巴克莱-美股-石油与天然气行业-美国整装石油与E&P：增持CVX持有XOM-2019.8.19-53页.pdf

Equity Research 19 August 2019 FOCUS Barclays Capital Inc.and/or one of its affiliates does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.This research report has been prepared in whole or in part by equity research analysts based outside the US who are not registered/qualified as research analysts with FINRA.PLEASE SEE ANALYST CERTIFICATION(S)AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 46.Restricted-Internal U.S.Integrated Oil&E&P Initiate CVX(OW)and XOM(EW);Quantifying Major Permian Mojo We initiate on CVX at Overweight with price target of$145 and XOM at Equal Weight with price target of$73,primarily due to CVXs superior current FCF profile.We also rename our coverage industry to U.S.Integrated Oil&E&P.CVX is well positioned to both return significant FCF to shareholders and fund its 3-4%five-year growth CAGR guidance.We like managements approach to its$4-$5bn run rate buyback as being a ratable return of cash through the commodity cycle.While CVX has outperformed XOM by 11%over the last year,the stock still trades at a discount on an after-tax CF basis in 2020,which should invert over the next year as the market becomes comfortable with the sustainability of CVXs cash return program.While we think XOMs counter-cyclical investment approach will eventually pay off,it leaves a near-term FCF deficit after dividend at Brent prices less than$70(ex-asset sales).Quantifying Major Mojo Via Standalone,Bottoms-up Permian Modeling The Permian is the largest driver of medium-term production growth for XOM and CVX at 40%and 55%,respectively.Energy currently is a one big Show-me Story and the Permian is coming up on FCF inflection for both names as XOM targets its Permian as FCF positive in 2021 at$60 flat real Brent while CVX targets 2020 at$55 WTI.Determining if XOM and CVXs Permian growth and FCF targets are aggressive or conservative is critical to assessing risk.Thus,we leveraged our E&P knowledge and built standalone,bottoms up well-by-well Permian models for an XOM/CVX deep-dive.The veil of secrecy(i.e.much improving but still limited disclosure)on the majors technical and operational details in the Permian has us intrigued as both XOM and CVX claim to do things differently,which is/will be the key to their success compared to the independent E&Ps.To quantify the Major Mojo,we took a benchmarking approach for building our standalone Permian models.Select takeaways include:XOM and CVX can meet their Permian growth targets under reasonably comparable assumptions to Large-cap Permian E&Ps.While we do need to assume the Major Mojo related to XOM/CVX bringing Big Oil scale and expertise to the Permian translates into actual dollars and cents(or in this case drilling days and well productivity improvements),we are comfortable with the magnitude of the required leap of faith.We forecast XOM/CVX FCF and Permian earnings(CVX-only)that are relatively in line with managements targets,which surprised us given limited disclosure.Despite some scepticism in the market,our standalone Permian Model suggests XOM can achieve its 1 MMBOE/d by 2024 target at its stated 50%of inventory.INDUSTRY UPDATE U.S.Integrated Oil&E&P POSITIVE Unchanged For a full list of our ratings,price targets and earnings in this report,please see table on page 2 U.S.Integrated Oil&E&P Jeanine Wai+1 212 526 3557 Jeanine.W BCI,US Eli Bauman,CFA+1 212 526 6972 BCI,US Matthew Lee+1 212 526 8646 BCI,US European Integrated Oil&Refining Lydia Rainforth,CFA+44(0)20 3134 6669 Barclays,UK Joshua Stone+44(0)20 3134 6694 Barclays,UK Barclays|U.S.Integrated Oil&E&P 19 August 2019 2 Summary of our Ratings,Price Targets and