global energy: oil services shale shifting and shaping...

August 6, 2014

Global Energy: Oil Services

Shale shifting and shaping

industry growth

Equity Research

Competitive positioning critical in moderating growth environment

Shale is transforming the Oil (and OFS) industry

US shale has transformed the industry in terms of access to resource,

splitting the industry cost curve at US$85/bl, creating winners and losers

across the oilfield services industry. We expect the NOCs, which largely

control the global resource base, to continue to grow E&P spend, while in

the near-to-medium term, we expect capex curtailment from the European

IOCs, which contribute c.20% of global capex and are major drivers of

offshore and deepwater. The rise of the shales has allowed the highly

fragmented (>700) independent US E&P sector access to growth resources.

In our view, the winning oil field service (OFS) companies will be those

with access to shales, NOCs and deepwater, as they benefit from growth

and inflation in high ‘value add’ technologies, while cost deflation is likely

in the commoditized part of the offshore supply chain.

Shifting E&P positioning makes OFS differentiation critical

We see lower, more moderate E&P capex growth looking forward, and also

believe that the drivers of growth in the industry have shifted to horizontal

drilling, onshore shale plays and access to NOCs. These shifting trends

make competitive positioning and the ability to provide a differentiated

service key, in our view. Strong companies with a differentiated offering,

access to growth and the ability to offer innovative ‘work’ models to their

customers should deliver superior growth and returns over time.

Introducing GS Competitive Positioning for Oil Services

We introduce our GS Competitive Positioning (CP) framework which

captures 50 oil service companies globally. We rank each company based

on metrics testing barriers to entry, market structure, execution and risk,

and access to growth. We analyse this across 37 different end-markets.

Estimates informed by CP; key for stock-picking framework

The large cap service and equipment companies show high CP scores,

while the less differentiated segments are at the other end of the scale,

with drilling (both offshore and onshore) and seismic screening low. We

use CP analysis to inform our forecasts. For stock selection, we use CP,

valuation and prospects of improvement/degradation in those matrixes.

Our key ideas include: Aker Solutions, Halliburton, Schlumberger, Baker

Hughes, TMK and Vallourec (all Buy-rated) and Transocean (structurally

challenged and Sell-rated).

Henry Tarr +44(20)7552-5981 [email protected] Goldman Sachs International

Waqar Syed (212) 357-1804 [email protected] Goldman, Sachs & Co.

Geydar Mamedov +7(495)645-4041 [email protected] OOO Goldman Sachs Bank

Will Wyman +44(20)7552-2998 [email protected] Goldman Sachs International

Yulia Chekunaeva +7(495)645-4228 [email protected] OOO Goldman Sachs Bank

Nina Dergunova +7(495)645-4230 [email protected] OOO Goldman Sachs Bank

Maria-Laura Adurno +44(20)7051-4264 [email protected] Goldman Sachs International

Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investorsshould be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investorsshould consider this report as only a single factor in making their investment decision. For Reg AC certification and otherimportant disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed bynon-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.

The Goldman Sachs Group, Inc. Global Investment Research

August 6, 2014 Global: Energy: Oil Services

Goldman Sachs Global Investment Research 2

Contents

Our industry outlook in 12 charts… 5

PM Summary: Competitive positioning critical in lower growth world 7

Competitive positioning: Key industry drivers 10

We assess competitive positioning across 37 different end-markets 12

The oil service sector has been key winner of increasing cost of oil 17

Rising development costs have been driven by greater complexity 19

Shale is redefining the industry, and shifting the axis of growth 19

With a range-bound oil price, the global majors are hitting cash constraints 21

‘Capital discipline’ and cost optimization here to stay for IOCs 23

NOCs and US E&Ps increasingly important as drivers of capex 24

…and NOCs are the largest component of industry capex 24

So where’s the growth? Shale, NOCs and the best of deepwater 25

Capacity additions continue, particularly offshore 30

Offshore supply chain in particular faces the threat of deflation 31

In a moderate environment, CP is critical: Global CP for Oil Service 32

Higher CP score can mean higher returns… 34

…and the CP winners have consistently outperformed 35

Introducing the CP winners 36

CP framework is not a stock-picking framework… 42

A selection of our key investment ideas 43

Schlumberger, Ltd. (SLB): Technology leader with superior earnings growth; Buy 44

Halliburton Company (HAL): Attractive mix of growth and profitability improvement through ‘self-help’; CL-Buy 45

Baker Hughes Inc. (BHI): Improved operational execution coupled with NAM market help; Buy 46

Aker Solutions (AKSO.OL): Split of businesses to generate value; CL-Buy 47

TMK (TRMKq.L): Attractive markets exposure at discount; Buy 48

Vallourec (VLLP.PA): Rebound in 2015 orders to drive upside; Buy 49

Transocean Ltd. (RIG): Aged rig fleet with upcoming contract renewals in a challenged offshore market; Sell 50

Disclosure Appendix 51

Prices in this report are based on the market close as of August 5, 2014.



The Global Oil Service universe

Included in this report are 50 oil service companies under coverage globally.

Exhibit 1: Companies included in our GS Competitive Positioning framework for Global Oil Service

Source: Goldman Sachs Global Investment Research, FactSet.

Ticker Company name CP score Global CP quartile

Average CROCI 2013-

2016E

Rating Market cap (US$ mn)

Upside/ downside

Share price Target price

SLB Schlumberger, Ltd. 100% 1 15% Buy 140,810 21% $ 107.1 $130OII Oceaneering International, Inc. 98% 1 19% Buy 7,370 27% $ 68 $86HAL Halliburton Company 96% 1 15% Buy* 57,697 28% $ 67.7 $87BHI Baker Hughes Inc. 94% 1 12% Buy 29,889 28% $ 67.9 $87SBOE.VI Schoeller-Bleckmann 92% 1 16% Neutral 1,833 6% € 85.7 €91*TS Tenaris S.A. 90% 1 11% Neutral 25,399 5% $ 43 $45.2WFT Weatherford International Ltd. 88% 1 10% Neutral 16,878 6% $ 21.8 $23AKSO.OL Aker Solutions 86% 1 12% Buy* 3,983 20% Nkr 92.9 Nkr111O2C.DE C.A.T oil AG 84% 1 22% Buy 923 85% € 14.1 €26.1NOV National Oilwell Varco 82% 1 12% Neutral 34,989 3% $ 81.6 $84WG.L John Wood Group Plc 80% 1 14% Buy 4,517 9% 737 p 800pFTI FMC Technologies 78% 1 19% Neutral 14,453 9% $ 60.8 $66FI Frank's International N.V. 76% 1 20% Sell 4,813 -5% $ 23.2 $22CRR CARBO Ceramics Inc. 73% 2 14% Neutral 2,431 34% $ 105.9 $142CAM Cameron International Corp. 71% 2 14% Neutral 14,557 11% $ 71 $79AMEC.L Amec Plc 69% 2 16% Not Rated 6,074 1105 p NAHTG.L Hunting Plc 67% 2 10% Neutral 2,135 4% 865 p 900p*TGS.OL TGS Nopec 65% 2 16% Sell* 2,925 -25% Nkr 179.8 Nkr134SDRL.OL SeaDrill Ltd 63% 2 11% Neutral 16,769 -9% Nkr 224.3 Nkr205TRMKq.L TMK 61% 2 11% Buy 1,806 45% $ 8.4 $12.1VLLP.PA Vallourec 57% 2 7% Buy 5,222 14% € 32.9 €37.5ATW Atwood Oceanics, Inc. 57% 2 13% Buy 3,118 21% $ 47.9 $58TECF.PA Technip 55% 2 15% Sell 9,669 -1% € 67.9 €67.5PRSO.OL Prosafe 51% 2 14% Sell 1,662 -23% Nkr 46.8 Nkr36EDCLq.L Eurasia Drilling Company 51% 2 22% Buy 4,463 68% $ 30.4 $51.1SUBC.OL Subsea 7 S.A. 49% 3 10% Buy 5,660 11% Nkr 104.8 Nkr116RES RPC, Inc. 47% 3 19% Buy 4,651 30% $ 21.5 $28FUGRc.AS Fugro NV 45% 3 10% Sell 3,148 1% € 28.8 €29RIG Transocean Ltd. 43% 3 8% Sell 13,924 -22% $ 38.6 $30CJES C&J Energy Services, Inc. 41% 3 17% Not Rated 1,630 $ 28.9 NASBMO.AS SBM Offshore 39% 3 7% Neutral 2,362 23% € 10.2 €12.5ODLL.OL Odfjell Drilling Ltd 37% 3 9% Buy 1,013 12% Nkr 31.8 Nkr35.5NBR Nabors Industries, Ltd. 33% 3 9% Not Rated 8,024 $ 26.7 NABAS Basic Energy Services, Inc. 33% 3 13% Buy 967 39% $ 23.8 $33EMGS.OL emgs 31% 3 18% Neutral 175 26% Nkr 5.6 Nkr7HP Helmerich & Payne, Inc. 29% 3 15% Neutral 11,378 9% $ 104.1 $114SPMI.MI Saipem 27% 3 7% Neutral 10,139 9% € 17.2 €18.8GEPH.PA CGGVeritas 24% 4 3% Neutral 1,673 3% € 7.1 €7.32883.HK China Oilfield Services (H) 22% 4 12% Neutral 11,760 10% HK$ 19.1 HK$21.1DO Diamond Offshore Drilling 20% 4 10% Neutral 6,504 -6% $ 47 $44KEG Key Energy Services Inc. 18% 4 7% Neutral 942 30% $ 6.2 $8NE Noble Corporation 16% 4 9% Neutral 6,755 -2% $ 26.6 $26PFC.L Petrofac 14% 4 26% Neutral 6,273 21% £ 1084 1310pRDC Rowan Companies, Plc. 10% 4 8% Neutral 3,727 7% 29.9 p $32ESV Ensco plc 10% 4 10% Neutral 11,450 1% $ 49.5 $50PES Pioneer Energy Services Corp. 8% 4 13% Buy 909 42% $ 14.5 $20.5PTEN Patterson-UTI Energy, Inc. 6% 4 12% Buy* 4,923 28% $ 33.7 $43PGS.OL Petroleum Geo Services ASA 4% 4 6% Sell 1,743 10% Nkr 50.5 Nkr55.7HERO Hercules Offshore, Inc. 2% 4 10% Sell 537 8% $ 3.3 $3.6TRE.MC Tecnicas Reunidas 0% 4 63% Neutral 2,838 1% € 39.5 €40*Price target is for a 6-month horizon. All others are 12 months.*Included on regional Conviction List



Global Oil Service team

Exhibit 2: Global Oil Service team, split by coverage and region

Source: Goldman Sachs Global Investment Research.

Europe America Russia Asia-Pacific

Oil Services Oil Services Oil Services Oil ServicesHenry Tarr Waqar Syed Geydar Mamedov Nilesh Banerjee

[email protected] [email protected] [email protected] [email protected]

Telephone: 44-20-7552-5981 Telephone: 212-357-1804 Telephone: 7-495-645-4041 Telephone: 91-22-6616-9045

Maria-Laura Adurno Viswa Sandeep Sama, CFA Elena Malareva Dhruv [email protected] [email protected] [email protected] [email protected]

Telephone: 44-20-7051-4264 Telephone: 917-343-4601 Telephone: 7-495-645-4014 Telephone: 91-80-6637-8763

Shaurya [email protected]

Telephone: 212-934-6970

Zachary A. [email protected]

Telephone: 801-884-4266

Midcap SteelWill Wyman Yulia Chekunaeva

[email protected] [email protected]

Telephone: 44-20-7552-2998 Telephone: 7-495-645-4228

Chris Beaven Nina [email protected] [email protected]

Telephone: 44-20-7051-0662 Telephone: 7-495-645-4230

Vahe [email protected]

Telephone: 7-495-645-4295



Our industry outlook in 12 charts…

Exhibit 3: Oil Service revenue has followed E&P capex/blOil service revenue & market cap, E&P capex/bl rebased

Exhibit 4: The past decade driven by unconventionals Top 400 capex for heavy oil, LNG, shale and deepwater

Source: Company data, Goldman Sachs Global Investment Research.


Exhibit 5: US shale has addressed lack of resources… Top 400 reserve additions split shale and conventional

Exhibit 6: .. splitting the industry cost curve at US$85 Top 400 oil supply curve by win zone



Exhibit 7: US shale ramp-up continues Number of wells drilled for shale gas & liquids in N America

Exhibit 8: Completion capex growing faster than drilling

in US land yoy % change for drilling, completion and total capex

Source: Company data, Goldman Sachs Global Investment Research. Source: Goldman Sachs Global Investment Research.

0

50

100

150

200

250

300

350

400

450

500

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Oil Services revenue E&P Capex/bbl produced Market Capitalisation

Re

ba

sed

to

100

in

200

2

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E

US

$mn

Heavy oil Deep water LNG US Shales

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Mn

bls

of

liq

uid

s

Conventional exploration Shale access

20

30

40

50

60

70

80

90

100

110

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 12,000

Breakeven

(US$/bl)

Cumulative Peak Production (kbls/d)

Traditional

Heavy oil

Deepwater

"Shale oil"

Ultradeepwater

0

2,000

4,000

6,000

8,000

10,000

12,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E

Wel

ls d

rille

d

North America Unconventional gas wells North America Unconventional liquid wells

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Drilling Capex Completion capex Total Capex

2013 2014 2015



Our industry outlook in 12 charts…

Exhibit 9: NOCs account for >50% of global oil productionOil production split by company type

Exhibit 10: ... while IOCs account for c.35% of capex Split of industry capex by company type



Exhibit 11: Middle East rig count is moving to new

highs… Offshore and onshore rig count in the Middle East

Exhibit 12: ... while IOCs are reinvesting at 15-year highsGlobal listed coverage capex (US$ mn) vs reinvestment rate

(capex/operating cash flow)

Source: Baker Hughes.


Exhibit 13: Offshore rig count growth moderating Number of floaters and jackups working

Exhibit 14: We anticipate a slowdown in major projects Top 400 capex sanctioned by year

Source: ODS Petrodata, Goldman Sachs Global Investment Research.


Other NOCs, 34%

Saudi Aramco, 12%

National Iranian Oil Company, 5%

China National Petroleum Corp. ,

4%

PdVSA, 3%

BP, 3%ExxonMobil, 3%

Royal Dutch Shell, 2%

Other IOCs, 19%

Other, 16%2013 %

Listed NOCs 204,669 25%

Unlisted NOCs 152,900 19%

European Integrated 156,743 19%

US integrated 120,023 15%

US E&Ps 89,061 11%

Asian Oils** 17,537 2%

Russian oils* 23,895 3%

Canada integrated 16,842 2%

LatAm*** 13,713 2%

Australia Oils 7,392 1%

European E&Ps 8,836 1%

Total 811,611 100%

* Excludes Gazprom, Rosneft, Kazmunaigaz which are included in the NOCs**Excludes CNOOC/Petrochina which is included in NOCs***Excludes Petrobras which is included in NOCs

Capex US$ mn

20

25

30

35

40

45

50

55

170

190

210

230

250

270

290

310

330

350

370

Off

sho

re r

igs

Ons

hore

ro

gs

Onshore rigs Offshore rigs

0%

20%

40%

60%

80%

100%

120%

0

100,000

200,000

300,000

400,000

500,000

600,000

Total Global Capex Global Reinvestment rate

200

250

300

350

400

450

500

100

120

140

160

180

200

220

240

260

280

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014E

2015E

2016E

2017E

Floaters Working Jack‐Ups Working

Moderating growth following two years of above trend growth

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E

Cap

ex

san

ctio

ned

(U

S$

mn

)

Deepwater Exploitation Gas

GTL Heavy oil LNG

Russia Traditional 3-yr moving average



PM Summary: Competitive positioning critical in lower growth world

We introduce the GS Competitive Positioning (CP) framework for Global Oil Services, covering 50 oil service companies globally. From an industry perspective, we see US shale as having transformed the industry in terms of access to resource, splitting the industry cost curve at US$85/bl and forcing major oil companies to focus more on cost optimization, efficiency and position on the cost curve rather than on pure growth. Thus growth shifts to onshore – US shale, and national oil companies (NOCs) – from offshore in the near-to-medium term. In this lower, more moderate growth environment, we believe that competitive positioning is key, as strong companies with a differentiated offering and ability to offer new work relationships with NOCs and other clients in the form of ‘Integrated Project Management’ or ‘Production Management’ will have access to growth, and will be able to leverage that to deliver superior growth and returns over time.

