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U.S. Research
Published by Raymond James & Associates
December 14, 2015
Energy
Industry Brief
Darren Horowitz, (713) 278-5269, [email protected]
Justin Jenkins, (713) 278-5258, [email protected]
J.R. Weston, Res. Assoc., (713) 278-5276, [email protected]
Rich Eychner, Res. Assoc., (713) 278-5230, [email protected]
Energy: Energy Stat of the Week __________________________________________________________________________________
Energy Stat: I Thought I Owned a "Toll-Road" Entity: Is the Model Broken, and How Do You Value MLPs?
Suffice it to say that it has been a very rough year for Master Limited Partnerships (MLPs). As the end of 2015 approaches, the
Alerian MLP Index (AMZ/$254.15) is on track to meaningfully underperform the broader market, as well as its energy peer groups.
Year-to-date, the AMZ is down 45.9%, which would be the group’s worst performance ever relative to the S&P (down 2.2% so far
this year). Furthermore, this compares to declines of 45.6% and 24.2% in the traditionally more oil price-sensitive EPX and OSX indices
(below, left), respectively – which is counter-intuitive given the fact that (in theory) the midstream space should outperform other
energy industries during depressed commodity price environments. After all, midstream contracts are fee-based in nature, backing
“toll-like” cash flow streams, right? In this week’s Stat, we attempt to 1) discuss what has driven the space’s underperformance
relative to its energy peers during the down cycle, 2) outline the resilience of midstream assets and subsequently MLP cash flows, 3)
address market concerns questioning whether or not the MLP business model is broken, 4) re-examine our approach to valuation, 5)
discuss what we think about current valuation levels, and more importantly, 6) discuss when valuations will matter again – which we
believe would result in a considerable recovery by the group. While we recognize some yield expansion is warranted given that
current macro headwinds have moderated the growth outlook, the selloff is overdone. Despite short-term headwinds, we remain
confident that over the longer term (12-24 months), midstream/MLPs will trade considerably higher than current levels.
One-Year Indexed Performance
AMZ
S&P
EPX
OSX
AMZ Yield
16.00%
Highest AMZ yield since summer-09 (Lower 48
crude production averaged ~4.7 million bpd
that summer - today we're still at ~8.6 million
bpd even after ~500,000 bpd of declines)
125
12.00%
100
8.00%
75
4.00%
Over TTM, AMZ underperforms S&P, E&P, OSX
50
Source: Bloombeg, Raymond James research
10-year Treasury yield averaged more than
3.5% in summer-'09 - today it's at 2.1%
0.00%
Source: Alerian MLP Index, Raymond James Research
If MLPs are backed by “toll-like” assets, then why is the AMZ down ~45% this year? Despite continuing to deliver solid cash flow
results and dividend/distribution growth through the down cycle thus far, the prices of many MLPs have declined substantially over
the past year (down ~45% YTD) in conjunction with the collapse in the price of oil. We support the notion that this bout of weakness
has less to do with the degradation of cash flow across the space – although we acknowledge the fact that the depressed commodity
price environment has impacted cash flows to an extent (particularly lower quality names with more commodity/volumetric
exposure) – and is more about a number of external factors. As we outlined earlier this month, we believe that this performance has
come on the heels of a combination of fundamental and technical headwinds (i.e., tax loss selling, fund redemptions, etc.) the most
important of which being the “MLP death spiral.” It seems to us as if the negative sentiment regarding the energy sector (arriving
with the collapse in oil) has led us into a perpetual “negative feedback loop” within the MLP space. As MLP equity prices are
pressured, capital costs become inflated. This further pressures equity as investors become concerned with project financing risk
and impaired rates of return on invested capital.
Please read domestic and foreign disclosure/risk information beginning on page 9 and Analyst Certification on page 9.
