Oilfield Services Sector

[dan_s]

Raymond James January 9, 2017 Energy Industry Brief: Bullish on Oilfield Services Sector

"After two years of cash flows drying up, investors have anchored expectations to a low oil price environment and thus a low cash
flow environment. While investor sentiment has clearly become more bullish, many severely underestimate the leverage that is
inherent in the oil and gas industry. This is the bottom of a generational downturn and investors should not be surprised that near
breakeven cash flows from the industry can see massive increases in cash flow in the coming years. Further, in that type of growth,
inflection points in mentality particularly as it relates to E&P thrift are likely coming to an end. Consensus sell-side estimates are
similarly underestimating the leverage inherent in the cycle. As E&P budgets are released under the current oil price environment,
we expect substantial estimate revisions to occur for consensus estimates as the current forecasts for E&P capex move up 60%
growth on the strip. With our $70 oil forecast for 2017, we are even more optimistic as we expect cash flows to double over the next
12 months! As such, investors must be ahead of massive shifts in expectations and coming estimate revisions. We continue to
highlight our favorite ways to gain leverage to the service space including pressure pumping, proppant, and high end rigs, all of
which should see the steepest estimate revisions."

If we assume average commodity prices of $60/Bbl for WTI and $3.25/MMBtu for Henry Hub gas, upstream company cash flow from operations is expected to increase 60% to 65% in 2017.

[dan_s]

Each week Raymond James lists catalysts that it expects will draw market attention. This week they list Range Resources' three step-out wells at Terryville, which s/b announced later this month. Terryville is the big Louisiana gas field they got in the merger with MRD.