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In the midst of a radically changing industry, RDS stands firm. As project delivery has

moved to forefront of sector, RDS’s growth story, with the lowest project delivery risk

around, is increasingly valuable, despite production growth appearing to lag peers and cash

flow delivery rather back-end loaded. A combination of one the sector’s strongest balance

sheets, a defensive dividend coupon and a dividend that is actually fully supported add

strength to the company as well as creating plenty of room for substantial shareholder

distributions. RDS stands out as our top pick in the sector, hence we initiate with a Buy

rating and a EUR31.0 target price, implying a 2014E target P/E of 10.3x, a 1% discount to

our sector target multiple.

We think the market is still underestimating Total’s cash flow growth potential, ability to

bridge the short-term gap in the cash cycle and financial robustness. The company’s capital

market day has added traction to our cash flow thesis with Total now targeting an organic

FCF of USD15-17bn for 2017, which equates to a 12-13% FCF yield. While we maintain

our more conservative assumptions and assume an FCF yield of 11%, Total still offers the

most attractive FCF growth story in our sector universe. Hence we re-iterate our positive

stance on the stock. Our target price implies a target 2014E P/E of 9.5x, a 16% discount to

our sector target multiple.

While we think the market has not fully reflected BP's ability to boost cash flows in the

medium term, there remains significant uncertainty about the final Macondo bill. We

believe BP’s upstream portfolio and improved financial flexibility should enable it to

weather this uncertainty and deliver sector-leading dividend growth, hence we initiate

with a Buy and a GBP545p target price, implying a target 2014E P/E of 10.2x, a 10%

discount to our sector multiple.

We think ENI combines deliverable growth and sector-average project delivery risk in its

upstream portfolio, supporting rising unit cash flow and returns for shareholders in the

coming years. As we think the shares offer a better risk/return profile than average for the

sector, we initiate with a Buy rating and EUR19.5 target price, implying a target 2014E P/E

of 14.6x, an 29% premium to our sector target multiple.