© 2015 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863
Raymond James
U.S. Research
Is the midstream industry at serious risk? No – fee-based cash flow is largely stable despite the challenging operating
environment. As we made light of earlier, most investors expect midstream stocks to possess defensive characteristics given the
stable, ratable nature of the underlying cash flows. Midstream companies predominantly own tangible assets – often pipes in the
ground. One of the major selling points for midstream/MLPs following the collapse in crude prices was the fact that these
companies’ and partnerships’ cash flow streams were generated through a “toll-like” business model (i.e., somewhat immune to the
decline in prices). In fact, many of these long-term, fee-based contracts are even “take-or-pay” like in nature (meaning that the
midstream service provider receives payment regardless of whether or not volumes move across their systems). Therefore, while
the performance in MLP equities this year would suggest otherwise, we would argue that this notion, relatively speaking, still holds
water. As you can see in the image below (right), the problem in today’s market isn’t so much the operational performance of the
companies. To that point, large-cap midstream cash flows have held up significantly better than large-cap oil service or E&P cash
flows – illustrating the resilience of the midstream model. Even with a ~34% drop in oil prices YTD, average large-cap midstream
operating cash flow per share only dropped ~9%. Furthermore, while recent events (KMI’s decision to cut the dividend by 75%) have
put into question the legitimacy of the midstream model and the sustainability of distributions across the space, we would
emphasize that the move by KMI is more a reflection of the current environment, which has been unable to supply the capital
needed to support an outsized growth spending budget by KMI – and not a degradation of the base business. We continue to
believe that the vast majority of our midstream coverage universe still has the ability to cover 2016 distributions – even after
factoring in expected growth in some cases. With that said, clearly access to capital markets is arguably just as important for certain
MLPs (discussed below), particularly those with sizeable near-term capital budgets when questioning distribution sustainability.
Can Midstream Stocks Cover Their Current Dividend/Distribution?
120%
Large-Cap U.S. Energy Sector Cash Flows from Operations
Consensus sees all three groups
participating in the upside.
Midstream
Oil Service
E&Ps
100%
Midstream cash flows
hold up better than
other energy verticals.
...and numerous midstream/MLPs are still growing!
1.40x
1.20x
80%
60%
40%
Oil Service Cash Flows
20%
E&P and Oil Service
cash flows roll with
commodity prices.
0%
1.00x
-20%
Source: Raymond James research, company/partnership filings, Thomson One.
Stocks included: EPD, ETP, MMP, PAA, SEP, WPZ, AM, CEQP, ENLK, NGLS, PTXP, SXE, GEL, MMLP, NGL, NS, RRMS, CAPL, GLP, SRLP, SUN,. CLMT, DKL,
HEP, TLLP, APU, FGP, SPH, CPLP, GMLP, KNOP, TGP, TOO, ETE, NSH, ENLC, KMI, PAGP, SE, SEMG, TK, TRGP, WMB.
-40%
Jan-14
Current Dividend/Distribution Yield
Jan-13
10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% 45.00% 50.00%
Jan-12
5.00%
E&P Cash Flows
Jan-11
0.80x
0.00%
Midstream Cash Flows
Jan-17
1.60x
Jan-16
1.80x
140%
Jan-15
Outsized current yields don't reflect that the vast majority of
midstream/MLPs are set to cover their estimated 2016
dividend/distribution, in our view...
Average CFO / Share
RJ Estiamated 2016 Dividend / Distribution Coverage
2.00x
Source: Raymond James research, Fact Set.
Sample set includes large-cap stocks (+$10 billion) within RJ Coverage Universe and compares reported/consensus Cash Flow from Operations per
share/unit. Sector results are averaged and results are indexed from 2011.
Is the MLP model broken? No, but when cost of capital is so important, company specifics matter tremendously. As outlined
above, due to the staying power of these businesses, little capital investment is necessary to maintain current cash flows. This frees
internally generated cash flow to be distributed to investors in the form of dividends and distributions. Distributable cash flow
answers the question “what cash flow could be generated by the base business without any additional investment”? Most of this
cash is typically distributed back to equity owners. Moreover, midstream entities are given more leeway in terms of their capital
structure because of this stability. As a result, organic growth is most often funded with external capital – traditional debt and
common equity issuances (more or less offsetting the cash paid out to investors). This model faces challenges, but, if it is not abused,
still works. If we see dividend cuts amongst the midstream group, it is less likely to be because of deteriorating cash flows.
