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Economic Industry Overview

William C. Dunkelberg Owl Fund

September 15th, 2014

Economic Analysts:
Robert Kost
Vicky Magginas
Darmesh Patel

Company Overview
FMC Technologies offers subsea drilling and production systems for the exploration and production of oil
and gas. Companies in this industry manufacture machinery and equipment used in oil and gas exploration
and production, as well as water well drilling machinery. Indicators that affect this company are the price of
West Texas and Brent oil as well as natural gas.
Demand for Crude Oil and Oil Prices
Brent crude declined to its lowest level in more than two years, and WTI (West Texas Intermediate) has also
declined to a 16

month low. The International Energy Agency has cut global oil demand forecasts for this
year and next year. The decrease in the price of oil reflects the concerns of oversupply.
The correlation between oil service providers stock performance and oil prices rose from 2009 through
2011 and fell from 2011 to 2014 as oil and natural gas prices dropped/rising well counts drove shares higher
in 2013. An oil price range of $90-$110, which we expect for another 12-18 months will provide confidence
for exploration and production companies.
Offshore Servicers Demand

Exploration and production companies have pushed into the Deepwater areas driven by higher oil prices.
The higher pace of overall offshore discoveries is expected to drive demand at the expense of exploration



FMC Technology

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FMC Technology
spending on offshore. However, net spending is expected to be tempered as international oil companies
desire to keep 2015 capital spending growth in-line with 2014 as a result of declining earnings, cash flow and
rising well cots. The move may come as companies cut spending budgets to focus on increasing returns to


The total US drilling rig count is currently at 1,925 according to Baker Hughes. Total gas rig count is still
down 13.7% from a year earlier; however, YTD rig count is up 16%.
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Drilling in the US Gulf has seen an uptick in recent weeks, but remains down 3.3% year to date. Oil rigs are
up 15.4% this year so far, but drilling for gas remain 40% lower. Gulf exploration and production companies
continue to shift to oil drilling from gas, which accounts for 79% of the fleet vs. 26% in April 2011.
Value of US Dollar
U.S. economic growth gained momentum in spring 2014: Job growth was faster in the first half of 2014 than
in 2013, and various business and consumer sentiment indicators reached recovery-to-date highs at mid-year.
Against this strengthening economic backdrop, the Federal Reserve continues to taper its quantitative easing
program, and will likely cease net new purchases of bonds at the October 2014 Federal Open Market
Committee meeting. Surprisingly, in the first half of 2014, the dollar index was unaffected by the
strengthening economy and evidence that U.S. interest rates will rise next year but then shot up in the
month of August as the dollar strengthened suddenly against the Euro, Pound, Yen, Peso, and Loonie. While
Augusts sharp gains seem a little overdone, the dollar does seem likely to continue to trend stronger against
most currencies in 2015 and 2016 as the U.S. unemployment rate falls further and U.S. interest rates rise.
Commodities typically follow and inverse relationship with the value of the dollar. When the dollar
strengthens against other major currencies, the prices of commodities typically drop. This will put
fundamental pressure on the price of oil in the next 12 months and we should not expect oil to break above
$110 anytime soon.

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This report is prepared strictly for educational purposes and should not be used as an actual investment guide.
The forward looking statements contained within are simply the authors opinions.
Established in honor of Professor William C. Dunkelberg, former Dean of the Fox School of Business, for his
tireless dedication to educating students in real-world principles of economics and business, the William C.
Dunkelberg (WCD) Owl Fund will ensure that future generations of students have exposure to a challenging,
practical learning experience. Managed by Fox School of Business graduate and undergraduate students with
oversight from its Board of Directors, the WCD Owl Funds goals are threefold:
Provide students with hands-on investment management experience
Enable students to work in a team-based setting in consultation with investment professionals.
Connect student participants with nationally recognized money managers and financial institutions

Earnings from the fund will be reinvested net of fund expenses, which are primarily trading and auditing costs
and partial scholarships for student participants.