We identify several ongoing themes that are likely to continue to shape the sector over the

coming years, including increasing technical complexity, the rise of shale, increasing health,

safety and environmental costs and regulatory requirements, and the move to deepwater.

We believe companies that have a strong competitive position are likely to have exposure

to the key growth areas of shale, NOCs and deepwater; proximity to the well to enhance

well productivity and maximize recovery rates; and the ability to differentiate through

providing the most cost effective solutions, reliable and value-add technology, product

integration and effective project management.

We rank each company in our CP framework based on:

Barriers to entry (age adjusted for the offshore drillers).

Market structure (Herfindahl index and market share based on end-markets).

Execution and risk management (through volatility of returns).

Access to growth based on our Top 400 analysis and rig count forecasts.

We analyse this across 37 different end-markets within the industry. Looking at the

performance for the different companies in the sector, the Q1 companies have

outperformed Q4 companies over every time period from 3 months to 5 years, with the

outperformance averaging (49%/97%) over 3/5 years.



Exhibit 15: Introducing the GS Competitive Positioning framework for the Global Oil Service sector GS Competitive Positioning framework including rating, region and primary analyst


Competitive Positioning ‘winners’: Well service, differentiated

technology and niche segment leaders

In terms of sub-sectors, the large cap service companies screen as having the highest score,

reflecting the high market shares, concentrated markets and high barriers to entry that

these companies enjoy. Next comes the equipment companies, which have high barriers to

entry and in general favourable market structures in certain niches. The oil country tubular

goods (OCTG) companies also come out relatively well, helped by the high concentration

and market share in the premium OCTG segment.

At the other end of the scale are the less differentiated segments, with drilling (both

offshore and onshore) and seismic screening as having the lowest CP scores, reflecting low

barriers to entry, more fragmented markets and lower growth opportunities, particularly

for seismic.

Ticker Company Name Rating Region AnalystCP

score

Weighted average barriers to entry (1st to 5th)

% rank Weighted average Herfindhal Index

Weighted average Market share

% rank CROCI volatility

% rank Weighted end market growth

% rank CROCI Average 2013-2016E

% rank

SLB Schlumberger, Ltd. Buy Americas Waqar Syed 100% 2.6 67% 18% 24% 92% 30% 57% 7% 92% 15% 73%OII Oceaneering International, Inc. Buy Americas Waqar Syed 98% 3.2 88% 19% 13% 71% 9% 98% 5% 47% 19% 88%HAL Halliburton Company Buy* Americas Waqar Syed 96% 2.8 76% 17% 22% 88% 35% 39% 7% 96% 15% 69%BHI Baker Hughes Inc. Buy Americas Waqar Syed 94% 3.0 80% 18% 18% 82% 41% 29% 8% 100% 12% 43%SBOE.VI Schoeller-Bleckmann Neutral Europe Will Wyman 92% 2.6 65% 19% 2% 55% 22% 84% 6% 84% 16% 78%TS Tenaris S.A. Neutral Europe Henry Tarr 90% 2.6 61% 18% 31% 92% 27% 69% 5% 55% 11% 39%WFT Weatherford International Ltd. Neutral Americas Waqar Syed 88% 2.7 71% 16% 16% 63% 32% 55% 6% 88% 10% 24%AKSO.OL Aker Solutions Buy* Europe Henry Tarr 86% 3.6 96% 15% 9% 53% 34% 45% 6% 82% 12% 45%O2C.DE C.A.T oil AG Buy Europe Geydar Mamedov 84% 2.7 69% 14% 21% 67% 36% 37% 7% 98% 22% 94%NOV National Oilwell Varco Neutral Americas Waqar Syed 82% 3.3 92% 29% 27% 98% 28% 61% 4% 18% 12% 47%WG.L John Wood Group Plc Buy Europe Henry Tarr 80% 2.9 78% 12% 16% 55% 19% 90% 5% 43% 14% 63%FTI FMC Technologies Neutral Americas Waqar Syed 78% 5.0 98% 12% 21% 61% 28% 63% 5% 37% 19% 86%FI Frank's International N.V. Sell Americas Waqar Syed 76% 2.3 49% 14% 22% 80% 26% 72% 5% 53% 20% 92%CRR CARBO Ceramics Inc. Neutral Americas Waqar Syed 73% 2.0 27% 15% 0% 33% 14% 96% 7% 94% 14% 61%CAM Cameron International Corp. Neutral Americas Waqar Syed 71% 5.0 98% 13% 16% 59% 30% 59% 4% 20% 14% 65%AMEC.L Amec Plc Not Rated Europe Henry Tarr 69% 2.5 59% 10% 17% 47% 17% 94% 5% 31% 16% 80%HTG.L Hunting Plc Neutral Europe Will Wyman 67% 3.4 94% 13% 1% 16% 25% 78% 5% 39% 10% 35%TGS.OL TGS Nopec Sell* Europe Henry Tarr 65% 2.5 55% 21% 14% 84% 23% 82% 3% 4% 16% 76%SDRL.OL SeaDrill Ltd Neutral Europe Henry Tarr 63% 2.5 55% 9% 10% 29% 27% 67% 5% 65% 11% 41%TRMKq.L TMK Buy Europe Yulia Chekunaeva 61% 2.4 53% 17% 18% 78% 37% 33% 5% 51% 11% 37%VLLP.PA Vallourec Buy Europe Henry Tarr 57% 2.6 61% 18% 19% 84% 66% 8% 5% 55% 7% 8%ATW Atwood Oceanics, Inc. Buy Americas Waqar Syed 57% 2.3 47% 9% 2% 4% 18% 92% 5% 65% 13% 57%TECF.PA Technip Sell Europe Henry Tarr 55% 3.2 86% 15% 20% 67% 38% 31% 4% 22% 15% 67%PRSO.OL Prosafe Sell Europe Henry Tarr 51% 1.0 0% 33% 55% 100% 19% 88% 4% 16% 14% 59%EDCLq.L Eurasia Drilling Company Buy Europe Geydar Mamedov 51% 2.0 27% 6% 33% 51% 21% 86% 5% 41% 22% 96%SUBC.OL Subsea 7 S.A. Buy Europe Henry Tarr 49% 3.1 84% 19% 18% 90% 49% 21% 4% 10% 10% 33%RES RPC, Inc. Buy Americas Waqar Syed 47% 1.8 12% 14% 3% 35% 27% 65% 6% 86% 19% 90%FUGRc.AS Fugro NV Sell Europe Henry Tarr 45% 1.8 14% 16% 6% 49% 25% 76% 5% 59% 10% 29%RIG Transocean Ltd. Sell Americas Waqar Syed 43% 1.9 22% 9% 21% 43% 33% 51% 5% 65% 8% 12%CJES C&J Energy Services, Inc. Not Rated Americas Waqar Syed 41% 2.1 41% 16% 2% 39% 60% 10% 7% 90% 17% 82%SBMO.AS SBM Offshore Neutral Europe Henry Tarr 39% 1.7 8% 16% 20% 71% 37% 35% 5% 61% 7% 10%ODLL.OL Odfjell Drilling Ltd Buy Europe Henry Tarr 37% 3.1 82% 8% 1% 0% 34% 47% 5% 45% 9% 16%NBR Nabors Industries, Ltd. Not Rated Americas Waqar Syed 33% 2.1 39% 9% 9% 22% 24% 80% 5% 27% 9% 20%BAS Basic Energy Services, Inc. Buy Americas Waqar Syed 33% 2.0 27% 11% 6% 35% 35% 43% 5% 63% 13% 53%EMGS.OL emgs Neutral Europe Henry Tarr 31% 3.3 90% 22% 6% 65% 309% 0% 3% 6% 18% 84%HP Helmerich & Payne, Inc. Neutral Americas Waqar Syed 29% 2.0 27% 6% 10% 16% 8% 100% 4% 8% 15% 71%SPMI.MI Saipem Neutral Europe Henry Tarr 27% 2.4 51% 12% 14% 45% 35% 41% 4% 12% 7% 6%GEPH.PA CGGVeritas Neutral Europe Henry Tarr 24% 1.0 0% 19% 32% 96% 34% 49% 2% 0% 3% 0%2883.HK China Oilfield Services (H) Neutral Asia Pacific Nilesh Banerjee 22% 1.8 16% 11% 3% 31% 26% 74% 5% 24% 12% 49%DO Diamond Offshore Drilling Neutral Americas Waqar Syed 20% 1.7 8% 9% 7% 12% 33% 53% 5% 65% 10% 22%KEG Key Energy Services Inc. Neutral Americas Waqar Syed 18% 2.0 24% 10% 11% 41% 44% 25% 5% 49% 7% 4%NE Noble Corporation Neutral Americas Waqar Syed 16% 2.1 37% 9% 8% 16% 50% 18% 5% 65% 9% 18%PFC.L Petrofac Neutral Europe Henry Tarr 14% 2.7 73% 9% 4% 24% 141% 4% 5% 33% 26% 98%RDC Rowan Companies, Plc. Neutral Americas Waqar Syed 10% 2.2 43% 9% 3% 8% 50% 16% 5% 65% 8% 14%ESV Ensco plc Neutral Americas Waqar Syed 10% 1.8 18% 9% 9% 27% 45% 23% 5% 65% 10% 31%PES Pioneer Energy Services Corp. Buy Americas Waqar Syed 8% 2.2 43% 10% 2% 12% 52% 14% 5% 35% 13% 55%PTEN Patterson-UTI Energy, Inc. Buy* Americas Waqar Syed 6% 2.0 27% 9% 5% 10% 41% 27% 5% 29% 12% 51%PGS.OL Petroleum Geo Services ASA Sell Europe Henry Tarr 4% 1.0 0% 19% 14% 71% 54% 12% 2% 0% 6% 2%HERO Hercules Offshore, Inc. Sell Americas Waqar Syed 2% 1.6 6% 9% 2% 2% 87% 6% 5% 65% 10% 27%TRE.MC Tecnicas Reunidas Neutral Europe Henry Tarr 0% 1.9 20% 7% 3% 6% 182% 2% 4% 14% 63% 100%

*Included on regional Conviction List

Barriers to entry Market Structure Risk and Execution Access to Growth Return on Capital



The stocks which screen as having a first-quartile CP position can broadly be split into large

cap services, companies with differentiated technology, and niche segment leaders:

Large cap services: Schlumberger, Halliburton, Baker Hughes

These companies all have differentiated technology, access to growth through the US

shales, national oil companies (NOCs) and/or deepwater, and proximity to the well where

the operator’s focus and the ability to make differentiated returns is greatest. Moreover,

their ‘reservoir knowledge’ and product integration allows them to offer unique ‘work

relationships’ to customers, especially NOCs. These work relationships like Integrated

Project Management (IPM) and Production Management (PM) are growing with NOCs but

in time may be adopted by other customers as access to specialized labour becomes more

challenging.

Technology leaders: NOV, FMC Technologies, Aker Solutions, Tenaris

These companies all have high market share in some critical equipment combined with

access to growth, primarily in subsea activity.

Niche segment leaders: Schoeller Bleckmann, Franks International, C.A.T Oil, Wood Group, Oceaneering

This group is made up of companies that have a strong position in a certain niche in the

industry. Schoeller Bleckmann manufactures drillstring components, Franks International

specializes in tubular services such as casing running, Oceaneering has a high market

share for ROV services on offshore rigs, C.A.T Oil has a strong market share in fracturing

and horizontal drilling in Russia, and Wood Group has a leading offshore engineering

business. The common feature of this group is typically a high degree of focus on specific

niches, high market share and attractive returns.

We show this group of CP winners in Exhibit 16, along with three other screens: CP

winners at a discount (companies with Q1/Q2 CP scores which are trading at a 10%+

discount to their 10-year average EV/EBITDA multiple); Returns Improvers, which are

companies with Q3/Q4 CP scores, but where we see change in returns and EPS growth as

being better than average; and Challenged Positioning, which are those companies which

screen with lower half CP scores, trade at a premium to history and where we expect

below-average EPS growth and change in returns.

CP one important element in stock-picking framework

The CP framework itself does not drive stock-picking, and we have Sell-rated stocks with

Q1 CP scores, and Buy-rated stocks with Q4 CP scores. The CP score does inform our

estimates for the stocks, however, particularly on a 3-5 year horizon as we expect the

stronger/weaker competitive positioning to be reflected in relative growth and return

dynamics. We look for stocks where the CP, growth and returns are not reflected in

valuation, or where companies are transforming their CP, for better or worse.



Exhibit 16: Stocks to select and stocks to avoid based on the competitive positioning data Four stock screens using the CP data (inc. ratings and price target upside*)

* All price targets have 12-month timeframe except Schoeller-Bleckmann, which is 6-month


Competitive positioning: Key industry drivers

We see several ongoing themes that are likely to continue to shape the sector over the

coming years:

Increasing technical complexity: this is a function of the more challenging

resources that now need to be developed to meet demand, particularly in

unconventional developments; heavy oil, shales, deepwater and liquefied natural

gas (LNG) are all more complex and expensive than traditional developments.

The rise of shale: we see this new resource as the marginal source of supply,

providing the bulk of non-OPEC supply growth and answering the industry’s hunt

for resources.

Increasing health, safety & environmental (HSE) and regulatory requirements: post the Macondo incident, there is an increasing focus on safe

operations that adds a layer of cost and complexity, particularly to offshore

operations. In addition, operational reliability and reduction of unplanned

downtime is becoming a key differentiator.

The move to deepwater: this has opened up significant new resources,

providing both challenges and opportunities for companies able to facilitate these

developments.

We believe that companies that have a strong competitive position and can differentiate

themselves are likely to have some of the following characteristics:

Exposure to the key growth areas of shale, NOCs and deepwater.

Proximity to the well – we see an increasing focus on enhancing well productivity

and maximizing recovery rates. Companies which can facilitate in this process are

well placed.

CP 'winners' Strong CP at a discount Restructuring/ improving returns Challenged position

Companies screeing with Q1 CP Companies in Q1/Q2 CP, trading at more than a 10% discount to 10 yr average EV/EBITDA

Companies in Q3/Q4 CP which are seeing above average CROCI change and EPS growth above average

Companies with Q3/Q4 CP, trading at a premium to history with below average EPS growth and returns deterioration

expected

Schoeller-Bleckmann; Neutral; 6% Aker Solutions; Buy*; 20% Saipem; Neutral; 9% Tecnicas Reunidas; Neutral; 1%

Tenaris S.A.; Neutral; 5%

Aker Solutions; Buy*; 20%

John Wood Group Plc; Buy; 9%

Schlumberger, Ltd.; Buy; 21% Baker Hughes Inc.; Buy; 28% Helmerich & Payne, Inc.; Neutral; 9% Diamond Offshore Drilling; Neutral; -6%

Oceaneering International, Inc.; Buy; 27% Atwood Oceanics, Inc.; Buy; 21% Rowan Companies, Plc.; Neutral; 7% Noble Corporation; Neutral; -2%

Halliburton Company; Buy*; 28% Weatherford International Ltd.; Neutral; 6% RPC, Inc.; Buy; 30% Transocean Ltd.; Sell -22

Baker Hughes Inc.; Buy; 28% Nabors Industries, Ltd.; Not Rated

Weatherford International Ltd.; Neutral; 6% C&J Energy Services, Inc.; Not Rated

National Oilwell Varco; Neutral; 3% Basic Energy Services, Inc.; Buy; 39%

FMC Technologies; Neutral; 9%

Frank's International N.V.; Sell; -5%

C.A.T oil AG; Buy; 85% TMK; Buy; 45%

C.A.T oil AG; Buy; 85%

Europe

Americas

CEEMEA



Ability to differentiate: either through providing the most cost effective solutions

(perhaps through larger scale, or better technical or engineering solutions) or by

providing differentiated technology which is going to maximize value to the client.

Exhibit 17: Rising industry complexity, the rise of shale and the move to deepwater remain key industry themes Key industry themes and the competitive positioning metrics


Capturing the drivers in our metrics

In calculating our CP scores, we use the specific metrics and calculations laid out below.

We split the calculation equally between:

1. Barriers to entry: a 1-5 score based on a weighted average of end-markets. For

offshore drillers, we make an additional adjustment to take into account the

age of the fleet. We adjust the barriers to entry score (which is 2 for offshore

drillers) by an amount ranging from +0.5 (young fleet relative to peers) to -0.4

(old fleet compared to peers).