Can we fill large capex funding gaps and still pay out dividends/distributions? The real issue with today’s market is that the
midstream model is still reliant on external capital and numerous midstream entities are sticking with ambitious growth capex plans
in 2016-2020. Energy midstream is a very capital intensive industry and the associated financing burden has become cumbersome.
The cost of debt has gone up marginally and is less attractive than prior years, but is not prohibitive. However, there is a limit to any
entity’s leverage profile (we most commonly use debt-to-EBITDA to evaluate leverage). Although the graph above shows that cash
flows have not materially deteriorated, there has been a considerable impact. As EBITDA results have faced headwinds, this has put
pressure on debt-to-EBITDA ratios and strained how much incremental debt midstream entities can obtain. To make matters worse,
with yields extremely high (the AMZ index average is +9.5%), equity is not necessarily a feasible way to fill such large funding gaps.
This is where the market has become bifurcated – trading has largely separated the space into two groups: 1) those yielding 3-8%
(that can largely still use equity as necessary) and those in the +10% camp (that will use it only sparingly). If midstream entities are
locked out of the capital markets, there is essentially a “call on cash” in terms of distributable cash flow. However, capital markets,
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U.S. Research
especially the equity markets, will not be closed forever. In fact, several high quality midstream entities (those with sponsor support,
transparent cash flow, a strong growth outlook, etc.) have successful tapped the equity markets as of late. To put it more simply,
the “midstream/MLP model” is functioning as usual for a handful of stocks, but is currently not working quite right for others.
Regardless of the decisions of midstream operators over the next several months regarding dividends, we believe the intention of
management teams is to return to the traditional model of returning the majority of cash to equity holders over the next few years.
Certainly, the overall cost of capital remains one of the constraining factors. Therefore, it continues to make sense that midstream
entities that have eliminated GP/IDR payments will likely be best positioned from a cost of capital perspective moving forward –
arguably, the stock price should reflect this over time.
How do we value MLP’s if they choose to cut distributions and self-fund? Given recent market events (namely KMI’s ~75% dividend
cut), we expect the market to re-think its valuation methodology. Specifically, Kinder Morgan closed 12/8/15 at $15.72 per share
before the cut was announced and then reached a high of $17.35 on 12/9/15 directly following the cut – which is in stark contrast to
how our valuation methodology would suggest the stock would react. This implies the market did in fact value the stock differently
following the cut. In response, we shifted our weightings to capture what we thought was a more accurate picture of investors’
discourse regarding KMI. Specifically in addressing the increased retained cash and resulting lower distribution, we placed more
weight on the Price-to-DCF multiple and adjusted our yield assumption. While, we see our weighting shift applied to KMI as
appropriate, we believe this is an exception that proves the rule. We are not arguing that any one of these methods can be
definitive. We believe there will clearly be sects of the market looking at valuation differently, and as such, we see a blended
approach as the most appropriate method. Below is a discussion of our valuation methodology, with KMI as a case study.
