecasts
Price MC Curr TP (£) Rating 2009 EPS 2010 EPS
Stock p £m Old New Old New Old New % chge Old New % chge
AMEC 556 1848 £ 7.10 6.40 Buy Buy 45.7 41.2 -9% 54.0 41.6 -23%
Hunting* 451 595 £ 7.50 4.83 Buy Add 45.0 20.7 -54% 47.5 17.9 -69%
Lamprell 90 180 US$ 3.50 0.80 Hold Reduce 57.1 38.5 -33% 57.2 22.4 -61%
Petrofac 349 1206 US$ 5.50 3.65 Buy Hold 94.2 72.3 -23% 139.4 77.0 -45%
Wellstream 379 377 £ n/a 3.95 n/a Hold n/a 59.1 n/a n/a 56.1 n/a
Wood Group 210 1106 US$ 4.00 2.00 Buy Hold 57.6 40.9 -29% 62.9 34.8 -45%
Average -30% -47%
Source: Company data, ABN AMRO forecasts; prices as of 21 January 2008.
E&P capital expenditure cuts to impact oil services companies’ growth prospects
Oil and gas companies are reducing capital expenditure by delaying and cancelling projects
globally. The balance of power is shifting back to the oil and gas companies, with the
negotiating position of oil services companies weakened and pricing pressure likely.
Commodity prices (oil, natural gas, steel, polymers) have suffered significant falls. Against
this backdrop, our growth prospects for the oil services companies are dramatically reduced.
We revise our forecasts significantly, to well below consensus
Existing backlog provides some cushioning in 2009, with the real impact of the current
market conditions likely to be felt in 2010. For the five companies under coverage, we have
cut our 2009F EPS by an average of 30%, with 2010F EPS reduced by some 47%. We also
initiate on Wellstream and for all six oilfield services companies now under coverage, our
forecasts are on average 21% below consensus for 2009 and 37% below for 2010..
We move to a neutral sector stance; our top pick is AMEC, least preferred is Lamprell
On our revised sector forecasts, we estimate the UK peer group is trading on an adjusted
2009F PE of 6.3x, rising to 7.5x in 2010F. Given uncertainty in the outlook, we do not yet
believe the stock market is willing to place recovery multiples on what we feel are now trough
earnings estimates for 2010. We move to neutral, but favour companies with strong net cash
positions, more stable/resilient end-markets, flexible cost bases (including self-help
programmes) and strong management. We reiterate our Buy on AMEC, move to Add on
Hunting* (from Buy), move to Hold on Petrofac and Wood Group (both from Buy) and move
to Reduce on Lamprell (from Hold). We also initiate on Wellstream with a Hold.

Contents
Trough multiples on trough earnings 3
Despite earnings downgrades across the sector, given uncertainty over the extent
of the slowdown in oil & gas markets, we do not think the stock market is ready to
place recovery multiples on what we feel are now trough earnings estimates. Our
stance is neutral.
Industry capex cuts 10
Industry capex cuts could squeeze oil and gas supply in the long term. However,
this is also likely to have a significant bearing on oil services companies’ ability to
grow earnings in 2009/10.
Company profiles
AMEC 16
Hunting plc 21
Lamprell 26
Petrofac 32
Wellstream 38
Wood Group 44
Appendix: Wellstream company profile 50
Wellstream is the global No 2 producer of flexible pipe, with manufacturing facilities
in Newcastle and Brazil. The group is adding significant capacity to take advantage
of long-term growth in deepwater markets.