2. Market structure: We calculate a Herfindahl index based on the revenue

exposure to different end-markets and we calculate a revenue-weighted

market share for each company to give a combined market structure score.

3. Risk and execution: we measure volatility of returns (CROCI volatility 2006-

2013 to measure risk and track record of execution.

4. Access to growth, based on end-market exposure, where the end-markets

growth is calculated through Top 400 analysis or our rig count forecasts.

Drivers of corporate performance

CP Metrics

Competitive Positioning

Themes shaping industry (next 5-10 years)

The rise of shale

The success of shale in the US remains a key driver of the world’s largest onshore oil

service market.

Increasing HSE and regulatory requirements

The industry is focusing harder on HSE issues and the

Macondo incident has led to heightened awareness of

health, safety and environmental risks embedded

in projects. This is driving a move towards higher standards and more modern equipment.

The move to deep water

The industry is developing fields in greater water depth, providing

both opportunities, for those companies with the assets and

capabilities to provide these services, and challenges, as

older and less capable assets begin to become obsolete.

Increasing technical complexity

Increasingly the industry is moving towards developing more technically challenging

and unconventional resources. From a service perspective this

provides opportunities for differentiated returns for

companies able to provide solutions for the next generation

of projects

Revenue weighted Herfindahl index

Revenue weighted market share

Herfindahl index, indicating the

competitiveness of each company’s end markets

Revenue weighted market share, capturing market dominance and

potential for pricing power and economies of

scale

CROCI volatility

Volatility of CROCI over the previous cycle 2006-2013. Indicates earnings

resilience and hence indicates risk profile and

pricing power

Barriers to Entry

A revenue weighted Barriers to Entry score,

with each subsector allocated a 1-5 score based on time/capital requirements to enter

Market structurePricing power/cost advantage

Risk and ExecutionTechnology risk/

disruption riskCP Category

Access to Growth

Revenue weighted access to growth across

the end markets.

Access to growth



Exhibit 18: Detailed competitive positioning metrics


We assess competitive positioning across 37 different end-markets

To calculate the different metrics, we had to break down the end-markets to which the

companies are exposed and study them in terms of barriers to entry, Herfindahl index and

the access to growth. We broke the exposure down to 37 different end-markets.

Defining the market characteristics

Exhibit 19 details our estimates for the different end-markets in terms of barriers to entry,

access to growth and the Herfindahl index for the segment.

It is worth pointing out that within each market segment, there are some instances where

companies have created a niche high-technology higher entry barrier position for

themselves in an otherwise undifferentiated market, and that aspect may not be fully

captured by us in CP positioning. Similarly, some companies may have a less differentiated

position in a certain segment which is not captured by this analysis.

There are several examples of companies where we may not be capturing the

differentiation, for example Schlumberger’s position in wireline is highly differentiated,

though there are some aspects of wireline that are highly commoditized. Similarly,

Halliburton has a differentiated position in pressure pumping owing to its superior logistics,

large scale and high technology fracture fluid offering, though most of the pressure

pumping market is undifferentiated. Similarly from an ‘access to growth’ perspective,

Helmerich & Payne, Patterson-UTI Energy and Nabors Industries have gained market share

in US land drilling owing to their high exposure to the niche Tier 1 drilling rigs, though the

land drilling market itself is low growth.

CP category Metric Weight Calculation Notes

Technology risk/disruption risk Barriers to Entry 25%

Revenue weighted score, with each end market given a rating of 1-5 based on amount of time/capital required to enter the market. We also make an additional adjustment for the offshore drillers based on the age of the fleet by an amount ranging from +0.5 to -0.4.

This is done as objectively as possible, where 1 is a market which can be entered with limited capital in a short period of time. 5 means that to enter effectively requires an acquisition

Market share Revenue weighted market share across end markets (2012 data)

Herfindahl index The revenue weighted Herfindahl index across end markets

Risk and Execution CROCI Volatility 25% The standard deviation of CROCI/average CROCI 2006-2013

We include this metric to capture different risk profiles and cyclicality within the industry. Certain business models (eg. fixed price construction) are inherently more risky than others (eg. cost plus engineering) but this is not captured in the other metrics. Similarly, a highly cyclical CROCI indicates a lack of pricing power and competitive advantage.

Access to Growth Access to Growth 25% The revenue weighted access to growth across end markets Access to growth remains a key driver of advantage and positioning

Combined 25%

Market share in some markets can confer cost or pricing power. We combine the individual company market share with the Herfindahl index of the end markets to gain a more comprehensive view of industry structure, and hence pricing power or cost advantage.

Market structurePricing power/cost advantage



Exhibit 19: Segmenting the market Barriers to entry, access to growth and Herfindahl calculation by market segment


Barriers to Entry

Access to Growth

Herfindahl Index

Drilling & Oilfield Equipment 5 4.2% 3.2%

Subsea Equipment 5 5.0% 16.5%

Logging while drilling 5 10.0% 29.5%

Drilling package for Rigs 5 4.2% 60.5%

BOP 5 4.2% 34.1%

Deep water subsea installation 4 5.7% 23.9%

Premium OCTG/Equipment/Services 4 5.5% 21.1%

Artificial Lift - ESP 4 10.0% 12.0%

Directional drilling 4 10.0% 15.8%

Drilling & completion fluids 4 8.0% 20.6%

ROV 4 5.7% 10.8%

Drillbit 4 6.0% 20.1%

Completion equipment 4 10.0% 17.9%

Offshore Engineering 4 5.3% 13.2%

Seismic equipment/data 4 3.5% 22.7%

Artificial Lift - Conventional 3 5.0% 12.0%

Wireline 3 8.0% 24.9%

Specialty Chemicals 3 7.0% 17.7%

Shallow water subsea installation 2 1.4% 13.2%

FPSO 2 5.6% 15.0%

Offshore IMR services 2 7.5% 21.0%

Onshore Engineering 2 4.2% 7.6%

Pressure pumping 2 7.0% 15.1%

Well servicing 2 4.0% 7.7%

OCTG 2 4.9% 16.6%

Offshore Drilling 2 5.3% 8.8%

Onshore Construction 2 4.2% 6.8%

Casing & Tubing services 2 5.0% 13.1%

Coiled tubing services 2 5.0% 9.2%

Onshore drilling 2 3.5% 5.7%

Russian onshore drilling 2 4.8% 5.7%

Marine transportation 1 4.3% 9.9%

Other services 1 4.2%

Seismic acquisition 1 2.0% 18.7%

Offshore accomodation 1 4.2% 33.3%

Onshore Power & Infrastructure 1 4.1% 6.8%

Rental and Fishing 1 5.0% 11.6%



Equipment and large cap services stand out as having the highest

barriers to entry

We split revenue for all companies under coverage into the categories above, and arrive at

a revenue-weighted barriers to entry score for each company. We have roughly split the

coverage group into ten different market segments as per Exhibit 20. The chart shows the

average barriers to entry score by sub-sector on a percentile basis.

Based on this, we clearly see the highest barriers to entry being in the equipment and large

cap service segments. Some of the equipment companies under coverage have high

market shares in technologically complex equipment, leaving them in strong entrenched

positions. This is the case with FMC, Aker Solutions and Cameron in subsea equipment,

Schoeller Bleckmannn in drill string components, NOV in drilling packages etc. In the case

of the large cap services, we see the scale of these businesses, combined with the breadth

of service offered and the complex technology in certain components, as being meaningful

barriers to entry to any company attempting to challenge Schlumberger, Halliburton and

Baker Hughes.

At the other end of the scale, we see limited barriers to entry in seismic, drilling and other

marine (floating production storage & offloading units – FPSOs, flotels) segments. In

general, these businesses are asset rental businesses, where the owners own and rent out

the rigs/vessels but there is limited differentiation between them in the market. They are

price takers, reliant on the supply/demand balance in the market, and the main barrier to

entry is the capital required to order a new asset.

Exhibit 20: Equipment and large cap services have highest barriers to entry

Average percentile barriers to entry across oil service sub-segments


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Barriers to Entry



OCTG and large cap services have the most concentrated market

structure

There are specific end-markets which are highly concentrated, such as drilling packages for

rigs, offshore accommodation and logging while drilling, but few companies have pure

exposure to single end-markets. In Exhibit 21, we show the average market structure

scores by sub-sector. Across the different sub-sectors, the OCTG companies and the large

cap services have high market shares in highly concentrated markets. The ‘Other marine’

segment screens as having the most concentrated markets, as Prosafe has a large market

share in the niche flotel business, and SBM Offshore has a high market share in FPSOs.

The drillers have a relatively weak market structure, with a more fragmented market both

offshore and onshore.

Exhibit 21: OCTG and large cap services enjoy attractive market structures Average percentile market structure score (Herfindahl index and market share) by sub-sector


Growth rates similar for many segments, large cap and seismic

stand out

We show in Exhibit 22 the average assumed growth rates for the different sub-sectors,

based on Top 400 growth rates or our rig count forecasts. In general, the growth rates are

similar, as might be expected given the close linkages in activity between many of the

segments, although two segments stand out: the large cap services, which we believe are

likely to benefit from high levels of well-related activity as there is increasing focus on

enhancing well productivity; and seismic, where we see lower growth after a period of

strong demand growth. We see lower growth in exploration spend partly driven by the

growth of US shale which has reduced the imperative to discover new reserves.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Market structure



Exhibit 22: Large cap services stand out as having high growth, and seismic low growth Average percentile growth rate by sub-sector


Large cap services, equipment and OCTG sub-sectors have best

competitive positioning

We show in Exhibit 23 the average CP score percentile across the different sub-sectors. The

large cap service companies screen as having the highest score, reflecting the high market

shares, concentrated markets and high barriers to entry that these companies enjoy. Next

comes the equipment companies, which have high barriers to entry and in general

favourable market structures in certain niches. The oil country tubular goods (OCTG)

companies also come out relatively well, helped by the high concentration and market

share in the premium OCTG segment.

At the other end of the scale are the less differentiated segments, with drilling (both

offshore and onshore) and seismic screening as having the lowest CP scores, reflecting low

barriers to entry, more fragmented markets and lower growth opportunities, particularly

for seismic.

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%



Exhibit 23: Large cap services and equipment screen well in CP, with drillers and seismic

screening at the low end Average percentile for CP scores by sub-sector


The oil service sector has been key winner of increasing cost of oil

The cost of extracting a barrel of oil has nearly quadrupled since 2002, as measured by the

exploration & production (E&P) capex per barrel of oil produced across our global oils

coverage. Over the same period, revenue and market capitalization for the oil service

companies under coverage has moved up by a similar amount.

Looking forward into 2015 and 2016, we see a striking divergence between the E&P

capex/bbl and oil service revenue expectations, which points to different expectations for

oil companies and service companies, where the E&P sector is being forecast to grow

production at a lower reinvestment rate, while revenue expectations for the service sector

has it growing.

This raises the issue that either the service company revenue projections are wrong, or

capital spending expectations laid out by analysts for oil companies are wrong. We point

out that over the last several years, E&P spending has typically surprised on the upside and

production on the downside. Moreover, as the proportion of oil production coming from

shales increases, we will likely see an increase in global oil production decline rates, given

that historically decline rates have been in the 4%-5% range while oil shales can show

production declines of about 75% during the first year of production. Our study of the Eagle

Ford oil wells in the Gonzalez County shows 70% decline rates between 1st and 12th month

of production, and another 60% decline between 12th and 24th month of production. The

‘Shale treadmill’ requires significant industry reinvestment for production maintenance and

growth. Schlumberger has stated that almost 80% of the new wells being drilled in shale

oil are being drilled just to offset production declines.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Sector CP scores



The bottom line is that because of the nature of the resources that the industry is exploiting

now, we do not expect the industry to be able to grow production while scaling back capex.

We thus expect upward surprises in global E&P spending in aggregate from the current

level of expectations baked into the figures below. For 2014, we have already seen analyst

and company expectations of US 2014 E&P budgets being revised higher during the course

of the year.

Exhibit 24: Oil service revenue and global market cap has roughly quadrupled since 2002,

in line with E&P capex/bbl Total oil service revenue and market cap of GS covered companies, and E&P capex/bbl produced

from GS covered oil companies rebased to 100 in 2002


0

100

200

300

400

500

600

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E

Oil Services revenue E&P Capex/bbl produced Market Capitalisation

Re

ba

sed

to

10

0 in

20

02



Rising development costs have been driven by greater complexity

The past decade has seen the rise of more unconventional sources of oil and gas, with

capex spend for the Top 400 projects being dominated by the rise in heavy oil, deepwater,

LNG and US shale plays. These developments are more complex from a technical

perspective, and have driven development costs higher.

Exhibit 25: Growth in unconventional developments has dominated the past decade Top 400 capex from heavy oil, deepwater, LNG and US shales, risked


Shale is redefining the industry, and shifting the axis of growth

We believe that the US shale plays are changing the landscape of the oil and gas industry

fundamentally, changing behaviour and forcing the major oil companies to re-assess their

investments as shale oil becomes effectively the marginal source of supply, providing the

bulk of non-OPEC production growth.

Most global oil resources around the world are in the hands of the national oil companies

(NOCs). In the past, the integrated oil companies (IOCs) have been the marginal producers

finding conventional reserves in the deepwater and other markets. The rise of the shales

has increased the role of 700+ independent E&Ps that now operate in the North America

(NAM) market.

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E

US

$mn

Heavy oil Deep water LNG US Shales



Shale has addressed the industry’s shortage of resources

Each year, we publish the ‘Top Projects’ report, an analysis of the largest new oil and gas

fields globally. Since publication of the Top 280 report in January 2010, we have added

c.120 new fields to our analysis (owing to new industrial developments, without

methodology changes from our side), continuing the trend of improvement that has been

noticeable since the Top 230 publication in 2009. We have added 158 bn bls of oil (83%

through shale access, 17% through exploration) and 89 bn boe of gas (72% through shale

access, 28% through exploration). This is equivalent to a 110% reserve replacement for gas

and 124% replacement for oil, without taking into account any impact from improved

recovery from legacy fields or smaller discoveries that do not fall into the scope of this

report. This shows that the sector has moved from a period of resource scarcity (2001-07

only showed 15% and 20% reserve replacement in oil and gas, respectively) to an

abundance of resources that makes the positioning of projects on the cost curve

increasingly important.

Shale access has clearly marginalized the importance of exploration in terms of size and

shows positive momentum at a time when conventional exploration is struggling. This

shows, in our view, a more marginal role of conventional exploration and the limited

success (so far) of increasing exploration budgets at the major international oil companies.

On the other hand, well intervention and production management of mature fields has

increased, especially with NOCs.

Exhibit 26: Shale access has added 2x the volumes of oil

discovered through conventional exploration over the

past 15 years... Oil resources added each year through conventional

exploration or shale access

Exhibit 27: …and 2x the gas discovered Gas resources added each year through conventional

exploration or shale access

Source: Company data, Goldman Sachs Global Investment Research


We see a flatter oil industry cost curve, with shale oil splitting

developments at US$80-85/bl

The successful reserve additions since 2009 have led to a transformation of the cost curve,

which now encompasses three times the future peak production from new giant fields than

we expected five years ago. This clearly offers the industry a degree of choice not available

before and therefore a need for greater focus on quality (position on the cost curve) vs.

quantity (reserves and production).

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Mn

bls

of

liqu

ids


-

10,000

20,000

30,000

40,000

50,000

60,000

Mn

bo

e o

f g

as




Exhibit 28 shows how the oil cost curve has changed over the past five years. The advent

of shale oil has led to a considerable flattening of the curve around US$80-85/bl Brent

breakeven, which effectively acts as a separation between what we consider to be the

attractive part of the cost curve (<US$80/bl breakeven) and the unattractive part

(>US$85/bl). Shale developments are dominant in terms of volumes, but not in terms of

economics, sitting higher than most traditional and deepwater developments.

Exhibit 29 shows a breakdown of the current cost curve by development areas. Shale oil

accounts for the largest amount of future production, mostly in the big three plays of the

Eagle Ford, Bakken and Permian, with the Vaca Muerta the only play outside of North

America. The cost curves for the other developments are much steeper and show greater

differentiation, with the ultra-deepwater the second most important development area after

shale. The industry’s success in adding resources continues, but with lower marginal

economics.