Valuation Methodology
Valuation Methodology Analysis
Pros
Captures future payments to investors
Dividend Discount Model (DDM)
Yield Spread
Price/DCF Multiple
Cons
Highly sensitive to discount rate/dividend growth
assumptions
10-year, three state model captures potential business Unable to appropriately accommodate for self-funding
cyclicality and evolution of the cost of capital/IDR burden MLPs who emphasize retained cash and excess coverage
Good indicator of how the market masy view the equity
in terms of risk
Abritrarily based on one relatively subjective
assumption
Powerful metric for comparison between similar
companies
Less meaningful for valuing self-funding MLPs who do
not pay out the majority of cash flow
"Cash is King"
Does not incorporate disparity between capital spending
profiles and coverage/payout policies
Most accommodating method to value partnerships
retaning cash and self-funding capital programs
Highly sensitive to a somewhat arbitrary and perpetually
evolving multiple
Source: Raymond James research
Dividend Discount Model (DDM): We typically weight this at 50%, but have lowered it to 30% for KMI. Addressing the
components of our valuation, the DDM clearly remains subjective. Conceptually speaking, a DDM assumes: 1) cash
dividends/distributions based on forward-looking assumptions of the asset base; 2) a general cost of equity/discount
rate/required rate of return for share/unitholders utilizing either the capital asset pricing model (CAPM), the dividend
discount model (forward yield + growth), or the bond yield + equity risk premium approach; and 3) perpetual growth rate
and terminal growth rate inputs based on the longer-term growth profile of the partnership. While the dividend stream is
valued over time, in a situation such as KMI (i.e., materially higher DCF per share vs. dividend per share post-cut), what
investors will receive in their pocket is meaningfully lower. However, this augmented funding scenario arguably leads to a
higher assumed transition growth rate and terminal growth rate beyond the 10-year forecast period. Moreover, another
partial offset to this will be a lower modeled beta (i.e., less funding risk), but the reduction in beta (which we argue still
should be in the range of 0.8-1.0) won’t be enough to fully offset the material decrease in the dividend stream.
Yield Spread Valuation methodology: This tool is less relevant and more subjective, in our view. As such, we utilize a 20%
weighting. One could argue that an analytical formula could derive an equity risk premium from tying into an expected
bond risk premium (after tweaking for default risk, transition risk, and spreads to Treasury bonds). Once the equity risk
premium is established (including in the math for our CAPM assumption outlined above), it is also possible to relate that to
a yield spread. Given KMI’s current choice to retain excess cash flow in order to fund the business instead of returning it to
shareholders, the dividend payout has been materially hampered and the valuation method has lost some applicability.
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U.S. Research
Price-to-DCF Multiple: If “cash is king”, should it be solely valued that way? There is a big difference between cash
generated and cash paid out; 50% weight. In our traditional valuation analysis this receives a 30% weight, compared to 20%
for KMI. There is a big difference between cash generated and cash paid out. While we believe this remains applicable to
the broader midstream group, one could make the case against this for KMI. Instead of slowing capex, KMI chose to slow
the cash returned to shareholders in the short-term. On the flip side, given the improved cost of capital and revamped
funding structure, it can be argued that KMI operated in the most efficient way in order to support longer-term shareholder
value. By not missing out on “actionable” projects from 2016-2018, the outlook has been tremendously improved for 2020
and beyond. Again, we acknowledge that this point is very debatable and we see both sides to the argument.
Are valuations compelling? Yes – but “when will valuation
AMZ Index Price
600.00
matter?” is the better question. On the heels of the
considerable decline in equity prices throughout the majority
500.00
of the MLP sector this year, valuations have become
increasingly attractive relative to historical levels on largely all
400.00
relevant metrics. The AMZ is currently yielding 9.27% – a level
not seen since late 2008/summer 2009 – nearly 252 basis
AMZ at 254.15
300.00
points below the five-year average yield of 6.75%. For some
perspective, U.S. crude production averaged merely 4.7
200.00
million barrels per day in the summer of 2009, nearly half of
what the U.S. produces today (8.6 million bpd), even after
Back to early-2010 levels on the AMZ...
declines of ~500,000 barrels per day from the peak
100.00
12/30/05
12/30/07
12/30/09
12/30/11
12/30/13
(March/April 2015) following the collapse in crude prices. On
a multiples basis, MLPs under our coverage universe currently
Source: Alerian MLP Index, Raymond James Research
trade at price-to-DCF and EV/EBITDA multiples of ~6.5x and
9.7x, compared to five-year averages of ~11.4x and 11.3x, respectively.
Coverage Vs. Historical Yields
Coverage's Yield (%)
Spread to Investment Grade (bps)
Spread to Treasury (bps)
Spread to BAA (bps)
Spread to High Yield (bps)
Coverage Vs. Historical Multiples
Coverage's EV-to-EBITDA
Coverage's Price-to-DCF
Current
9.27%
571
740
486
93
Current
9.7x
6.5x
1-year
6.75%
293
460
213
-3
1-year
10.9x
10.7x
Prem./Disc.
