● Coverage universe: nine companies; the European large-cap IOCs and US supermajors Exxon and Chevron. Aggregate market capitalisation is
cUSD1.4trn.
● Oil price assumption: USD60/55/60 for 2018/19/20+.
● Top level views:
Big Oil offers free cash flow yields that are increasingly attractive versus their own recent history and the broader market
Formalising continued Saudi-Russia collaboration at the June 22nd OPEC meeting could provide further support for the back-end of the oil
curve
We therefore argue the risk-reward is skewed to the upside, given a USD10-15/bbl safety net for coverage of full dividends on free cash
flow, for a sector that remains largely unloved by equity generalists
Industrial outlook remains though WIP: Low growth, low returns, higher operational and financial risk, decarbonisation
Stocks…What to own and avoid?
● Shell should be a core global holding
● Ones to avoid… Exxon in the US and Galp in Europe
● What if oil prices remain at these levels? ENI metrics improve markedly…and some E&Ps exposure through Tullow and Aker BP in Europe
Ratings: 3 outperform, 4 neutral, 2 underperform
● (+): Royal Dutch Shell, Total, BP
● (=): Chevron, ENI, Repsol, Statoil
● (-): Exxon Mobil, Galp