Earnings Estimates in this Report Company Rating Price Price Target EPS FY1(E)EPS FY2(E)Old New 16-Aug-19 Old New%Chg Old New%Chg Old New%Chg U.S.Integrated Oil&E&P Pos Pos Chevron Corporation(CVX)N/A OW 115.81 N/A 145.00-N/A 7.01-N/A 8.43-Exxon Mobil Corporation(XOM)N/A EW 68.30 N/A 73.00-N/A 3.08-N/A 4.58-Source:Barclays Research.Share prices and target prices are shown in the primary listing currency and EPS estimates are shown in the reporting currency.FY1(E):Current fiscal year estimates by Barclays Research.FY2(E):Next fiscal year estimates by Barclays Research.Stock Rating:OW:Overweight;EW:Equal Weight;UW:Underweight;RS:Rating Suspended Industry View:Pos:Positive;Neu:Neutral;Neg:Negative Barclays|U.S.Integrated Oil&E&P 19 August 2019 3 Chevron Corporation(Overweight/Positive,$145 PT)Investment Thesis Chevron Corporation(CVX,$220bn market cap),along with ExxonMobil,is one of the two remaining truly integrated U.S.-based major oil companies.CVX has upstream operations in the U.S.and internationally,a downstream business levered to West Coast U.S.and Asian product markets,and exposure to Chemicals through its 50/50 CPChem Joint Venture.In the upstream,CVXs exposure to global LNG markets increased significantly to 15%of total production in 2018 with the ramp-up of its Gorgon and Wheatstone facilities.With these two projects now in harvest mode,Chevron is well positioned to both return significant free cash flow to shareholders and fund its 3-4%five-year production CAGR.Despite outperforming XOM by 11%over the last year,CVX continues to trade at a discount to XOM on an after-tax cash flow basis,a relationship we think is likely to invert over the next year as the market becomes more comfortable that managements recently adopted$4-$5bn buyback run-rate is sustainable through commodity cycles.We initiate on CVX at Overweight and XOM at Equal Weight based on CVXs valuation discount to XOM,CVXs superior sustainable free cash flow generation over the next 4 years,our view that the market will continue to favour organically generated total return of capital stories over outspend,and our view that management will continue to emphasize the rateable nature of its buyback program through commodity cycles.Our price target equates to 110%of our NAV based on a long term Brent assumption of$70/Bbl.Overweight Case Superior Total Shareholder Return.Based on our forecasts,CVX can hit its 3-4%five-year production CAGR target while still funding$60bn of shareholder returns(through dividend and buybacks),or 30%of current market cap,out of free cash flow over the same time period at strip prices.In comparison to XOM,during this time we estimate CVX will generate$19bn surplus cash after dividend payment at the current strip,while XOM outspends cash after dividend payment by$40bn(excluding the impact of asset sales for both).Advantaged Permian Position Provides Short-Cycle Optionality.Based on our stand-alone Permian model,Chevron will still have 70%of current estimated locations at the end of 2023,suggesting a solid runway for future growth beyond its current target of 900 MBOE/d by 2023,and should help allay M&A fears.Importantly,we forecast that CVXs Permian will turn FCF positive in Q120 and begin compounding FCF assuming strip pricing.In addition,the Gulf of Mexico is an underappreciated source of potential tie-backs and major capital projects.Although we anticipate that Chevron will identify growth opportunities beyond its 2023 Permian guidance,we think investors will prioritize CVXs current free cash flow over concerns on having less visibility on the more traditional,longer-dated growth related to major capital projects.Downside Risks Tengiz FGP