37%
N/A
N/A
N/A
N/A
Prem./Disc.
-12%
-39%
3-year
6.09%
198
376
123
-11
3-year
11.3x
11.8x
Prem./Disc.
52%
N/A
N/A
N/A
N/A
Prem./Disc.
-15%
-45%
5-year
6.17%
196
383
111
-59
5-year
11.4x
11.3x
Prem./Disc.
50%
N/A
N/A
N/A
N/A
Prem./Disc.
-15%
-42%
Source: Fact Set, Thomson One, Raymond James research
Conclusion: When do you buy? No near-term catalysts, but investors with long horizons should accumulate positions in favored
names. The question remains, when will these attractive valuation levels truly matter? The truth is, as a result of the amalgamation
of near-term headwinds with no real catalyst in sight, in the short term, the asset class could, and likely will unfortunately continue
to move lower despite what screens as compelling yields. What we must understand, however, is that yield spreads (above the 10year Treasury) are a measure of risk – financing/integration/execution risk. Addressing the former, the current capital market
environment (both in terms of access and absolute cost of equity/debt capital) remains challenged, which thereby stresses the MLP
model whose main artery is accessing external capital to fund growth. To reiterate, this is a growth funding issue, and not an
operational base business issue, but it brings to light what should prove to a continued theme driving bifurcation across the asset
class – “the haves and the have-nots”.
Said another way, the winners should embody the following characteristics: 1) a relatively under-levered balance sheet with
properly sequenced debt maturities and a proactive approach to managing the capital structure, 2) a lower cost of capital (emphasis
on the cost of LP equity capital without the burden of GP interest), 3) greater retained cash for use to either de-leverage the balance
sheet or for working capital purposes, 4) greater transparency into the cash flow profile with an accurate depiction of fee-based,
take-or-pay and volume sensitive contract structures, and 5) historically consistent prudence in capital allocation and greater clarity
into true ROIC metrics. In short, we do not expect to see any positive catalysts stepping in to act as a tailwind in the near term to
reverse the current trend. We do, however, believe that once technical pressure impacting performance abates (hopefully as we
move into next year), we should see some relief. Conversely, our long-term view remains optimistically constructive. We continue
to remain confident that over the longer term (12-24 months), midstream/MLPs will trade considerably higher than current levels.
4
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U.S. Research
Raymond James Weekly Oilfield Review
