Apache & Schlumberger Sell Pitch

Investment Thesis Sector Manager: Ellie Hogan Senior Analyst: Mike Havris Analysts: Luke Briody & Aisling Dooley TRINITY SMF Investment Thesis

Why not to focus on Upstream Oil TRINITY SMF Why not to focus on Upstream Oil We expect oil prices to stay at their current rate - not expecting them to go above $60 a barrel Why ? Shale oil OPEC The rally over the summer is thanks to better fundamentals Oil prices has been propped up on bullish ideas – market adjustment may be on the way Investment Cycle 5-7 years Conventional spend on upstream investment is still in decline. US$340 bn this year, US$10 bn below 2016, and 40% below the 2014 peak Overall not negative on oil – just limiting upstream exposure

TRINITY SMF Apache Overview Apache Corporation is an American oil and gas company with operations in North America, Egypt and the North Sea It is a almost solely upstream Headquartered in Texas, 56% of its total estimated proved reserves are in the United States with the majority of its operations are in the Permian Basin In the Permian Basin it has over 3.1 million acres in this area, 11.3 million gross acres in North America overall 59% of which is undeveloped In 2016, the company's total production was 521 thousand barrels of oil per day, 43% of which from the United States

Apache Alpine High Project TRINITY SMF Apache Alpine High Project September 2016 they announced their new Alpine High field within the Permian Basin 300,000 net acres and where Apache see most of its future growth Currently building its infrastructure For the full year 2016, Apache reported a loss of $1.4 billion Apache also reported a Q2 loss for this year and it is expected to have a loss for 2017 of $1 billion Their losses are due to their investment in the Alpine High project

TRINITY SMF Why Sell Apache? Market's perception of the stock is very dependent on the single big Alpine High project. Recent sharp price drop resulted from company presentation saying Capex is expected to exceed cash flow (leading to negative FCF) in order to finance Alpine High over coming 1-2 years Debt quite high compared to peers, they're having to sell off assets to pay it down and finance new capex Earnings coming out Thursday - could set off a market correction. Sell before earnings

Schlumberger Overview TRINITY SMF Schlumberger Overview World’s largest oilfield services provider Provides technology for 4 segments Reservoir Characterisation Group - finding and defining hydrocarbon resources Drilling Group - drilling and positioning of oil and gas wells Production Group - lifetime production of oil and gas reservoirs Cameron Group. - pressure and flow control for drilling and intervention rigs, oil and gas wells and production facilities. Incorporated in the Curacao Recently trying to take a 51% stake in Russia’s largest Oil and Gas E&P

Why Sell Schlumberger? For Service Companies TRINITY SMF Why Sell Schlumberger? For Service Companies The expected global slowdown in the creation of new upstream projects means less business for service companies. Upstream producers starting to focus on returns & efficiency as opposed to production expansion. Will put pressure on service companies' revenues. For SLB that means Schlumberger have highlighted a 500,000 a day reduction in daily barrel production from their upstream production clients, which will significantly impact future service revenue. Their strategy of buying ownership stakes in oil & gas projects gives more upstream and oil price exposure which we don’t think is the best thing right now.

Why Sell Schlumberger? Lack of Exposure to U.S. Shale TRINITY SMF Why Sell Schlumberger? Lack of Exposure to U.S. Shale In terms of upstream oil operations, North America is the most active region in the world. Exposure to U.S shale is lucrative and essential for oilfield services companies that can clinch contracts for setting up oil and gas wells. Schlumberger have not utilized the growing U.S Shale market with the majority of consolidated revenues resulting from non-U.S operations. Other Key Factors Since 2015 long-term debt at Schlumberger has been on the rise, which is a matter of concern. The company’s cash balance has been declining steeply over the last five quarters, reflecting a weak balance sheet. Schlumberger have lost 23.9% value over the last year, following the oil industry's 27.2% decline.