2025-12-16 03:30Summary of Key Points from the Conference Call Industry Overview - The report focuses on the North America Energy Services & Equipment (ESE) sector, with a particular emphasis on the outlook for 2026 and the dynamics of oil and gas markets [1][4][10]. Core Insights and Arguments - Market Outlook: North America is nearing a bottom in terms of oil prices, with international onshore growth driven by OPEC activity. However, offshore growth is expected to be muted due to moderating efficiency gains [1][5]. - Earnings and Valuations: The ESE sector has seen a rally of approximately 30% since the lows post-Liberation Day, resulting in year-to-date gains of about 5%. Despite this, earnings estimates have fallen, leading to higher EV/EBITDA multiples and tighter free cash flow yields, now aligning with historical median levels [4][15]. - Spending Trends: North American onshore spending is expected to remain constrained, while international activity is projected to be flat in 2026 before increasing in 2027, driven by OPEC+ activity and unconventional gas opportunities [5][10][26]. - Offshore Activity: The outlook for offshore spending is more cautious, particularly for deepwater projects, due to anticipated efficiency gains that will limit the need for additional rigs [9][10][26]. Key Themes for 2026 - Power and Data Centers: There is an emerging opportunity in power generation, with demand expected to grow at a 2.6% CAGR through 2035, driven by data center growth and electrification. Companies like HAL and LBRT are positioned to provide power solutions directly to end-users [10][35][41]. - Oil and Gas Price Forecasts: Oil prices are expected to decline by approximately 20% since the start of 2025, with a forecasted surplus of ~2 mb/d in 2026, potentially reaching ~3 mb/d in the first half of 2026. Brent prices are anticipated to drop to around $60/bbl before a recovery begins in mid-2027 [10][63][64]. - Rig Counts and Efficiency: The total US rig count has decreased by ~7% since the beginning of 2025, with oil-directed rigs down by ~14% and gas-focused activity up by 25%. Efficiency improvements have led to a reduction in drilling days per well [77][80][86]. Company-Specific Insights - Top Picks: HAL is identified as a top pick due to its exposure to the Middle East and power generation opportunities. The strategic partnership with VoltaGrid is highlighted as a key differentiator [14][54]. - NOV Downgrade: NOV has been downgraded to equal-weight due to its significant offshore capex exposure and less resilience in oil and gas production opex compared to peers [14][54]. Additional Important Points - Investment Strategy: The report emphasizes a preference for stocks with defensive and unique revenue streams, favoring gas over oil-focused activities and spending tied to existing production [54][43]. - Long-term Trends: The report notes that oil capex represents only ~55% of revenues for the covered companies, with significant contributions from gas capex and non-upstream markets, indicating a shift in revenue dynamics [45][50]. This summary encapsulates the critical insights and projections for the North America Energy Services & Equipment sector as discussed in the conference call, highlighting both opportunities and challenges in the current market landscape.