For Week Ending:
12/11/2015
12 Month Oil Calendar Strip
12 Month Gas Calendar Strip
Brent
Henry Hub
$135.00
$6.25
$125.00
$115.00
$5.25
$105.00
$95.00
$4.25
$85.00
$75.00
$3.25
$65.00
$55.00
$2.25
$45.00
Price
Percent Change
2010
2011
2012
2013
2014
2015
This
Week
Last
Week
Beginning
of Year
Last
Year
$41.84
$46.77
-10.5%
$61.14
-31.6%
$64.98
-35.6%
Source: Bloomberg
Price
Percent Change
2010
2011
2012
2013
2014
2015
This
Week
Last
Week
Beginning
of Year
Last
Year
$2.30
$2.41
-4.8%
$3.12
-26.4%
$3.66
-37.3%
Source: Bloomberg
11-Dec-15
This
Week
4-Dec-15
Last
Week
12-Dec-14
Last
Year
Change From:
Last
Last
Week
Year
U.S. Oil
524
545
1,546
-3.9%
-66.1%
U.S. Gas
U.S. Miscellaneous
185
0
192
0
346
1
-3.6%
-46.5%
1. U.S.Rig Activity
U.S. Total
709
737
1,893
-3.8%
-62.5%
U.S. Horizontal
554
569
1,367
-2.6%
-59.5%
U.S. Directional
64
64
196
0.0%
-67.3%
U.S. Offshore
23
25
60
-8.0%
-61.7%
123
122
117
0.8%
5.1%
56
56
74
0.0%
-24.3%
45.5%
45.9%
63.2%
-0.8%
-28.0%
1,309
783
1,352
67.2%
-3.2%
174
0
177
0
431
NA
-1.7%
NA
-59.6%
NA
159.7
2,012.4
17,265.2
199.3
169.8
2,091.7
17,847.6
225.0
195.3
2,002.3
17,280.8
321.0
-5.9%
-3.8%
-3.3%
-11.4%
-18.2%
0.5%
-0.1%
-37.9%
254.2
268.3
433.6
-5.3%
-41.4%
3,880
676
1,305,540
3,956
683
1,309,144
3,359
556
1,128,681
-1.9%
-0.9%
-0.3%
15.5%
21.6%
15.7%
$57.81
$61.85
$21.91
$3.80
$8.15
$2.87
$8.73
-11.7%
-12.4%
-7.0%
-9.6%
-13.7%
-3.0%
-5.2%
-38.9%
-39.1%
-20.5%
-47.9%
-48.6%
-44.3%
-34.6%
U.S. Offshore Gulf of Mexico
Fleet Size
# Contracted
Utilization
U.S. Weekly Rig Permits *
2. Canadian Activity
Rig Count
Total Well Completions (Incl. Dry)
3. Stock Prices
(12/11/15)
OSX
S&P 500
DJIA
S&P 1500 E&P Index
Alerian MLP Index
4. Inventories
U.S. Gas Storage (Bcf)
Canadian Gas Storage (Bcf)
Total Petroleum Inventories ('000 bbls)
5. Spot Prices (US$)
Oil (W.T.I. Cushing)
$35.30
$39.97
Oil (Brent)
$37.67
$43.00
NGL Composite
$17.43
$18.73
Gas (Henry Hub)
$1.98
$2.19
Residual Fuel Oil (New York)
$4.19
$4.86
Gas (AECO)
$1.60
$1.65
UK Gas (ICE)
$5.71
$6.02
Sources: Bak er Hughes, ODS-Petrodata, API, EIA, Oil Week , Bloomberg
* Note: Week ly rig permits reflect a 1 week lag
5
Raymond James
U.S. Research
Raymond James Weekly Coal Review
For Week Ending:
12/11/2015
12 Month Big Sandy Barge Prices
12 Month Powder River Basin 8800 Prices
$90.00
$17.00
$15.00
$75.00
$13.00
$60.00
$11.00
$9.00
$45.00
$7.00
$30.00
Price
Percent Change
$5.00
2010
2011
2012
2010
2011
2013
2014
2015
2013
2014
This
Week
Last
Week
Beginning
of Year
Last
Year
$40.75
$39.85
2.3%
$49.95
-18.4%
$51.25
-20.5%
Source: Bloomberg
1. Coal Prices
Eastern U.S.
CSX 1%
Western U.S.
Powder River 8800
2. Production
Eastern U.S.
Western U.S.