Exhibit 28: The oil cost curve from Top 400 has

flattened… Breakeven of non-plateau oil assets, Top 400 vs previous

reports

Exhibit 29: …with shale oil; substituting the need for

projects with US$85/bl+ breakeven Top 400 breakeven of non-producing oil assets by category

Source: Goldman Sachs Global Investment Research


With a range-bound oil price, the global majors are hitting cash

constraints

The oil majors have become cash constrained

In a range-bound oil price environment, the major oil companies globally are currently free

cash flow (FCF) negative after capex and dividends, at the current oil price level. After very

strong FCF generation in 2003-08, capex has caught up with the oil price, and the

companies are funding their dividends from the balance sheet, as can be seen in Exhibit 28.

Exhibit 29 shows that the aggregate level of capex from the global majors has tracked the

three-year average oil price closely over time, increasing to 30% above the peak levels in

2008 by 2013. Based on our oil price forecasts, we now expect the three-year average oil

price to decline gently into 2015/16.

0

20

40

60

80

100

120

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000

Breakeven

(US$/bl)


Top 330,2011

Top 280, 2010

Top 360, 2012

Top 230, 2009

Top 380, 2013

Top 400, 2014

20

30

40

50

60

70

80

90

100

110

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 12,000

Bre

ake

ven

(U

S$/

bl)


Traditional

Heavy oil

Deepwater

"Shale oil"

Ultradeepwater



Exhibit 30: Oil majors are FCF negative after dividends at

current oil prices… Global oil majors FCF after dividends and capex, the YOY

change in capex and the YOY change in Brent oil prices

Exhibit 31: Total capex from global major oils has tracked

the three-year average oil price Majors capex in US$ mn and three-year average Brent oil

price



Globally, the listed oil universe is FCF negative, with reinvestment

rates at 15-year highs

The same dynamics are evident across the listed oil company universe under coverage,

with cash flow (post capex and dividends) being materially negative, and expected to stay

this way through 2016. Looking at capex as a percentage of operating cash flow, we are at

around 15-year highs on aggregate, with capex expected to fall from 100% to 90% of

operating cash flow out to 2016, based on a small decline in capex.

Exhibit 32: Global Oils remain FCF negative… Global listed oil coverage FCF after dividends and capex

(US$ mn), with the YOY change in capex

Exhibit 33: …and are reinvesting at 15-year highs relative

to operating cash flows Global listed coverage capex (US$ mn) and the reinvestment

rate (capex/operating FCF)

Source: Company data. Goldman Sachs Global Investment Research.

Source: Company data. Goldman Sachs Global Investment Research.

-70%

-50%

-30%

-10%

10%

30%

50%

70%

-60,000

-40,000

-20,000

0

20,000

40,000

60,000

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13E

20

14E

20

15E

Free

cash

flo

w (

US

$m

n)

Integrated Oils FCF (LHS) YOY change in Capex YOY change in oil price

0

20

40

60

80

100

120

0

50,000

100,000

150,000

200,000

250,000

US

$/b

l

US

$m

n

Majors capex Three year average Brent oil price

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

-120,000

-100,000

-80,000

-60,000

-40,000

-20,000

-

20,000

40,000

60,000

Total Global FCF YoY change in capex

0%

20%

40%

60%

80%

100%

120%

0

100,000

200,000

300,000

400,000

500,000

600,000

Total Global Capex Global Reinvestment rate



‘Capital discipline’ and cost optimization here to stay for IOCs

As the position on the cost curve matters more, we see much greater focus on value rather

than growth from the oil companies. This is likely to lead in our view to marginal projects

being postponed as companies search for cheaper and more effective development

solutions, and the focus shifts towards maximizing production per dollar spent away from

the more capital-intensive heavy infrastructure projects.

We anticipate a slowdown in new project sanctions from IOCs

As part of this greater capital discipline, projects with marginal economics are likely to get

delayed or re-engineered; this process is likely to call into question developments with a

breakeven above the US shale oil plays, which we view as being the marginal supply with

a breakeven of around US$85/bl on average (or US$13/mcf for LNG projects). From the Top

400 projects, we see projects with a combined capex requirement of around US$700 bn as

being at risk due to marginal economics, primarily focused around deepwater, LNG and

heavy oil projects. As the companies look for ways of reducing costs and optimizing these

projects, we believe we will see delays to large project sanctions coming through, and we

anticipate a slowdown in large project sanctions in 2014, with a recovery in 2015, but still to

levels below the high activity we saw in 2010-11.

Exhibit 34: Top 400 capex sanctioned in 2014 is expected to be lower

Top 400 capex sanctioned by year, split by win zone


0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E

Ca

pex

san

ctio

ned

(U

S$

mn

)

Deepwater Exploitation Gas GTL Heavy oil LNG Russia Traditional 3-yr moving average



NOCs and US E&Ps increasingly important as drivers of capex

We show in Exhibit 35 the split of global oil production between different types of company,

and this demonstrates the dominance, in terms of production, of the NOCs, which produce

over half of global production. When we look at the split of reserves, however, the

dominance of the NOCs is even more extreme, as they are in charge of nearly 80% of the

world’s proved reserves, on our estimates. The most significant part of these reserves are

the traditional deposits in the Middle East, which are controlled by the NOCs in the region.

Exhibit 35: NOCs account for more than half of global oil

production… Oil production split by company type

Exhibit 36: …and dominate the industry’s reserve base

Oil proved reserves by company type

Source: US Energy Information Administration, based on Energy Intelligence Group "Top 100: Global NOC &IOC rankings" share of world oil production (2013 edition)

Source: BP Statistical review, Goldman Sachs Global Investment Research.

…and NOCs are the largest component of industry capex

In terms of capex, the NOCs are still the largest single component, although by a smaller

amount. In general, the NOCs benefit from access to more traditional, low-cost sources of

oil and gas, while the IOCs have to pursue the more marginal expensive resources,

including unconventional oil and gas. Therefore, the IOCs have a higher weighting in terms

of global capex than in terms of production and reserves.

The data misses nearly 700+ private E&Ps that work in NAM and are currently running 40%

of the rigs in the US. This group can be volatile but is generally very active when WTI

prices rise above US$90/b.

Other NOCs, 34%

Saudi Aramco, 12%

National Iranian Oil Company, 5%

China National Petroleum Corp., 4%

PdVSA, 3%

BP, 3%

ExxonMobil, 3%

Royal Dutch Shell, 2%

Other IOCs, 19%

Other, 16%

National Oil Companies78%

IOC14%

US E&P6%

Intl E&P2%



Exhibit 37: NOCs account for >40% of capex …

Split of industry capex by company type

Exhibit 38: ...while IOCs are roughly 35%

Split of industry capex by company type



So where’s the growth? Shale, NOCs and the best of deepwater

Our analysis shows that the two win zones where we expect the highest growth in the

upcoming three years are US shale and deepwater. We expect the US shales to continue

benefitting from an expanding resource base in the Permian, Marcellus, Bakken and

Haynesville basins, among others. We also expect a significant ramp-up in deepwater

capex, driven by the ultra-deepwater segment where projects are expected to continue

ramping up, such as the Lula, Iara, Franco (rights transfer assets) and Libra fields.

We expect capex from the US onshore and deepwater (above 750m) to account for 47% of

the total Top 400 in 2014 (Exhibit 39). We expect the combined win zones’ capex to reach

54% in 2018E and capex in the other win zones to remain broadly stable in the upcoming

years. In our view, US shale projects are set to benefit from a rapid ramp-up, driven by the

relatively easy access to shale reserves and the potential to achieve further economies of

scale.

The ultra-deepwater (1,500m+) drives much of the growth that we expect in deepwater,

reflecting both the higher level of discoveries at this water depth, and increased complexity

at deeper developments. This should offer opportunities for value creation to those

companies that can deliver complex projects in deepwater, particularly for the equipment

providers and subsea construction companies.

2013 %

Listed NOCs 204,669 25%

Unlisted NOCs 152,900 19%

European Integrated 156,743 19%

US integrated 120,023 15%

US E&Ps 89,061 11%

Asian Oils** 17,537 2%

Russian oils* 23,895 3%

Canada integrated 16,842 2%

LatAm*** 13,713 2%

Australia Oils 7,392 1%

European E&Ps 8,836 1%

Total 811,611 100%

* Excludes Gazprom, Rosneft, Kazmunaigaz which are included in the NOCs**Excludes CNOOC/Petrochina which is included in NOCs***Excludes Petrobras which is included in NOCs

Capex US$ mn

Listed NOCs, 25%

Unlisted NOCs, 19%

European Integrated, 19%

US integrated, 15%

US E&Ps, 11%

Asian Oils**, 2%

Russian oils*, 3%

Canada integrated, 2%

LatAm***, 2%

Australia Oils, 1%

European E&Ps, 1%

2013 capex split



Exhibit 39: US ‘shales’ and deepwater driving growth in

Top 400 Top 400 capex growth, forecast vs. history

Exhibit 40: With other win zones declining in aggregate

Top 400 capex split into deepwater, US shales and other



US shale oil continues, gas pick-up could provide extra kicker

We believe that the high level of activity in shale oil onshore in the US can continue, and

we see steady growth in the number of wells being drilled over the coming few years.

However, we also see a return to shale gas drilling, from the current low activity levels.

With gas drilling activity at 19-year lows, and natural gas demand forecast to increase from

coal-to-gas substitution (coal plant retirements) and start-up of LNG exports, an increase in

natural gas drilling will be needed in response to a demand pick-up. With the oil service

supply chain already stretched, given over 95% utilization of Tier 1 land drilling rigs and

90%+ utilization of pressure pumping equipment, we expect any gas drilling activity to

cause further service price inflation.

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

-20,000 - 20,000 40,000 60,000 80,000 100,000 120,000

Total Offshore

Traditional

Deep water

LNG

Total Onshore

US Shale gas

US shale liquids

All US shale

Heavy Oil

Capex growth 2010-13

Cap

ex g

row

th 2

01

3-1

6E

Top 400 capex growth, forecast vs. history

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

US

$m

n

Other Top 400 Deep water US Shales



Exhibit 41: North America to see a significant ramp-up in

the number of shale liquid wells being drilled Number of wells drilled for shale gas & liquids in North

America

Exhibit 42: US onshore rig count to continue ramping up,

driven by shale plays US onshore rig count breakdown for Top 400 rigs and others

between shale and conventional oil and gas plays



Completion capex growing faster than drilling in the US shale plays

Owing to improving rig efficiency, well count is growing at a faster rate than rig count,

while frac stages grow at an even faster rate than well count. Business segments leveraged

to frac stages thus grow at a faster pace. These frac stage leveraged businesses include

pressure pumping, perforation, proppant demand etc.

There is a secular shift towards horizontal drilling also, though when WTI prices are

averaging above US$90/b, private E&Ps become more active and they typically pick up

vertical rigs. As a result, during the last one year, the private E&P sector has picked up the

most rigs in the US, and they currently run about 40% of the rigs. However, their

contribution to capex is much less. The SMID service sector typically serves the private

E&Ps. This group is highly oil price sensitive.

0

2,000

4,000

6,000

8,000

10,000

12,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E

Wells

dri

lled

North America Unconventional gas wells North America Unconventional liquid wells

0

500

1,000

1,500

2,000

2,500

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E

US

onsh

ore

rig

count

Top 400 unconventional liquids rigs Top 400 unconventional gas rigs Other oil rigs Other gas rigs



Exhibit 43: Completion capex is growing at a faster pace

than drilling capex in US land yoy % growth in drilling, completion and total capex

Exhibit 44: US pressure pumping market is tightening Pressure pumping utilization in the high 80% typically leads

to pricing increases



Activity set to remain high for NOCs in the Middle East

Total activity has been increasing in the Middle East steadily over the past 18 months, with

growth in both the offshore and onshore rig counts. Saudi Arabia has been increasing

activity meaningfully over the last couple of years, with Saudi Aramco looking to re-

establish spare capacity, in our view, and increase gas drilling to meet growing gas

demand in the country. We believe that the growth in activity can continue in the near term,

as companies seek to replace some of the lost barrels in OPEC from recent geopolitical and

other issues.

Exhibit 45: Middle East rig count is moving to new highs,

both offshore and onshore Onshore and offshore rig count across the Middle East

Exhibit 46: Rig count has recently moved sharply higher

in Saudi Arabia Onshore/Offshore rig counts in Saudi Arabia



-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Drilling Capex Completion capex Total Capex

2013 2014 2015

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

6.0

8.0

10.0

12.0

14.0

16.0

18.0

PP

Uti

lizat

ion

(%

)

PP

cap

acit

y (H

HP

)

Supply Demand Utilization

20

25

30

35

40

45

50

55

170

190

210

230

250

270

290

310

330

350

370

Off

shor

e r

igs

Ons

hor

e r

og

s


0

5

10

15

20

25

0

10

20

30

40

50

60

70

80

90

Off

shor

e r

igs

Ons

hor

e r

igs




Mexican mega-tender awards and Petrobras’s retendering of

drilling and wireline contracts show operator need for large cap

service expertise

Both Schlumberger and Halliburton recently won the mega-tender IPM awards in Mexico

and these will begin in 2H2014. These will result in the start-up of between 6-20 drilling rigs

over time for each service company and should lead to revenue growth in Mexico starting

in 2H2014. The Mexican reforms could provide another leg up, though the start may be

modest beginning late 2015.

Meanwhile, Petrobras has retendered its Drilling and Wireline contracts with Schlumberger,

Halliburton and Baker Hughes as the three service companies complained about the past

low-margin contract which at the time it was bid was based on the assumption of higher

activity in Brazil. Petrobras is the largest capital spender in the offshore markets and

typically does not like to renegotiate with service companies. However, the fact that

Petrobras paid attention to the complaints of the Big-3 service companies and agreed to

retender the contract shows that it values greatly the technology and differentiated services

offered by the Big-3 service companies. It is difficult to envision Petrobras react the same

way to the requests of companies in more commoditized businesses like offshore drilling.

We see risks to deepwater growth

Our Top 400 analysis shows that the strongest growth in the upcoming three years will be

achieved both in US shale gas and in the deepwater segments. Given the increase both in

the number of projects being delayed and the reliance on highly volatile areas for order

flows, we believe it is necessary to risk-adjust the projects. To do so, we risked the Top 400

projects by excluding all the projects with a breakeven price above US$85 which had not

been sanctioned at the time of the publication of this report. Exhibit 47 shows the growth in

deepwater developments, which is coming from Africa and Latin America primarily, both

regions where the pace of development can be uncertain.

Exhibit 48 shows the unrisked growth rate that we forecast for all the Top 400 deepwater

projects above 750 m as well as the growth rates expected when we apply a risk factor

(associated with sanction delays) and when we exclude all the projects with a breakeven

price above US$85. The analysis shows that there is a significant differential between the

unrisked growth expectations and risked growth rates. However, there is not a significant

difference between the two risking method that we apply given that, in both cases, we see

a growth CAGR of 6%, well below the 15% unrisked deepwater growth rate.



Exhibit 47: Africa and Latin America driving unrisked

deepwater project growth Top 400 deepwater (750m+) capex growth split by region

Exhibit 48: Large growth differential when risking

deepwater projects for the 2014-18 period Capex in US$ mn for deepwater projects >750 m for Top 400

deepwater projects risked, unrisked and excluding all

deepwater projects with an oil breakeven price above US$85



Capacity additions continue, particularly offshore

We see supply continuing to build across the offshore supply chain, at a 4%-8% CAGR over

the next two years. We believe that gross supply will outweigh demand growth in the

seismic and offshore drilling segments (floaters and jack ups). We expect the OCTG supply

demand balance to remain broadly unchanged on a global basis, while the subsea

construction market will depend on the pace of deepwater developments being sanctioned.

On an unrisked basis, we expect the ultra-deepwater to see the highest growth rates, along

with the US onshore developments, although we do see higher supply growth in the

deepwater to cater for the higher demand.

Exhibit 47 shows gross supply additions growth by offshore segments. The analysis shows

that we expect to see the strongest ramp up in deepwater subsea umbilicals, risers &

flowlines (SURF) fleets, floating rigs and jack-up rigs in the next two years. We expect

significant gross supply additions for seismic over the next two years, which will likely

need to be balanced by fleet retirements given the low demand growth we see. We

anticipate supply outstripping demand also for the offshore drilling segment, leaving

overcapacity in both floating and jack-up rigs.