Spend.On the heels of significant cost over-runs at Gorgon and Wheatstone,the cost pressures revealed in Q218 during the engineering phase of the Tengiz Future Growth Project(FGP)introduced some scepticism on CVXs ability to execute on major capital projects,as well as potential free cash flow cannibalization.FGP is now over 65%complete and CVX has not increased the$18-20bn(net)budget,which all but rules out a repeat of the 50%cost over-runs at Gorgon/Wheatstone.Cash Capital Uncertainty.Despite surprising to the upside in its growth outlook,Chevrons five-year forecast that was introduced at the March 2019 Security Analyst Meeting raised concerns of an implied increase in cash capex post the Tengiz FGP start-up.On this front we note that,from a free cash flow perspective,the cash capital increase is somewhat offset by a combination of implied decrease in the TCO co-lend and production contribution that translates to increased TCO dividend relative to earnings after start-up.At$60 Brent,we forecast overall 2023 cash available after capex declines by only$1bn(assuming$2bn of affiliate spend and no co-lend)compared to 2020 despite estimated cash capex increase of$6bn.Barclays|U.S.Integrated Oil&E&P 19 August 2019 4 ExxonMobil(Equal Weight/Positive,$73 PT)Investment Thesis ExxonMobil(XOM,$289bn market cap)has significant upstream exposure in the Middle East and in the U.S.,which accounted for 25%of global production in 2018.Compared to Chevron,Exxon is more exposed to downstream and chemicals,which accounted for 25%of total 2018 capital employed(vs.CVX at 13%).During the most recent downturn,XOM pursued leasing and acquisitions,which laid the foundation for the current investment cycle.We forecast XOM will have$100bn in upstream spend between 2019 and 2023.In downstream,XOM is pursuing eight major capital projects(refining and chemicals)that we estimate will garner$40bn of spend between 2019 and 2023.While we think XOMs counter-cyclical approach will eventually pay off for shareholders,it leaves the company in a near-term FCF deficit after dividend payment in anything less than a$70 Brent price environment(excluding the impact of asset sales).Our view is that investors are more likely to gravitate toward energy companies that currently have strong free cash flow generation,as opposed to potential free cash flow in the future.As a result of this view along with XOMs slight valuation premium to CVX,we initiate on XOM at Equal Weight and on CVX at Overweight.Our price target equates to 100%of our NAV based on a long term Brent assumption of$70/Bbl.Upside Risks Guyana.Guyana is one of the most attractive oil opportunities,offering 30%IRR at current strip prices,compared to Exxons current upstream ROCE of 1 MMBOE/d by 2024,estimated earnings and operating cash contribution through 2025,etc),our sense is that there is some scepticism in the market.However,we think XOMs targets are achievable.Our stand-alone Permian Model suggests XOM can achieve its 1 MMBOE/d by 2024 target.Beyond production growth,while we are slightly below the companys 2021 and 2023 cash flow targets,we are not including logistics benefits that XOM incorporates in its estimates.Given the margin of error due to the amount of available information at this time,we think being slightly below is decent.However,our model also suggests that the depletion in tier-1 locations by the middle of the next decade could fuel the perception that XOM will make an acquisition in the Permian,which would delay free cash flow during the upcoming harvest period and lower ROCE.Additionally,management does not forecast its Permian will be FCF positive until 2021(assuming$60 flat real Brent)compared to CVXs