Total
Price
Percent Change
2012
2015
This
Week
Last
Week
Beginning
of Year
Last
Year
$10.25
$10.35
-1.0%
$12.00
-14.6%
$12.50
-18.0%
Source: Bloomberg
11-Dec-15
This
Week
4-Dec-15
Last
Week
13-Dec-14
Last
Year
Change From:
Last
Last
Week
Year
$40.75
$39.85
$51.25
2.3%
-20.5%
$10.25
$10.35
$12.50
-1.0%
-18.0%
27-Nov-15
6,351
9,750
16,101
20-Nov-15
6,533
10,081
16,614
30-Nov-14
8,011
11,797
19,808
-2.8%
-3.3%
-3.1%
-20.7%
-17.4%
-18.7%
Source: Bloomberg
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Raymond James
U.S. Research
U.S. Rig Count Breakdown
12/11/2015
Total Count
U.S. Rig Count
By Basin*
Permian
Eagle Ford
Bakken
Cana Woodford
Marcellus
Haynesville
DJ Basin
Utica
Pinedale
Mississippi Lime
Granite Wash
Arkoma Woodford
San Joaquin Basin
Barnett
Powder River Basin
Piceance Basin
Uinta
Fayetteville
Other
Drill For
Oil
Dry Gas
Wet Gas
Thermal
Trajectory
Horizontal Oil
Horizontal Gas
Horizontal
% Horizontal
709
199
85
57
50
41
29
21
15
14
14
9
8
6
4
4
4
3
3
143
12/4/2015
737
210
85
59
51
40
29
23
19
14
13
9
9
7
5
5
4
4
2
149
W/W ∆
YTD ∆
YTD % ∆
Y/Y ∆
Y/Y % ∆
(28)
(1102)
-61%
(1184)
-63%
(11)
0
(2)
(1)
1
0
(2)
(4)
0
1
0
(1)
(1)
(1)
(1)
0
(1)
1
(6)
-319
-154
-120
-13
-31
-11
-32
-31
-4
-55
-42
3
-7
-16
-28
-8
-17
0
-217
-62%
-64%
-68%
-21%
-43%
-28%
-60%
-67%
-22%
-80%
-82%
60%
-54%
-80%
-88%
-67%
-85%
0%
-60%
-338
-158
-128
-13
-37
-14
-31
-32
-4
-57
-45
3
-23
-15
-29
-9
-18
0
-236
-63%
-65%
-69%
-21%
-47%
-33%
-60%
-68%
-22%
-80%
-83%
60%
-79%
-79%
-88%
-69%
-86%
0%
-62%
524
67
118
0
545
71
121
0
(21)
(4)
(3)
0
(958)
(44)
(99)
(1)
-65%
-40%
-46%
-100%
(1022)
(48)
(113)
(1)
-66%
-42%
-49%
-100%
415
139
554
78%
426
143
569
77%
(11)
(4)
(15)
1%
(674)
(107)
(782)
4%
-62%
-43%
-59%
(690)
(122)
(813)
6%
-62%
-47%
-59%
Source: Baker Hughes, Inc, Raymond James research
*Includes all trajectories
7
Raymond James
U.S. Research
Oil Rig Count
Horizontal Rig Count
1700
1500
1400
1300
1200
1100
1000
900
800
700
600
500
1500
1300
1100
900
700
500
2012
Rig Count
Percent Change
2013
2014
2015
2012
This
Week
Last
Week
Beginning
of Year
Last
Year
524
545
-3.9%
1482
-64.6%
1546
-66.1%
2014
2015
This
Week
Last
Week
Beginning
of Year
Last
Year
554
569
-2.6%
1336
-58.5%
1367
-59.5%
Rig Count
Percent Change
Source: Baker Hughes
2013
6
Wet Gas Rig Count
Dry Gas Rig Count
600
550
500
450
400
350
300
250
200
150
100
400
350
300
250
200
150
100
50
2012
Rig Count
Percent Change
2013
2014
2015
This
Week
Last
Week
Beginning
of Year
Last
Year
118
121
-2.7%
217
-45.6%
232
-49.0%
2012
2013
2014
2015
This
Week
Last
Week
Beginning
of Year
Last
Year
67
71
-5.3%
111
-39.7%
114
-41.6%
Rig Count
Percent Change
8
Raymond James
U.S. Research
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9
Raymond James
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Raymond James Ltd. (Canada) definitions
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Market Perform (3) Expected to perform generally in line with the Stoxx 600 over the next 12 months.
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Rating Distributions
Coverage Universe Rating Distribution*
Investment Banking Distribution
RJA
RJL
RJ Arg
RJEE/RJFI
RJA
RJL
RJ Arg
RJEE/RJFI
Strong Buy and Outperform (Buy)
57%
69%
53%
44%
22%
40%
0%
0%
Market Perform (Hold)
38%
30%
47%
39%
7%
16%
0%
0%
Underperform (Sell)
5%
1%
0%
17%
6%
50%
0%
0%
* Columns may not add to 100% due to rounding.
Suitability Ratings (SR)
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10
Raymond James
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12

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