0

20,000

40,000

60,000

80,000

100,000

120,000

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14E

20

15E

20

16E

20

17E

20

18E

US

$m

n

North America

Middle East

Latin America

Europe

Asia-Pacific

Asia

Africa

0

20000

40000

60000

80000

100000

120000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E2015E 2016E 2017E2018E

Deepwater (>US$85 breakeven not sanctioned) Deepwater (2014-18 sanctions risked)

Deepwater capex unrisked



Exhibit 49: Seismic and floating drilling rigs still seeing

oversupply while risk scenario shows further oversupply

in subsea equipment and deepwater SURF Oil Services’ sector supply and demand analysis (risked and

unrisked)

Exhibit 50: Gross supply additions to see the strongest

ramp-up in deepwater SURF fleets, floating rigs and jack-

up rigs Gross supply growth by offshore segments rebased to 100 in

2013



Offshore supply chain in particular faces the threat of deflation

Given the ongoing focus on cost optimization and capital discipline among the major oil

companies, we see potential for deflation, particularly in the offshore, based on lower

pricing to the services companies along with a greater focus on standardization and

achieving efficiencies across projects.

Offshore drilling day rates are already falling, and some equipment could see double-digit

price reductions while still delivering returns above the cost of capital. We believe that

overall LNG and deepwater projects could see the greatest cost reductions, with a potential

double-digit saving.

Operators may also use creativity to reduce project costs. Likely steps could include:

improving service reliability, using standardized equipment and sharing infrastructure

across projects. For example: (1) use of Dual Blowout Prevention (BOPs) on ultra-

deepwater rigs can reduce operational downtime, saving US$1 mn for each day of reduced

rig downtime; (2) standardization of quality control procedures and subsea equipment

metallurgy across operators can lower build costs; (3) some standardization in FPSO

designs can improve FPSO delivery and cost reliability; and (4) shifting project start-ups to

share pipeline and production infrastructure across projects can lower costs sharply.

Demand

growth CAGR

2007/13

Supply growth

CAGR 2007/13

Top 400

demand

growth

Unrisked demand

growth CAGR

2014/16

Risked demand growth

CAGR 2014/17 (based on

US$ 85 oil price scenario

Gross supply

additions

2014/15 CAGR

Seismic 0% 8% 1.2% 1.2% 8%

Subsea construction 4% 8% 12% 3.5% 1.3% 4%

Deep water SURF fleet 8% 12% 12.1% 5.2% 8%

OCTG 10% 6% 5% 3.4% 3.4% 5%

Floating rigs 6% 7% 14% 4.5% 3.9% 8%

Jack up rigs 2% 3% 14% 4.7% 4.7% 7%

FPSO 4% 11% 10.1% 7.6%

Subsea equipment 12% 11% 4.7% 4.1%

Onshore drilling 0% 4% 3.9% 3.9%

E&C 6% 6.4% 3.4%

Large cap service 11% 11.1% 9.5%

SMID Services 9% 7.0% 7.0%

100

105

110

115

120

125

130

2013 2014E 2015E 2016E

Gro

ss s

up

ply

gro

wth

reb

ased

to

100

in 2

013

Seismic Subsea construction Deep water SURF fleet Floating rigs Jack up rigs



In a moderate environment, CP is critical: Global CP for Oil Service

In Exhibit 51, we show the scores for each company in the coverage universe, laid out by

CP quartiles.

Competitive Positioning ‘winners’: Well service, differentiated

technology and niche segment leaders

The stocks which screen as having a first-quartile CP position can broadly be split into large

cap services, companies with differentiated technology, and niche segment leaders:

Large cap services: Schlumberger, Halliburton, Baker Hughes, Weatherford

These companies all have differentiated technology, access to growth through the US

shales, NOCs and/or deepwater, and proximity to the well where the operator’s focus and

the ability to make differentiated returns is greatest. Moreover, their ‘reservoir knowledge’

and product integration allows them to offer unique ‘work relationships’ to customers,

especially NOCs. These work relationships like Integrated Project Management (IPM) and

Production Management (PM) are growing with NOCs but in time may be adopted by other

customers as access to specialized labour becomes more challenging.

Technology leaders: NOV, FMC Technologies, Aker Solutions, Tenaris

These companies all have high market share in some critical equipment combined with

access to growth, primarily in subsea activity.

Niche segment leaders: Schoeller Bleckmann, Franks International, C.A.T Oil, Wood Group, Oceaneering

This group is made up of companies that have a strong position in a certain niche in the

industry. Schoeller Bleckmann manufactures drillstring components, Franks International

specializes in tubular services such as casing running, Oceaneering has a high market

share for remotely operated underwater vehicles (ROV) services on offshore rigs, C.A.T Oil

has a strong market share in fracturing and horizontal drilling in Russia, and Wood Group

has a leading offshore engineering business.

The common feature of this group is typically a high degree of focus on specific niches,

high market share and attractive returns.



Exhibit 51: Introducing the GS Competitive Positioning framework for Global Oil Services Global Oil Service CP metrics and scores by company, along with CROCI


Ticker Company Name Rating Region AnalystCP

score

Weighted average barriers to entry (1st to 5th)

% rank Weighted average Herfindhal Index

Weighted average Market share

% rank CROCI volatility

% rank Weighted end market growth

% rank CROCI Average 2013-2016E

% rank

SLB Schlumberger, Ltd. Buy Americas Waqar Syed 100% 2.6 67% 18% 24% 92% 30% 57% 7% 92% 15% 73%OII Oceaneering International, Inc. Buy Americas Waqar Syed 98% 3.2 88% 19% 13% 71% 9% 98% 5% 47% 19% 88%HAL Halliburton Company Buy* Americas Waqar Syed 96% 2.8 76% 17% 22% 88% 35% 39% 7% 96% 15% 69%BHI Baker Hughes Inc. Buy Americas Waqar Syed 94% 3.0 80% 18% 18% 82% 41% 29% 8% 100% 12% 43%SBOE.VI Schoeller-Bleckmann Neutral Europe Will Wyman 92% 2.6 65% 19% 2% 55% 22% 84% 6% 84% 16% 78%TS Tenaris S.A. Neutral Europe Henry Tarr 90% 2.6 61% 18% 31% 92% 27% 69% 5% 55% 11% 39%WFT Weatherford International Ltd. Neutral Americas Waqar Syed 88% 2.7 71% 16% 16% 63% 32% 55% 6% 88% 10% 24%AKSO.OL Aker Solutions Buy* Europe Henry Tarr 86% 3.6 96% 15% 9% 53% 34% 45% 6% 82% 12% 45%O2C.DE C.A.T oil AG Buy Europe Geydar Mamedov 84% 2.7 69% 14% 21% 67% 36% 37% 7% 98% 22% 94%NOV National Oilwell Varco Neutral Americas Waqar Syed 82% 3.3 92% 29% 27% 98% 28% 61% 4% 18% 12% 47%WG.L John Wood Group Plc Buy Europe Henry Tarr 80% 2.9 78% 12% 16% 55% 19% 90% 5% 43% 14% 63%FTI FMC Technologies Neutral Americas Waqar Syed 78% 5.0 98% 12% 21% 61% 28% 63% 5% 37% 19% 86%FI Frank's International N.V. Sell Americas Waqar Syed 76% 2.3 49% 14% 22% 80% 26% 72% 5% 53% 20% 92%CRR CARBO Ceramics Inc. Neutral Americas Waqar Syed 73% 2.0 27% 15% 0% 33% 14% 96% 7% 94% 14% 61%CAM Cameron International Corp. Neutral Americas Waqar Syed 71% 5.0 98% 13% 16% 59% 30% 59% 4% 20% 14% 65%AMEC.L Amec Plc Not Rated Europe Henry Tarr 69% 2.5 59% 10% 17% 47% 17% 94% 5% 31% 16% 80%HTG.L Hunting Plc Neutral Europe Will Wyman 67% 3.4 94% 13% 1% 16% 25% 78% 5% 39% 10% 35%TGS.OL TGS Nopec Sell* Europe Henry Tarr 65% 2.5 55% 21% 14% 84% 23% 82% 3% 4% 16% 76%SDRL.OL SeaDrill Ltd Neutral Europe Henry Tarr 63% 2.5 55% 9% 10% 29% 27% 67% 5% 65% 11% 41%TRMKq.L TMK Buy Europe Yulia Chekunaeva 61% 2.4 53% 17% 18% 78% 37% 33% 5% 51% 11% 37%VLLP.PA Vallourec Buy Europe Henry Tarr 57% 2.6 61% 18% 19% 84% 66% 8% 5% 55% 7% 8%ATW Atwood Oceanics, Inc. Buy Americas Waqar Syed 57% 2.3 47% 9% 2% 4% 18% 92% 5% 65% 13% 57%TECF.PA Technip Sell Europe Henry Tarr 55% 3.2 86% 15% 20% 67% 38% 31% 4% 22% 15% 67%PRSO.OL Prosafe Sell Europe Henry Tarr 51% 1.0 0% 33% 55% 100% 19% 88% 4% 16% 14% 59%EDCLq.L Eurasia Drilling Company Buy Europe Geydar Mamedov 51% 2.0 27% 6% 33% 51% 21% 86% 5% 41% 22% 96%SUBC.OL Subsea 7 S.A. Buy Europe Henry Tarr 49% 3.1 84% 19% 18% 90% 49% 21% 4% 10% 10% 33%RES RPC, Inc. Buy Americas Waqar Syed 47% 1.8 12% 14% 3% 35% 27% 65% 6% 86% 19% 90%FUGRc.AS Fugro NV Sell Europe Henry Tarr 45% 1.8 14% 16% 6% 49% 25% 76% 5% 59% 10% 29%RIG Transocean Ltd. Sell Americas Waqar Syed 43% 1.9 22% 9% 21% 43% 33% 51% 5% 65% 8% 12%CJES C&J Energy Services, Inc. Not Rated Americas Waqar Syed 41% 2.1 41% 16% 2% 39% 60% 10% 7% 90% 17% 82%SBMO.AS SBM Offshore Neutral Europe Henry Tarr 39% 1.7 8% 16% 20% 71% 37% 35% 5% 61% 7% 10%ODLL.OL Odfjell Drilling Ltd Buy Europe Henry Tarr 37% 3.1 82% 8% 1% 0% 34% 47% 5% 45% 9% 16%NBR Nabors Industries, Ltd. Not Rated Americas Waqar Syed 33% 2.1 39% 9% 9% 22% 24% 80% 5% 27% 9% 20%BAS Basic Energy Services, Inc. Buy Americas Waqar Syed 33% 2.0 27% 11% 6% 35% 35% 43% 5% 63% 13% 53%EMGS.OL emgs Neutral Europe Henry Tarr 31% 3.3 90% 22% 6% 65% 309% 0% 3% 6% 18% 84%HP Helmerich & Payne, Inc. Neutral Americas Waqar Syed 29% 2.0 27% 6% 10% 16% 8% 100% 4% 8% 15% 71%SPMI.MI Saipem Neutral Europe Henry Tarr 27% 2.4 51% 12% 14% 45% 35% 41% 4% 12% 7% 6%GEPH.PA CGGVeritas Neutral Europe Henry Tarr 24% 1.0 0% 19% 32% 96% 34% 49% 2% 0% 3% 0%2883.HK China Oilfield Services (H) Neutral Asia Pacific Nilesh Banerjee 22% 1.8 16% 11% 3% 31% 26% 74% 5% 24% 12% 49%DO Diamond Offshore Drilling Neutral Americas Waqar Syed 20% 1.7 8% 9% 7% 12% 33% 53% 5% 65% 10% 22%KEG Key Energy Services Inc. Neutral Americas Waqar Syed 18% 2.0 24% 10% 11% 41% 44% 25% 5% 49% 7% 4%NE Noble Corporation Neutral Americas Waqar Syed 16% 2.1 37% 9% 8% 16% 50% 18% 5% 65% 9% 18%PFC.L Petrofac Neutral Europe Henry Tarr 14% 2.7 73% 9% 4% 24% 141% 4% 5% 33% 26% 98%RDC Rowan Companies, Plc. Neutral Americas Waqar Syed 10% 2.2 43% 9% 3% 8% 50% 16% 5% 65% 8% 14%ESV Ensco plc Neutral Americas Waqar Syed 10% 1.8 18% 9% 9% 27% 45% 23% 5% 65% 10% 31%PES Pioneer Energy Services Corp. Buy Americas Waqar Syed 8% 2.2 43% 10% 2% 12% 52% 14% 5% 35% 13% 55%PTEN Patterson-UTI Energy, Inc. Buy* Americas Waqar Syed 6% 2.0 27% 9% 5% 10% 41% 27% 5% 29% 12% 51%PGS.OL Petroleum Geo Services ASA Sell Europe Henry Tarr 4% 1.0 0% 19% 14% 71% 54% 12% 2% 0% 6% 2%HERO Hercules Offshore, Inc. Sell Americas Waqar Syed 2% 1.6 6% 9% 2% 2% 87% 6% 5% 65% 10% 27%TRE.MC Tecnicas Reunidas Neutral Europe Henry Tarr 0% 1.9 20% 7% 3% 6% 182% 2% 4% 14% 63% 100%


Barriers to entry Market Structure Risk and Execution Access to Growth Return on Capital



Higher CP score can mean higher returns…

In Exhibit 52, we show the competitive positioning rank on one axis against the CROCI

percentage rank on the other. There is a significant spread in the chart, with the differing

capital intensities of the different types of companies driving part of the difference in

returns. For example, the onshore construction companies (Petrofac and Tecnicas

Reunidas) employ limited capital and therefore generate high CROCI, despite screening as

having a low CP score. Overall, however, a higher competitive positioning score is more

likely to be associated with a higher level of returns.

Exhibit 52: In general, we expect higher CP score to lead to higher returns

Competitive positioning score percentile rank vs CROCI percentage rank


R² = 0.116

0%

25%

50%

75%

100%

0% 25% 50% 75% 100%

CR

OC

I per

cen

tile

ind

us

try

rela

tive

Competitve positioning average weighted score industry relative

Schlumberger, Ltd.

Oceaneering

Halliburton Company

Baker Hughes Inc.

Schoeller-Bleckman

Tenaris S.A.

Weatherford International Ltd.

Aker Solutions

C.A.T Oil

National Oilwell Varco

John Wood Group Plc

FMC Technologies

Franks International

CARBO Ceramics Inc.

Cameron International Corp.

Amec Plc

Hunting

TGS Nopec

SeaDrill Ltd

TMK

Vallourec

Atwood Oceanics

Technip

Prosafe

Eurasia Drilling

Subsea 7 S.A.

RPC, Inc.

Fugro NV

Transocean Ltd.

C&J Energy Services, Inc.

SBM Offshore

Odfjell Drilling Ltd

Nabors Industries, Ltd.

Basic Energy Services, Inc.

EMGS

Helmerich & Payne, Inc.

Saipem

CGGVeritas

China Oilfield Services (H)

Diamond Offshore Drilling

Key Energy Services Inc.

Noble Corporation

Petrofac

Rowan Companies, Inc.

Ensco plc

Pioneer Energy Services Corp.

Patterson-UTI Energy

PGS

Hercules Offshore, Inc.

Tecnicas Reunidas



…and the CP winners have consistently outperformed

Looking at performance for the different companies in the sector, the Q1 companies have

outperformed Q4 companies over every time period from 3 months to 5 years.

Exhibit 53: Q1 CP companies in aggregate have outperformed Q4 companies by c.100% over five years

Share price performance by company

Source: Datastream, Goldman Sachs Global Investment Research.

