Table of Contents
Investment summary................................................................3
Sources of cash flow strength ................................................4
1: Lifting costs per barrel.............................................................................................4
2: Cash flow per barrel.................................................................................................7
3: Net income per barrel ............................................................................................10
4: Impact of cost structure on cash flow and net income sensitivity..........................11
Development cost efficiency .................................................14
Free cash flow – conclusions .....................................................................................16
Valuation implications ...............................................................................................17
Valuation and recommendations ..........................................19
Raising J.P. Morgan crude price forecasts .................................................................19
Changes to macro assumptions..................................................................................20
EPS estimate changes ................................................................................................20
Sector view – near-term momentum to continue .......................................................21
Stock selection ...........................................................................................................22
Valuation summary....................................................................................................23
Production profiles.....................................................................................................23
BG Group ................................................................................24
Core Overweight; but needs Brazil catalysts to move higher ....................................24
BP ............................................................................................26
Best cost-cutting play in the sector; increasing confidence in growth outlook ..........26
ENI ...........................................................................................28
Valuation gap narrowed but not closed......................................................................28
Galp Energia ...........................................................................30
Good long-term story, more clarity on funding situation...........................................30
OMV.........................................................................................32
Operational leverage a double-edged sword ..............................................................32
Repsol .....................................................................................34
Poor earnings outlook for the medium term ..............................................................34
Royal Dutch Shell ...................................................................36
Earnings downgrades over, better value after de-rating.............................................36
Statoil ......................................................................................38
Expensive even on higher oil prices ..........................................................................38
Total.........................................................................................40
Quality name, valuation not attractive enough...........................................................40
Valuation Methodology and Risks ........................................42