forecast of its Permian being FCF positive next year(assuming$55 WTI).We think XOMs Permian will be a Show-me story”until the market gains more confidence in XOMs ability to execute in the play.Downside Risk Near Term Investment Cycle outweighs Longer Term Return Potential:Right or wrong,the current energy investor is looking for current return of capital over re-investment in the business.Exxons current spending plan of$63-$65bn in 2019 and 2020 doesnt leave room for return beyond dividend at current strip,even after accounting for planned asset sales.Exxon will inevitably reach its own“harvest mode”,but for the medium term it falls short of CVXs return of capital potential.Barclays|U.S.Integrated Oil&E&P 19 August 2019 5 FIGURE 1 North American E&P Comp Table Strip Pricing Source:Barclays Research,Company Reports.Stock rating:OW=Overweight;EW=Equal Weight;UW=Underweight.For full disclosures on each covered company,including details of our company-specific valuation methodology and risks,please refer to http:/ EnterpriseCurrent Net Debt/Share PricePricePotential ValueNAV/EBITDAXFCF yieldCompanyRating16-Aug-19TargetUpside($mm)2019E2020E2021Eprice2019E2020E2021E2019E2019EU.S.Integrated Oil&E&P(Positive)Integrated/MajorsChevron CorporationOW$115.81$14525%240,2988.1x8.8x8.7x0%4%5%0%0.5x2%ExxonMobilEW$68.30$737%334,49211.2x10.7x9.9x0%4%4%5%1.0 x-3%Integrated Average9.7x9.7x9.3x0%4%4%2%0.8x0%Large Cap E&PApache CorporationUW$20.84$3044%15,8555.0 x4.9x5.0 x76%5%9%4%2.0 x-3%Continental ResourcesOW$29.77$5895%16,2264.9x5.0 x4.5x104%11%5%10%1.5x3%ConocoPhillipsOW$51.47$7953%63,8085.0 x5.4x5.1x101%9%8%5%0.4x7%Concho ResourcesOW$71.63$165130%18,2745.6x4.8x4.1x139%12%8%13%1.2x1%Devon EnergyEW$22.54$3869%12,0614.4x4.2x3.7x85%-13%-9%6%1.0 x2%Encana CorporationOW$4.22$11161%11,7073.5x3.5x3.5x130%4%7%5%1.7x3%EOG ResourcesOW$75.92$14692%48,3326.3x5.9x5.3x103%13%13%14%0.5x1%Diamondback EnergyOW$97.26$18994%19,7626.4x4.6x3.6x175%27%17%14%1.2x1%Hess CorporationOW$59.82$9355%22,7348.1x7.7x7.2x111%13%18%6%1.6x-3%Marathon Oil CorporationOW$12.45$1953%14,1094.4x4.4x4.2x69%5%11%6%1.2x2%Noble EnergyEW$21.51$3353%14,9725.7x4.4x4.2x114%6%17%6%1.8x-5%Occidental PetroleumEW$44.57$6137%84,69711.0 x9.1x9.3x51%0%2%2%4.9x-3%Parsley EnergyOW$15.95$34113%6,6444.6x4.0 x3.7x115%25%13%14%1.5x-2%Pioneer Natural ResourcesOW$124.61$22379%22,6896.0 x5.9x5.6x107%18%10%15%0.4x1%Cimarex EnergyEW$41.05$8197%6,1094.0 x3.6x3.4x95%11%-2%1%1.4x-1%Large Cap E&P Average5.7x5.2x4.8x105%10%9%8%1.5x0%Smid Cap E&P(Industry View:Positive)Callon PetroleumOW$4.51$9100%2,2645.0 x4.4x3.9x46%17%16%16%2.7x-19%Centennial ResourcesEW$4.28$9110%2,2504.1x4.6x4.4x99%14%4%22%1.9x-32%Jagged PeakEW$6.52$1053%2,1254.9x3.8x3.5x81%15%25%17%1.7x-19%SM EnergyUW$9.81$1333%3,9884.5x4.1x3.6x13%7%22%30%3.3x-28%WPX EnergyOW$10.34$1655%6,4763.9x3.8x3.7x68%23%13%15%1.6x-1%Smid Cap E&P Average4.5x4.1x3.8x62%15%16%20%2.2x-20%Total E&P Average5.4x4.9x4.6x11%10%11%1.7x-5%Minerals Brigham Minerals,Inc.OW$20.41$3047%1,03712.0 x13.6x13.8x89%76%24%2%0.0 x8%Viper Energy Partners LPOW$27.83$4458%4,01314.8x11.3x9.8x128%25%29%10%1.1x$0.06Minerals Average13.4x12.5x11.8x109%51%26%6%0.6x7%Commodity Price Assumptions 2019E 2020E 2021E Barclays CaseWTI/Brent($/bbl)$56/$64$61/$65$75/$80NYMEX natural gas ($/MMBtu)$2.58$2.38$2.42Strip CaseWTI/Brent($/bbl)$56/$64$52/$57$51/$56NYMEX natural gas ($/MMBtu)$2.58$2.38$2.42EV/DACFAdjusted Production GrowthBarclays|U.S.Integrated Oil&E&P 19 August 2019 6 North American E&P Comp Table Barclays Price Deck FIGURE 2 North American E&P Comp Table Barclays Price Deck Source:Barclays Research,Company Reports.Stock rating:OW=Overweight;EW=Equal Weight;UW=Underweight.For full disclosures on each covered