CP CROCI EV/EBITDA 2014E

Premium/ discount to 10 year average

EV/EBITDA 2015E

Premium/ discount to 10 year average

Companies Rating Quart. Quart. 3 months 6 months 12 months 3 years 5 years

Schlumberger, Ltd. Buy 1 2 5.9% 24.3% 29.2% 32.4% 97.9% 10.7 7% 9.2 -8%

Oceaneering International, Inc. Buy 1 1 -7.8% 0.4% -19.5% 85.0% 156.9% 8.5 15% 7.3 -1%

Halliburton Company Buy* 1 2 6.0% 37.4% 47.1% 43.8% 206.4% 8.4 22% 6.8 -2%

Baker Hughes Inc. Buy 1 3 -3.1% 19.2% 41.4% 5.3% 75.6% 6.7 -4% 5.4 -22%

Schoeller-Bleckmann Neutral 1 1 -11.5% 8.7% -3.2% 39.4% 219.8% 9.0 29% 7.4 6%

Tenaris S.A. Neutral 1 3 -2.8% 0.3% -3.2% 17.5% 36.3% 8.7 6% 7.8 -5%

Weatherford International Ltd. Neutral 1 4 3.3% 61.8% 50.4% 19.5% 15.6% 8.0 -4% 6.2 -25%

Aker Solutions Buy* 1 3 -9.9% -3.6% -1.8% 5.9% 79.4% 7.6 -2% 6.5 -17%

C.A.T oil AG Buy 1 1 -5.3% -22.7% -0.5% 169.3% 217.6% 6.0 -3% 4.8 -23%

National Oilwell Varco Neutral 1 3 13.3% 23.5% 25.8% 34.1% 149.6% 7.7 27% 6.6 10%

John Wood Group Plc Buy 1 2 -7.3% 18.7% -8.2% 36.5% 155.6% 7.6 11% 6.9 1%

FMC Technologies Neutral 1 1 6.6% 23.0% 11.2% 52.1% 177.8% 11.4 18% 10.5 8%

Frank's International N.V. Sell 1 1 -7.1% 2.6% 10.4 33% 9.7 24%

CARBO Ceramics Inc. Neutral 2 2 -23.8% -3.6% 21.3% -21.4% 142.0% 12.8 25% 9.8 -4%

Cameron International Corp. Neutral 2 2 8.7% 21.2% 22.3% 48.3% 104.7% 9.6 10% 7.5 -14%

Amec Plc Not Rated 2 1 -11.0% 10.6% 11.1% 26.4% 51.7% 8.2 -2% 7.7 -9%

Hunting Plc Neutral 2 3 1.7% 18.2% 13.3% 37.8% 95.9% 9.2 3% 8.2 -8%

TGS Nopec Sell* 2 1 -18.7% 8.4% -7.9% 29.3% 145.6% 3.8 -4% 3.8 -4%

SeaDrill Ltd Neutral 2 3 3.8% 0.0% -18.8% 23.6% 110.5% 12.2 4% 11.6 -1%

TMK Buy 2 3 4.4% -23.7% -40.1% -47.7% -24.0% 5.3 -34% 4.5 -44%

Vallourec Buy 2 4 -24.2% -10.1% -25.7% -51.5% -40.8% 7.6 7% 6.6 -7%

Atwood Oceanics, Inc. Buy 2 2 0.5% 5.7% -18.5% 20.7% 60.1% 8.7 7% 5.3 -35%

Technip Sell 2 2 -18.6% 6.4% -17.8% 2.5% 49.6% 7.1 2% 6.1 -13%

Prosafe Sell 2 2 -16.6% 10.1% -26.6% 17.9% 38.1% 8.3 -2% 8.0 -5%

Eurasia Drilling Company Buy 2 1 21.6% -7.0% -24.0% 28.0% 148.2% 5.4 -2% 4.9 -12%

Subsea 7 S.A. Buy 3 3 -16.1% -5.0% -11.4% -17.7% 60.6% 4.6 -20% 4.6 -20%

RPC, Inc. Buy 3 1 -6.9% 0.7% 36.1% 87.5% 213.2% 7.2 33% 4.9 -10%

Fugro NV Sell 3 3 -37.6% -22.8% -34.8% -30.1% -6.7% 7.5 -2% 6.3 -18%

Transocean Ltd. Sell 3 4 -10.0% -7.3% -20.4% -29.6% -50.3% 7.0 -12% 7.2 -9%

C&J Energy Services, Inc. Not Rated 3 1 -5.6% 23.8% 36.2% 2.7% 8.3 37% 5.6 -8%

SBM Offshore Neutral 3 4 -24.6% -29.5% -30.7% -26.4% -28.9% 6.0 -12% 6.3 -8%

Odfjell Drilling Ltd Buy 3 4 10.6% -18.4% -10.3% -30.2% -4.7% 6.9 1% 5.1 -26%

Nabors Industries, Ltd. Not Rated 3 4 4.1% 60.7% 69.3% 28.0% 51.6% 6.7 11% 5.3 -11%

Basic Energy Services, Inc. Buy 3 2 -8.6% 42.5% 95.4% -5.3% 238.8% 5.7 12% 4.2 -17%

emgs Neutral 3 1 -25.4% -21.9% -43.4% -38.5% 39.9% 3.0 -61% 2.7 -66%

Helmerich & Payne, Inc. Neutral 3 2 -2.3% 22.6% 57.0% 83.2% 190.7% 7.0 44% 5.8 20%

Saipem Neutral 3 4 -15.3% 1.5% 5.8% -45.0% -15.4% 8.5 -4% 5.8 -34%

CGGVeritas Neutral 4 4 -45.3% -38.8% -60.3% -60.3% -52.2% 4.2 -63% 4.3 -62%

China Oilfield Services (H) Neutral 4 3 4.7% -3.9% 7.6% 62.6% 129.1% 6.9 -2% 6.3 -11%

Diamond Offshore Drilling Neutral 4 4 -9.0% 1.0% -30.5% -24.5% -48.0% 7.8 30% 5.5 -8%

Key Energy Services Inc. Neutral 4 4 -31.9% -14.3% -3.3% -60.6% -13.8% 7.3 9% 5.2 -23%

Noble Corporation Neutral 4 4 -1.8% -0.3% -23.1% -2.4% -13.3% 6.3 -19% 6.7 -14%

Petrofac Neutral 4 1 -25.9% -5.8% -6.3% -7.8% 43.7% 6.8 -2% 5.1 -26%

Rowan Companies, Plc. Neutral 4 4 -4.2% -4.7% -14.7% -11.9% 42.8% 8.7 15% 5.6 -26%

Ensco plc Neutral 4 3 -2.5% 1.8% -14.4% 8.5% 28.6% 6.8 -2% 6.5 -6%

Pioneer Energy Services Corp. Buy 4 2 -0.1% 78.0% 107.9% 10.5% 230.7% 5.2 33% 4.3 12%

Patterson-UTI Energy, Inc. Buy* 4 2 2.6% 37.1% 66.9% 25.8% 135.4% 5.7 25% 4.3 -4%

Petroleum Geo Services ASA Sell 4 4 -35.6% -21.5% -40.3% -33.7% 9.1% 3.2 -66% 3.2 -66%

Hercules Offshore, Inc. Sell 4 3 -29.2% -27.0% -52.8% -9.0% -28.0% 5.2 -28% 4.4 -39%

Tecnicas Reunidas Neutral 4 1 -15.5% 0.7% 20.5% 48.0% -0.5% 9.1 -7% 8.0 -19%

Based on IP Quartile results

Q1 -1.5% 14.9% 14.1% 45.1% 132.4% 8.5 11.9% 7.3 -4.3%

Q2 -6.0% 3.0% -9.3% 9.5% 73.5% 8.2 1.3% 7.0 -13.0%

Q3 -11.5% 3.9% 12.4% -1.8% 62.6% 6.5 2.2% 5.3 -17.2%

Q4 -14.9% 0.2% -3.3% -4.2% 35.6% 6.4 -5.9% 5.3 -22.4%

Outperformance Q1 vs Q4 13.4% 14.7% 17.4% 49.3% 96.7%


Stock Performance



Introducing the CP winners

In Exhibit 54, we show four screens using the CP data: (1) CP winners, which are the

companies with Q1 CP scores; (2) CP winners at a discount (companies with Q1/Q2 CP

scores which are trading 10% or more below their 10-year average EV/EBITDA multiple); (3)

Returns improvers (companies with Q3/Q4 CP scores, but where we see a change in

returns better than the average and higher-than-average EPS growth); and (4) stocks with a

challenged position, which screen with lower half CP scores, trade at a premium to history

and where we expect returns deterioration by more than average.

Exhibit 54: Stocks to select and stocks to avoid based on the competitive positioning data

Four stock screens using the CP data (inc. ratings and price target upside*)

* All price targets have 12-month timeframe except Schoeller-Bleckmann, which is 6-month


CP ‘winners’:

Among the group of Q1 CP stocks, we have seven Buy ratings where we feel the strong CP

score is not reflected in valuation, five Neutral ratings where we believe it is, and a Sell

rating where we see earnings and returns deteriorating in the near term.

Strong CP at a discount

This group comprises companies screening in Q1/Q2 for CP which are trading at 10% or

more below their 10-year average EV/EBITDA multiples. We have Buy ratings on five of the

companies: Aker Solutions, TMK, C.A.T Oil, Baker Hughes and Atwood Oceanics.

Weatherford International is rated Neutral.

Restructuring/improving returns

This group shows weak CP scores, but looking forward is forecast to enjoy above average

change in returns (the average across the group is a 5% deterioration, comparing 2016

CROCI to the average of 2011-2013) and above-average EPS growth (the average EPS

CAGR from 2013-2016E is 14% across the group). We are Buy rated on Basic Energy

Services and RPC in this group, Neutral on Saipem, Helmerich & Payne, Rowan Companies,

and Not Rated on Nabors and C&J Energy Services.

CP 'winners' Strong CP at a discount Restructuring/ improving returns Challenged position

Companies screeing with Q1 CP Companies in Q1/Q2 CP, trading at more than a 10% discount to 10 yr average EV/EBITDA

Companies in Q3/Q4 CP which are seeing above average CROCI change and EPS growth above average

Companies with Q3/Q4 CP, trading at a premium to history with below average EPS growth and returns deterioration

expected

Schoeller-Bleckmann; Neutral; 6% Aker Solutions; Buy*; 20% Saipem; Neutral; 9% Tecnicas Reunidas; Neutral; 1%

Tenaris S.A.; Neutral; 5%

Aker Solutions; Buy*; 20%

John Wood Group Plc; Buy; 9%

Schlumberger, Ltd.; Buy; 21% Baker Hughes Inc.; Buy; 28% Helmerich & Payne, Inc.; Neutral; 9% Diamond Offshore Drilling; Neutral; -6%

Oceaneering International, Inc.; Buy; 27% Atwood Oceanics, Inc.; Buy; 21% Rowan Companies, Plc.; Neutral; 7% Noble Corporation; Neutral; -2%

Halliburton Company; Buy*; 28% Weatherford International Ltd.; Neutral; 6% RPC, Inc.; Buy; 30% Transocean Ltd.; Sell -22

Baker Hughes Inc.; Buy; 28% Nabors Industries, Ltd.; Not Rated

Weatherford International Ltd.; Neutral; 6% C&J Energy Services, Inc.; Not Rated

National Oilwell Varco; Neutral; 3% Basic Energy Services, Inc.; Buy; 39%

FMC Technologies; Neutral; 9%

Frank's International N.V.; Sell; -5%

C.A.T oil AG; Buy; 85% TMK; Buy; 45%

C.A.T oil AG; Buy; 85%

Europe

Americas

CEEMEA



Challenged positioning stocks

Companies with Q3/Q4 CP scores, which are trading at a premium to history with below-

average EPS growth and returns expected to deteriorate more than average. In this

category, we have Tecnicas Reunidas, Noble Corporation, Diamond Offshore and

Transocean. The offshore drillers screen as being challenged, as we see rates deteriorating,

driving earnings and returns down into 2016. In determining the valuation vs history, we

look forward to 2016E multiples, and take any deterioration into account if earnings fall by

taking the maximum multiple over the coming three years vs the 10 year average.



Valuation, growth and returns

We show below the different CP quartiles along with the earnings growth, expected change

in returns and the discount/premium to the 10-year average EV/EBITDA multiple.

Exhibit 55: Returns, growth and valuation by CP quartile

Rating, change in CROCI, expected cash flow growth and EV/EBITDA multiples vs history* for companies by CP quartile

Source: FactSet, Goldman Sachs Global Investment Research. Company data

Ticker Company Rating CP quartile 12 mth forward EV/EBITDA

(Discount)/premium to 10 year average EV/EBITDA

EPS CAGR 2013-16E

Change in CROCI 2016 vs 3 yr average

SLB Schlumberger, Ltd. Buy 1 10.2x 2% 19% 11%OII Oceaneering International, Inc. Buy 1 7.9x 6% 18% 8%HAL Halliburton Company Buy* 1 7.8x 13% 29% 29%BHI Baker Hughes Inc. Buy 1 6.1x -12% 38% 25%SBOE.VI Schoeller-Bleckmann Neutral 1 8.3x 20% 19% -3%TS Tenaris S.A. Neutral 1 8.5x 3% 8% 4%WFT Weatherford International Ltd. Neutral 1 7.1x -14% 50% 48%AKSO.OL Aker Solutions Buy* 1 7.0x -11% 16% -2%O2C.DE C.A.T oil AG Buy 1 5.4x -13% 24% 17%NOV National Oilwell Varco Neutral 1 7.1x 17% 4% -8%WG.L John Wood Group Plc Buy 1 7.5x 10% 7% -17%FTI FMC Technologies Neutral 1 11.0x 13% 22% -15%FI Frank's International N.V. Sell 1 7.2x 24% -10% -51%



EPS CAGR 2013-16E


CRR CARBO Ceramics Inc. Neutral 2 14.6x 42% 20% -23%CAM Cameron International Corp. Neutral 2 8.5x -3% 24% 21%AMEC.L Amec Plc Not Rated 2 8.8x 5% 5% -17%HTG.L Hunting Plc Neutral 2 8.7x -3% 13% 21%TGS.OL TGS Nopec Sell* 2 4.5x 13% -3% -20%SDRL.OL SeaDrill Ltd Neutral 2 12.2x 4% 9% 8%TRMKq.L TMK Buy 2 5.1x -36% 17% -14%VLLP.PA Vallourec Buy 2 7.1x 0% 13% -1%ATW Atwood Oceanics, Inc. Buy 2 5.7x -30% 17% -3%TECF.PA Technip Sell 2 6.6x -5% 3% -30%PRSO.OL Prosafe Sell 2 8.1x -4% 3% -24%EDCLq.L Eurasia Drilling Company Buy 2 5.0x -9% 7% -30%



EPS CAGR 2013-16E


SUBC.OL Subsea 7 S.A. Buy 3 4.8x -17% 18% -11%RES RPC, Inc. Buy 3 6.3x 15% 37% -1%FUGRc.AS Fugro NV Sell 3 7.1x -7% -2% -31%RIG Transocean Ltd. Sell 3 7.6x 15% -16% -17%CJES C&J Energy Services, Inc. Not Rated 3 7.1x 17% 37% 7%SBMO.AS SBM Offshore Neutral 3 6.2x -8% 3% 34%ODLL.OL Odfjell Drilling Ltd Buy 3 5.8x -16% 28% -5%NBR Nabors Industries, Ltd. Not Rated 3 6.1x 2% 38% -2%BAS Basic Energy Services, Inc. Buy 3 5.1x 1% 28% -4%EMGS.OL emgs Neutral 3 3.2x -59% 27% -11%HP Helmerich & Payne, Inc. Neutral 3 6.6x 36% 15% 11%SPMI.MI Saipem Neutral 3 7.0x -21% 35% 7%



EPS CAGR 2013-16E


GEPH.PA CGGVeritas Neutral 4 6.9x -39% 1% -23%2883.HK China Oilfield Services (H) Neutral 4 6.6x -7% 6% 11%DO Diamond Offshore Drilling Neutral 4 6.3x 5% -3% -27%KEG Key Energy Services Inc. Neutral 4 6.0x -11% 9% -33%NE Noble Corporation Neutral 4 5.9x 4% -13% -19%PFC.L Petrofac Neutral 4 5.9x -14% 7% -82%RDC Rowan Companies, Plc. Neutral 4 6.8x -10% 20% 67%ESV Ensco plc Neutral 4 6.9x 0% -2% -9%PES Pioneer Energy Services Corp. Buy 4 5.1x 31% 18% -6%PTEN Patterson-UTI Energy, Inc. Buy* 4 5.3x 17% 30% -7%PGS.OL Petroleum Geo Services ASA Sell 4 7.2x -24% -3% -19%HERO Hercules Offshore, Inc. Sell 4 4.9x -32% 7% 35%TRE.MC Tecnicas Reunidas Neutral 4 9.8x 0% 9% -45%*Included on regional Conviction List*Discount/Premium to 10 year average EV/EBITDA calculated by taking the maximum value for 2014/15/16E EV/EBITDAdivided by the 10 year average EV/EBITDA

1Q CP

2Q CP

3Q CP

4Q CP



Valuation: CP percentile vs Director’s Cut

We show below a scatter chart of the stocks within the framework based on the Director’s

Cut methodology which normalizes for capital intensity, and the CP percentile score for the

companies.

