Major report published this morning, with RBC global view on key themes, favourite and least preferred in each sector.The report covers outlook in oil and gas markets but no change in our price forecasts
- Crude supply and demand remain relatively balanced, but poised to loosen amid increasing US onshore production
- Gas prices capped at $4.50 in US for next few years, Big 4 shale basins represent 37% of production in US (from 5% just 6 years ago) but only one (Marcellus) now showing growth
- LNG demand growth of 7% to 2020 outpacing near term supply growth, supporting strong prices, now at >$19/mcf in Far East
Global Oils Key Themes:
- Seen as amorphous group but consistently see highly differential performance, over 30% between best and worst. Stock Selection is well rewarded
- Attraction of positive Free Cash Flows - a major area of differentiation. XOM stands out but Shell will play into this in 2014 in our view
- Constraining Capex, protecting returns - investors poised when they see inflexion point
- Differential position in gas - LNG growth, continued premium for supply flexibility
Shell (RDSB): Outperform, Price Target 2520p
- Reiterate focus we have had on Shell in last two months
- Improved cost management especially in US (significant prize, could add $2-2.5bn net income)
- Action on divestments generates funds ($7bn+ on our estimates) and saves capex ($3-4bn)
- Improved definition of capital spending programme, tighter forecast of capex
- Catalysts: 4Q13 results on 30 Jan, Strategy Presentation 13 March
- Crude supply and demand remain relatively balanced, but poised to loosen amid increasing US onshore production
- Gas prices capped at $4.50 in US for next few years, Big 4 shale basins represent 37% of production in US (from 5% just 6 years ago) but only one (Marcellus) now showing growth
- LNG demand growth of 7% to 2020 outpacing near term supply growth, supporting strong prices, now at >$19/mcf in Far East
Global Oils Key Themes:
- Seen as amorphous group but consistently see highly differential performance, over 30% between best and worst. Stock Selection is well rewarded
- Attraction of positive Free Cash Flows - a major area of differentiation. XOM stands out but Shell will play into this in 2014 in our view
- Constraining Capex, protecting returns - investors poised when they see inflexion point
- Differential position in gas - LNG growth, continued premium for supply flexibility
Shell (RDSB): Outperform, Price Target 2520p
- Reiterate focus we have had on Shell in last two months
- Improved cost management especially in US (significant prize, could add $2-2.5bn net income)
- Action on divestments generates funds ($7bn+ on our estimates) and saves capex ($3-4bn)
- Improved definition of capital spending programme, tighter forecast of capex
- Catalysts: 4Q13 results on 30 Jan, Strategy Presentation 13 March