* We lower oil price estimates to US$65/bl near term, US$55/bl in 2020
With shale breakevens falling US$20/bl in a year, and deflation taking hold of the industry, we lower our Brent oil price estimate to c.US$65/bl in the near term, falling to US$55/bl by 2020. This change is likely to put severe pressure on the integrated oils, leaving them too high on the cost curve.
* Dividends to come under severe pressure with oil lower for longer
Lower oil prices leave dividends at risk, and on our new estimates none of the companies under active coverage can sustainably maintain their existing dividend to 2020 while maintaining cash flow neutrality. On our estimates, ENI and Total should be able to maintain the highest yields, with BP, Statoil and OMV likely to see the largest cuts.
'Matthew Scales'
* Preferred Buy remains ENI
ENI remains our top pick in the sector, with ongoing restructuring in the downstream, near-term production growth from Top 420 projects including Marine XII, Goliat and Angola LNG, and strong FCF generation. We raise our 12-month target price to €19, implying 10% upside.
* Downgrade sector to Cautious; BP, Statoil to Sell
We reduce our sector view to Cautious (from Neutral) given our negative view on the oil price and downgrade BP (12m TP 364p, 20% downside) and Statoil (12m TP Nkr147, 7% downside) to Sell. For BP, we see limited upstream growth, fewer options left for disposals and an ongoing overhang of the Macondo liability. For Statoil we see the high gearing ratio and relatively limited growth profile leaving the dividend at risk in a lower oil price world. We also downgrade both Galp and OMV to Neutral (from Buy) following strong recent performance.