Exhibit 56: Director’s Cut vs CP percentile

Source: Quantum database, Goldman Sachs Global Investment Research.

Note on Director’s Cut methodology: The EV/GCI vs. CROCI/WACC framework aims to

capture intra-sector value by identifying undervalued and overvalued stocks on the basis of

their EV/GCI (market value of the assets) versus CROCI/WACC (excess returns), where

CROCI is defined as cash returns on cash invested. Our Tactical Research team has found

that the market rewards companies that can sustain superior returns for long periods

(typically 3+ years). For further details see Guide to EV/GCI vs. CROCI/WACC valuation

framework, July 2013.

y = 0.7454x + 0.0503R² = 0.2268

0%

25%

50%

75%

100%

0.0 0.3 0.5 0.8 1.0 1.3

CP

per

ce

nti

le s

co

re

Director's cut (2015E EV/GCI/CROCI/WACC)

Halliburton CompanySchlumberger, Ltd.

Baker Hughes Inc.

Weatherford International Ltd.

SeaDrill Ltd

Odfjell Drilling Ltd

Atwood Oceanics, Inc.

China Oilfield Services (H)Diamond Offshore Drilling

Ensco plcRowan Companies, Plc.

Noble Corporation

Hercules Offshore, Inc.

Transocean Ltd.

John Wood Group Plc

Petrofac

Amec Plc

Aker Solutions

Tecnicas Reunidas

Technip

Saipem

Subsea 7 S.A.

Fugro NV

Oceaneering International, Inc.

National Oilwell Varco

Cameron International Corp.

FMC Technologies

Schoeller-Bleckmann

Hunting Plc

Frank's International N.V.

Tenaris S.A.

Vallourec

TMK

Basic Energy Services, Inc.

C&J Energy Services, Inc.

CARBO Ceramics Inc.

Key Energy Services Inc.

Pioneer Energy Services Corp.

RPC, Inc.

C.A.T oil AG

SBM Offshore

Prosafe

CGGVeritas

Petroleum Geo Services ASA

emgs

TGS Nopec

Helmerich & Payne, Inc.

Nabors Industries, Ltd.

Patterson-UTI Energy, Inc.

Eurasia Drilling Company



Differentiation within the subsectors

We show below the CP scores by sub-sector to allow easy comparison of companies within

each of these groups.

Exhibit 57: All large caps screen well, but SLB has the

strongest position, with Weatherford the weakest Competitive positioning percentile for large cap services

Exhibit 58: The SMID services show a wide

differentiation, with Carbo Ceramics standing out Competitive Positioning percentile for the SMID services



Exhibit 59: The Offshore drillers in general screen poorly Competitive Positioning percentile for the offshore drillers

Exhibit 60: Land drillers screen poorly, with low barriers

to entry and a fragmented market

Competitive Positioning percentile for the onshore drillers

Source: Goldman Sachs Global Investment Research..


80%

82%

84%

86%

88%

90%

92%

94%

96%

98%

100%

102%

Schlumberger, Ltd. Halliburton Company Baker Hughes Inc. Weatherford International

Ltd.

Large cap service

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

C.A.T Oil CARBO

Ceramics Inc.

RPC, Inc. C&J Energy

Services, Inc.

Basic Energy

Services, Inc.

Key Energy

Services Inc.

Pioneer Energy

Services Corp.

SMID Services

0%

10%

20%

30%

40%

50%

60%

70%

SeaDrill Ltd Atwood

Oceanics

Transocean

Ltd.

Odfjell

Drilling Ltd

China

Oilfield

Services (H)

Diamond

Offshore

Drilling

Noble

Corporation

Ensco plc Rowan

Companies,

Inc.

Offshore drilling

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Eurasia Drilling Nabors Industries, Ltd. Helmerich & Payne, Inc. Patterson-UTI Energy

Onshore drilling



Exhibit 61: Seismic and Other marine companies

generally suffer from low barriers to entry Competitive Positioning percentile for the Seismic and Other

marine sub-sectors

Exhibit 62: E&C splits into the Engineering-focused

companies, with better market structure and barriers to

entry, and the construction-focused companies Competitive Positioning percentile for the Engineering

companies



Exhibit 63: Equipment and OCTG names screen well,

driven by higher barriers to entry and concentrated

market structures Competitive Positioning percentile for the Equipment and

OCTG companies

Exhibit 64: Oceaneering stands out as having high

market share, while Saipem has a conglomerate

structure including drilling Competitive Positioning percentile for the subsea

construction companies



0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

TGS Nopec Prosafe SBM Offshore EMGS CGGVeritas PGS

Seismic & other marine

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Aker Solutions John Wood Group Plc Amec Plc Petrofac Tecnicas Reunidas

Engineering and construction

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Equipment & OCTG

0%

20%

40%

60%

80%

100%

120%

Oceaneering Technip Subsea 7 S.A. Fugro NV Saipem

Subsea construction



CP framework is not a stock-picking framework…

The GS Competitive Positioning framework is not a stock-picking framework, but instead

aims to identify which companies are well positioned, relative to the sector and their sub-

sector, based on the specific mix of businesses and market positions they have. The CP

framework does inform our estimates and long-term forecasts for each company, but is not

by itself a stock-picking tool.

We overlay valuation to the CP score, along with stock-specific earnings drivers and a

variety of other factors that could affect performance to arrive at our target prices and our

stock ratings. The CP framework does not take into account valuation, management quality,

specific earnings drivers or factors in any business which may drive an improvement, or

deterioration, in the positioning of the company over time. Equally, Oil Services is a cyclical

industry, and the cycles for the various sub-sectors do not always overlap, which may

leave companies in different phases of the cycle at different times, leaving different risks

and opportunities for earnings and valuation which is not captured in the CP framework.

We therefore have Buy-rated stocks which have attractive CP scores and we believe are not

fully valued, along with stocks which are poorly positioned on CP, but have a stock-specific

driver or attractive valuation which leaves us more positive on the company outlook.

Similarly, we have Sell-rated companies which screen as having a good CP score, where

we see valuation as being stretched, or some specific headwinds.

The following are a selection of our top ideas.



A selection of our key investment ideas



Schlumberger, Ltd. (SLB): Technology leader with superior

earnings growth; Buy

Overall CP percentile 100%

Source of opportunity

We like SLB for its ability to post superior earnings growth (18%-20%

CAGR through 2017), much higher than topline growth, which is

commendable for a company with nearly a US$150 bn market cap. SLB

is a technology leader in the oil field service (OFS) industry and has

demonstrated its ability to improve profitability with the introduction of

new technologies which generate strong incremental margins. SLB’s

strong FCF gives it the ability to return some portion of it to

shareholders in the form of dividends and share repurchases, while

also allowing it to make opportunistic bolt-on acquisitions which

further drive revenue growth. SLB set specific financial targets for 2017

at its recent investor conference, which we think are based on realistic

assumptions for macro and E&P capital spending growth. SLB is our

top pick based on the CP framework, where it scores high on most of

the metrics. It is a market leader in most high technology businesses,

and its balance sheet, reservoir knowledge and diversified product

offerings allow it to offer innovative ‘work’ relationships to customers

that are hard to replicate.

Catalyst

(1) Execution of self-help initiatives that grow operating margins. (2)

Service price traction in NAM. (3) Activity pick-up in LatAm. (4)

Introduction of new technologies that allow SLB to capture incremental

financial rent. (5) Increased shareholder capital allocation.

Valuation

We reiterate our Buy rating and maintain our 12-month price target of

US$130. We arrive at our price target by applying a 20.0x multiple to

our 2014E/2015E EPS and then calculating a 25%/75% weighted

average.

Key risks

Commodity prices; lower-than-expected E&P capital spending.

Source: Company data, Goldman Sachs Global Investment Research, FactSet.

Growth

Returns *

Multiple

Volatility Volatility

Multiple

Returns *

Growth

Investment Profile

Low High

Percentile 20th 40th 60th 80th 100th

* Returns = Return on Capital For a complete description of the investment

profile measures please refer to the

disclosure section of this document.

Schlumberger, Ltd. (SLB)

Americas Energy Peer Group Average

Key data Current

Price ($) 107.08

12 month price target ($) 130.00

Upside/(downside) (%) 21

Market cap ($ mn) 140,810.2

Enterprise value ($ mn) 148,712.7

12/13 12/14E 12/15E 12/16E

Revenue ($ mn) 45,364.0 49,563.2 54,867.6 60,742.5

EBIT ($ mn) 8,559.0 9,882.1 11,572.6 13,461.3

EPS ($) 4.79 5.74 6.81 8.08

EV/EBITDA (X) 9.6 10.7 9.2 7.8

P/E (X) 16.9 18.7 15.7 13.2

Dividend yield (%) 1.5 1.5 1.8 2.2

FCF yield (%) 5.5 4.2 6.0 7.2

CROCI (%) 14.6 14.9 15.7 16.3

CROCI/WACC (X) -- -- -- --

EV/GCI (X) 1.5 1.8 1.7 1.5

1,600

1,650

1,700

1,750

1,800

1,850

1,900

1,950

2,000

80

85

90

95

100

105

110

115

120

Aug-13 Nov-13 Feb-14 May-14

Price performance chart

Schlumberger, Ltd. (L) S&P 500 (R)

Share price performance (%) 3 month 6 month 12 month

Absolute 5.9 24.3 29.2

Rel. to S&P 500 4.0 13.4 14.8

Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 8/05/2014 close.



Halliburton Company (HAL): Attractive mix of growth and

profitability improvement through ‘self-help’; CL-Buy



We recommend HAL as it offers an attractive mix of earnings and FCF

growth, leverage to North America (NAM) land activity upside,

profitability improvement through ‘self-help’ initiatives and a reliable

management team. HAL generates nearly 50% of its revenues from

NAM where we see low double-digit capex increases from E&Ps in

2014 which has improved utilization levels across all services lines.

HAL’s comments on its 2Q14 earnings call about the strength in

demand and its announcement to ‘immediately’ add incremental

pressure pumping capacity is evidence of this view. We forecast HAL to

grow revenues +12% pa, operating income +24% pa and EPS +27% pa

through 2016. HAL also has strong FCF and recently raised its

repurchase authorization which now stands at US$6 bn, equaling 10%

of its market cap. HAL screens attractively on our CP framework.

Catalyst

(1) Upward revisions to NAM E&P capital budgets for 2014 on the back

of strong WTI prices YTD. (2) Arrival of newbuild land rigs which could

further improve utilization levels. (3) Service price traction in NAM. (4)

Activity pick-up in LatAm. (5) Progress on margin improvement target

for NAM.

Valuation

We reiterate our Buy rating (CL) and maintain our 12-month price target

of US$87. We arrive at our price target by applying a 17.0x multiple to

our 2014E/2015E EPS and then calculating a 25%/75% weighted

average.

Key risks



Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





Halliburton Company (HAL)


Key data Current

Price ($) 67.72





12/13 12/14E 12/15E 12/16E

Revenue ($ mn) 29,402.0 32,956.0 37,389.8 41,557.1

EBIT ($ mn) 4,285.0 5,344.7 6,811.9 8,187.3

EPS ($) 3.11 4.13 5.45 6.63

EV/EBITDA (X) 7.4 8.4 6.8 5.4

P/E (X) 14.5 16.4 12.4 10.2

Dividend yield (%) 1.2 0.9 1.1 1.3

FCF yield (%) 3.7 2.8 4.7 7.5

CROCI (%) 13.8 14.6 16.4 19.2

CROCI/WACC (X) -- -- -- --

EV/GCI (X) 1.2 1.5 1.4 1.3

1,600

1,700

1,800

1,900

2,000

2,100

2,200

45

50

55

60

65

70

75



Halliburton Company (L) S&P 500 (R)


Absolute 6.0 37.4 47.1

Rel. to S&P 500 4.0 25.4 30.7




Baker Hughes Inc. (BHI): Improved operational execution coupled

with NAM market help; Buy



We recommend BHI for its North America (NAM) leverage, profitability

improvement through ‘self-help’ measures, strong earnings growth and

shareholder capital allocation. Following a string of good quarters

operationally, we are more confident about BHI’s ability to execute on

its target of achieving mid-teen margins in NAM by 2H2014. BHI also

guided for US$6+ EPS for 2016 and issued specific regional targets at

its investor conference recently, which again increase confidence in our

estimates. BHI ranks in the top quartile of our GS Competitive

Positioning framework, reflecting its exposure to markets with strong

growth, high barriers to entry and a benign competitive landscape. It is

among the leaders in several high-growth business segments, like

Artificial Lift, directional drilling, drill bits, drilling fluids and specialty

chemicals. Moreover, its relationships with NOCs in the Middle East

and Asia, and its high leverage to pressure pumping in the US, a

segment which is inflecting from the bottom, make it an attractive

investment.

Catalyst

The key catalysts for BHI will be (1) continued improvement in US land

rig count, (2) margin improvement in NAM and steady progression

towards the mid-teen target for 2H2014, (3) the market gaining

confidence in BHI’s improved operational execution, and (4) signs of

pressure pumping market improvement.

Valuation

We reiterate our Buy rating and maintain our 12-month target price of

US$87. We arrive at our target price by applying a 16.0x multiple to our

2014E/2015E EPS and then calculating a 25%/75% weighted average.

Key risks



Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





Baker Hughes Inc. (BHI)


Key data Current

Price ($) 67.93





12/13 12/14E 12/15E 12/16E

Revenue ($ mn) 22,364.0 24,745.9 27,247.9 29,957.2

EBIT ($ mn) 2,057.0 3,120.8 4,016.8 4,664.2

EPS ($) 2.68 4.28 5.82 6.82

EV/EBITDA (X) 6.6 6.7 5.4 4.5

P/E (X) 18.1 15.9 11.7 10.0

Dividend yield (%) 1.2 0.9 1.0 1.0

FCF yield (%) 5.0 3.5 5.4 7.3

CROCI (%) 9.8 11.9 13.4 13.8

CROCI/WACC (X) -- -- -- --

EV/GCI (X) 0.8 1.0 0.9 0.8

1,600

1,700

1,800

1,900

2,000

2,100

2,200

2,300

45

50

55

60

65

70

75

80



Baker Hughes Inc. (L) S&P 500 (R)


Absolute (3.1) 19.2 41.4

Rel. to S&P 500 (4.9) 8.7 25.7




Aker Solutions (AKSO.OL): Split of businesses to generate value;

CL-Buy



Aker Solutions recently announced that it will split into two companies

with the Subsea, Umbilicals, Engineering and Maintenance,

Modifications and Operations (MMO) businesses forming Aker

Solutions; and Drilling Technologies, Process Systems and Aker Oilfield

Services forming a new company to be called Akastor. According to the

company, the businesses comprising Akastor will have greater freedom

to develop individually both organically and through transactions. Aker

Solutions screens as having a first-quartile CP score, driven by the high

barriers to entry to the subsea and drilling equipment and engineering

parts of its business, which also benefit from attractive and

concentrated market structures, along with good access to growth.

Catalyst

We believe that the restructuring will create value by (1) highlighting,

and ultimately monetizing, parts of the business which are today

generating little in earnings but which have a reasonable market value,

and (2) through the re-rating of the remaining Aker Solutions business

which will be a capital-light, high-return engineering and subsea

equipment business with attractive growth potential and, we believe,

substantially lower earnings volatility and execution risk than the

current Aker Solutions portfolio.

Valuation

Our 12-month price target, based 70% on 7x 2016E EV/EBITDA and 30%

on our SOTP, is Nkr111. We reiterate our Conviction List-Buy.

Key risks

Key downside risks to our view and price target include further

operational problems on existing contracts or lack of order flow.


Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





Aker Solutions (AKSO.OL)

Europe Oil Services Peer Group Average

Key data Current

Price (Nkr) 92.85

12 month price target (Nkr) 111.00


Market cap (Nkr mn) 24,997.6

Enterprise value (Nkr mn) 29,681.0

12/13 12/14E 12/15E 12/16E

Revenue (Nkr mn) 42,900.0 47,266.9 49,325.2 49,754.3

EBIT (Nkr mn) 2,246.0 2,450.2 3,100.0 3,304.7

EPS (Nkr) 5.46 5.10 7.47 8.10

EV/EBITDA (X) 8.8 7.6 6.5 6.0

P/E (X) 17.8 18.2 12.4 11.5

Dividend yield (%) 4.2 4.4 4.4 4.5

FCF yield (%) (1.7) 4.7 5.5 6.7

CROCI (%) 12.6 10.3 12.2 12.3

CROCI/WACC (X) 1.3 1.0 1.2 1.2

EV/GCI (X) 1.1 1.0 0.9 0.9

420

440

460

480

500

520

540

560

580

75

80

85

90

95

100

105

110

115



Aker Solutions (L) FTSE World Europe (USD) (R)


Absolute (5.0) (3.1) 3.6

Rel. to FTSE World Europe (USD) (0.2) (6.4) (5.7)




TMK (TRMKq.L): Attractive markets exposure at discount; Buy



We reiterate our Buy rating on TMK, which we believe offers exposure

to solid competitive positioning at an undemanding valuation. In the

GS Competitive Positioning framework, TMK screens as strong versus

global peers on market structure in its end-markets (Q1) and above

average on barriers to entry and access to growth (Q2). We like the

company’s exposure to the increasing drilling needs of the O&G

companies. We expect TMK to enjoy strong and improving profitability

in the coming years (with the EBITDA margin rising to 22% in 2017E

from 14% in 2013), driven by a growing share of high value-added

products (mainly seamless OCTG, LDP markets and premium

connections) and a decline in raw material costs on the back of lower

steel and scrap prices. All of the above allows TMK to generate

sustainable high returns in the next five years, on our forecasts (2014-

18E CROCI of 10% vs the average for peers Vallourec and Tenaris of

9%). Despite offering a more robust growth/returns profile than peers in

the Russian steel and pipe sectors, TMK’s shares trade at a significant

discount: the stock is trading at 5.3x 2014E EV/EBITDA (close to a

historical trough multiple of 5.2x), which represents a c.35% discount to

closest peers Vallourec and Tenaris (8.1x 2014E average).

Catalyst

We believe TMK’s share price underperformance (down c.30% YTD in

US$ terms and down 15% vs MSCI Russia) offers an attractive

opportunity. We view this underperformance as unjustified and not

reflective of the company’s strong fundamentals. We expect the 2Q14

financial results (due to be published at end August 2014) to act as a

near-term catalyst for share price performance, supported by

management comments on market dynamics and the

financial outlook.

Valuation

We are Buy-rated on TMK and our 12-month price target of US$12.1

implies c.45% upside potential. Our price target is based on a target

multiple of 5.2x applied to 2015E EBITDA. The shares trade at 2014E

and 2015E EV/EBITDA of 5.3x/4.5x vs. averages for its closest pipe-

making peers Vallourec and Tenaris of 8.1x/7.4x (a c.35% discount).

Key risks

Key downside risks to our view and price target include lower-than-

expected steel and scrap prices in both the US and Russia, FX, less

favourable oil price dynamics, and negative developments in the

Russian and US OCTG markets, as well as lower orders from Gazprom

decreasing demand for LDP.


Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





TMK (TRMKq.L)

Europe Steel Peer Group Average

Key data Current

Price ($) 8.35





12/13 12/14E 12/15E 12/16E

Revenue ($ mn) 6,431.9 5,781.7 5,633.1 5,877.5

EBIT ($ mn) 601.6 645.4 731.8 818.5

EPS ($) 1.22 1.30 1.62 1.95

EV/EBITDA (X) 6.9 5.3 4.5 3.8

P/E (X) 10.6 6.4 5.2 4.3

Dividend yield (%) 1.9 3.0 3.9 4.8

FCF yield (%) 10.6 20.2 20.9 22.7

CROCI (%) 12.9 9.5 10.1 10.6

CROCI/WACC (X) 1.0 0.8 NM NM

EV/GCI (X) 0.8 0.6 0.6 0.5

550

600

650

700

750

800

850

900

7

8

9

10

11

12

13

14

Jul-13 Oct-13 Jan-14 May-14


TMK (L) MSCI Russia (R)


Absolute 4.4 (23.7) (40.1)

Rel. to MSCI Russia 0.5 (16.1) (32.4)




Vallourec (VLLP.PA): Rebound in 2015 orders to drive upside; Buy



We reiterate our Buy on Vallourec which screens as having a second-

quartile CP score, driven by relatively high barriers to entry for the

premium market and high market share in premium connections, offset

by weaker access to growth and quite volatile returns. We believe that

the main factors driving lower profitability in 2014 could reverse in 2015

and beyond, with higher activity for Petrobras in Brazil, and higher

orders in the Middle East as activity and the rig count remain strong.

The company has attractive end-market exposures, including two areas

where we continue to see potential for growth in capex – the US

onshore and the Middle East, which combined account for around half

of sales.

Second, we expect the company to benefit from an improvement in

free cash flow as capex continues to fall and the company ramps up the

two new plants in the US and Brazil, which should drive return and

margin improvements through better efficiency and product mix.

Third, Vallourec is well placed to benefit from a weaker euro, assuming

the currency depreciates over the coming 12 months as our economists

expect. We also see meaningful operational leverage to the upside if

the environment proves to be more favourable than we expect.

Catalyst

The key catalysts are likely to be the solid delivery of results over the

coming quarters (to rebuild investor confidence in the company and the

outlook after the latest profit warning) as the company demonstrates

that it can benefit from the ramp-up of the two new plants, and as the

margin improvements that we forecast are delivered.

Valuation

We value Vallourec based on 6.5x 2016E EV/EBITDA which is

the 25th percentile of the 10-year average EV/EBITDA. Our 12-month

target price is €37.5 on this basis.

Key risks

Key downside risks to our view and price target include weaker activity

and margins, or a significant fall in the oil price.


Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





Vallourec (VLLP.PA)

Europe Oil Services Peer Group Average

Key data Current

Price (€) 32.91

12 month price target (€) 37.50


Market cap (€ mn) 3,906.0

Enterprise value (€ mn) 6,401.2

12/13 12/14E 12/15E 12/16E

Revenue (€ mn) 5,578.0 5,619.5 6,028.2 6,398.8

EBIT (€ mn) 534.0 461.7 574.1 699.4

EPS (€) 2.10 1.92 2.43 3.03

EV/EBITDA (X) 8.0 7.6 6.6 5.5

P/E (X) 19.8 17.1 13.5 10.9

Dividend yield (%) 1.9 2.1 2.7 3.5

FCF yield (%) 0.7 3.2 7.1 6.9

CROCI (%) 7.7 6.8 7.2 7.8

CROCI/WACC (X) 0.8 0.7 0.7 0.8

EV/GCI (X) 0.7 0.6 0.6 0.5

360

380

400

420

440

460

30

35

40

45

50

55



Vallourec (L) FTSE World Europe (EUR) (R)


Absolute (21.3) (9.0) (26.4)

Rel. to FTSE World Europe (EUR) (20.4) (13.2) (32.3)




Transocean Ltd. (RIG): Aged rig fleet with upcoming contract

renewals in a challenged offshore market; Sell



We reiterate our Sell rating on RIG as it is highly affected by the weak

supply/demand fundamentals in the offshore drilling market. Capital

discipline by the integrated oil companies (IOCs) has led to lukewarm

demand growth while an influx of newbuild rigs in the market is

leading to dayrate and utilization pressures. RIG has 19 floaters that are

either rolling off of contracts in 2014 or are currently idle with more

coming in 2015. RIG has an aged rig fleet and we think it will be difficult

for it to find follow-on work for many such rigs as they compete with

newer rigs with the latest technical specifications. RIG has the weakest

balance sheet among the offshore drillers under our coverage, which

questions the sustainability of the dividend which it recently increased.

RIG also figures in the third quartile in our CP framework given its weak

scores across various metrics.

Catalyst

(1) Decline in leading edge dayrates for rigs across all generations. (2)

Continued lull in re-contracting. (3) Potential contract cancellations as

we have seen in recent times owing to exercise of ‘non-performance

clause’ by customers. (4) Higher-than-expected unplanned downtime.

Valuation

We maintain our Sell rating and our US$ 30 12-month target price. We

arrive at our target price by applying a 5.7x multiple to our 2014/15

EBITDA estimates and then calculating a 25%/75% weighted average.

Key risks

Commodity prices, higher-than-expected dayrates and lower downtime

for rigs.


Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





Transocean Ltd. (RIG)


Key data Current

Price ($) 38.57


Upside/(downside) (%) (22)



12/13 12/14E 12/15E 12/16E

Revenue ($ mn) 9,484.0 8,862.5 8,627.2 8,356.4

EBIT ($ mn) 2,432.0 2,211.9 2,168.8 1,637.4

EPS ($) 4.17 3.91 3.70 2.44

EV/EBITDA (X) 7.2 7.0 7.2 9.1

P/E (X) 12.0 9.9 10.4 15.8

Dividend yield (%) 3.3 7.8 7.8 7.8

FCF yield (%) (1.8) (7.4) 2.0 (6.4)

CROCI (%) 8.6 7.4 6.8 5.9

CROCI/WACC (X) -- -- -- --

EV/GCI (X) 0.7 0.6 0.6 0.6

1,600

1,650

1,700

1,750

1,800

1,850

1,900

1,950

2,000

2,050

38

40

42

44

46

48

50

52

54

56



Transocean Ltd. (L) S&P 500 (R)


Absolute (10.0) (7.3) (20.4)

Rel. to S&P 500 (11.7) (15.4) (29.3)




Disclosure Appendix

Reg AC

We, Henry Tarr, Waqar Syed, Geydar Mamedov, Will Wyman, Yulia Chekunaeva, Nina Dergunova and Maria-Laura Adurno, hereby certify that all of

the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also

certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this

report.

Investment Profile

The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and

market. The four key attributes depicted are: growth, returns, multiple and volatility. Growth, returns and multiple are indexed based on composites

of several methodologies to determine the stocks percentile ranking within the region's coverage universe.

The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows:

Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate

of various return on capital measures, e.g. CROCI, ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend

yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month volatility adjusted for dividends.

Quantum

Quantum is Goldman Sachs' proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for

in-depth analysis of a single company, or to make comparisons between companies in different sectors and markets.

GS SUSTAIN

GS SUSTAIN is a global investment strategy aimed at long-term, long-only performance with a low turnover of ideas. The GS SUSTAIN focus list

includes leaders our analysis shows to be well positioned to deliver long term outperformance through sustained competitive advantage and

superior returns on capital relative to their global industry peers. Leaders are identified based on quantifiable analysis of three aspects of corporate

performance: cash return on cash invested, industry positioning and management quality (the effectiveness of companies' management of the

environmental, social and governance issues facing their industry).

Disclosures

Coverage group(s) of stocks by primary analyst(s)

Henry Tarr: Europe-Energy:Oil-Services. Waqar Syed: America-Oil Services. Geydar Mamedov: EMEA New Markets-Energy:Oil, Europe-Energy:Oil-

Refining. Will Wyman: Europe-Small & Mid Cap. Yulia Chekunaeva: EMEA Mining, EMEA Steel.

America-Oil Services: Atwood Oceanics, Inc., Baker Hughes Inc., Basic Energy Services, Inc., C&J Energy Services, Inc., Cameron International Corp.,

CARBO Ceramics Inc., Diamond Offshore Drilling, Ensco plc, FMC Technologies, Frank's International N.V., Halliburton Company, Helmerich & Payne

Inc, Hercules Offshore, Inc., Key Energy Services Inc., Nabors Industries, Ltd., National Oilwell Varco, Noble Corporation, Oceaneering International,

Inc., Patterson-UTI Energy, Inc., Pioneer Energy Services Corp., Rowan Companies, Plc., RPC, Inc., Schlumberger, Ltd., Transocean Ltd., Weatherford

International Ltd..

EMEA Mining: Alrosa, Ferrexpo Plc, IRC Ltd, Israel Chemicals, Jastrzebska Spolka Weglowa S.A., KGHM Polska Miedz S.A., Koza Gold, Mechel,

Mechel (Pref), Norilsk Nickel, Petropavlovsk PLC, Polymetal International Plc, Polyus Gold International, Raspadskaya, United Company Rusal,

Uralkali.

EMEA New Markets-Energy:Oil: Bashneft, Bashneft (pref), C.A.T oil AG, Eurasia Drilling Company, Gazprom (ADR), Gazprom Neft, Kazmunaigas EP,

Lukoil, Novatek, PGNiG, Romgaz, Rosneft, Sasol Ltd., Surgutneftegaz (Ord), Surgutneftegaz (Pref), Tatneft (Ord), Tatneft (Pref), Transneft (Pref).

EMEA Steel: Erdemir, Evraz Plc, Magnitogorsk Steel, Novolipetsk Steel, Severstal, TMK.

Europe-Energy:Oil-Refining: MOL, Neste Oil, PKN, Tupras.

Europe-Energy:Oil-Services: Aker Solutions, Amec Plc, CGGVeritas, emgs, Fugro NV, John Wood Group Plc, Odfjell Drilling Ltd, Petrofac, Petroleum

Geo Services ASA, Prosafe, Saipem, SBM Offshore, SeaDrill Ltd, Subsea 7 S.A., Technip, Tecnicas Reunidas, Tenaris S.A., Tenaris S.A., TGS Nopec,

Vallourec.

Europe-Small & Mid Cap: Aalberts, Amer Sports, Andritz AG, Arrow Global Group, BAM Groep, Barco NV, Barratt Developments, Barry Callebaut,

BBA Aviation PLC, BELIMO Holding AG, Bellway Plc, Berkeley Group Holdings, Bovis Homes Group, Bucher Industries, Burckhardt Compression

Holding AG, Cargotec, Carillion, Countrywide PLC, Crest Nicholson Holdings plc, D S Smith, De La Rue Plc, Deutz, Devro Plc., Dignity Plc, Diploma,

Domino Printing Sciences, Domino's Pizza, Dufry, Exova Group Plc, Fenner, Forbo, Foxtons Group plc, Fuchs Petrolub, Genus, Georg Fischer,

Gerresheimer AG, Grafton Group Plc, Greggs, Groupe SEB SA, HellermannTyton Group Plc, Holmen B, Howden Joinery Group plc, Huhtamaki,

Hunting Plc, IG Group Holdings, Indesit Co SpA, International Personal Finance, ITE Group, Jungheinrich, JUST EAT, Keller Group, Kier Group,

Kingspan Group, KION GROUP AG, Konecranes, Krones AG, KUKA, LSL Property Services PLC, Marshalls Plc, Matas, Mayr-Melnhof, Melrose, Metsa

Board Corporation, Mondi Group, Neopost, NORMA Group AG, Northgate, Oxford Instruments, Persimmon, Pfeiffer Vacuum Technology AG,

Premier Foods, Provident Financial, Rational AG, Redrow, Renishaw Plc, Rexam, Rightmove Plc, Rockwool International A/S, Rotork PLC, Royal

Boskalis Westminster N.V., Royal Vopak, Rubis, Sanitec, Savills PLC, Schoeller-Bleckmann, SIG, Sika, Smurfit Kappa Group, Société BIC, Spectris,

Speedy Hire, Stora Enso, Sulzer AG, Tarkett, Taylor Wimpey, Tomra Systems, Topps Tiles, Trevi Finanziaria Spa, TT Electronics, UPM-Kymmene,

Uponor OYJ, Viscofan, VTG, Wacker Neuson, Wincor Nixdorf, World Duty Free Group, XING AG, YOOX, Zardoya Otis, Zumtobel.

Company-specific regulatory disclosures

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Distribution of ratings/investment banking relationships

Goldman Sachs Investment Research global coverage universe

Rating Distribution Investment Banking Relationships



Buy Hold Sell Buy Hold Sell

Global 32% 54% 14% 42% 36% 30%

As of July 1, 2014, Goldman Sachs Global Investment Research had investment ratings on 3,697 equity securities. Goldman Sachs assigns stocks as

Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for

the purposes of the above disclosure required by NASD/NYSE rules. See 'Ratings, Coverage groups and views and related definitions' below.

Price target and rating history chart(s)

Compendium report: please see disclosures at http://www.gs.com/research/hedge.html. Disclosures applicable to the companies included in this

compendium can be found in the latest relevant published research

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