Deutsche Bank
Markets Research
Europe
United Kingdom
Oil & Gas
Exploration & Production
Industry
European Integrated
Oils
Date
4 December 2017
Industry Update
2018 Outlook: Cash jaws set to open
Project driven cash flow growth
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Deutsche Bank AG/London
Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, 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. DISCLOSURES AND ANALYST
CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 083/04/2017.
Lucas Herrmann, ACA
Research Analyst
(+44) 20 754-73636
lucas.herrmann@db
David Mirzai
Research Analyst
(+44) 20 754-19002
david.mirzai@db
Michael Hsueh
Research Analyst
(+44) 20 754-78015
michael.hsueh@db
Key Changes
Company Target Price Rating
REP.MC 12.50 to
14.75(EUR)
Sell to Hold
Source: Deutsche Bank
Top picks
Royal Dutch Shell Plc
(RDSb.L),GBP2,394.00
Buy
BP (BP.L),GBP492.00 Buy
Source: Deutsche Bank
We enter 2018 feeling considerable enthusiasm on the potential for the
European oils sector both absolute and relative. No doubt our confidence is
helped by the much better feel to commodity markets and a price deck that, in
our opinion, affords risk to the upside. Most significantly, however, our positive
tone reflects our view that after three very challenging years the major
European companies have repositioned their businesses to work in a $50/bbl
world and that as the benefit of the cash flows from project starts accelerate,
free cash is set for material expansion. In a world that shows very little
valuation differentiation preferred names remain BP and Shell.
Macro themes ¨C upside risk in oil, gas excess coming, downstream robust
Crude
: OPEC extension should underpin price in a market that is already
moving towards balance and which, post a third year of modest project
sanctions is setting itself up for medium term squeeze.
Natural gas and LNG:
In another 25mtpa supply build year will China sneeze An ever more
important source of end market demand, its growth is needed if Europe is to
avoid catching a nasty cold.
Downstream
: Low product inventories combined
with moderate build in capacity suggest a market that should allow refiners to
enjoy another cash generative year with IMO a looming underpin.
Company cash jaws set to open; Rest in peace the Big Oil scrip
Three years on from the price collapse and the heavy lifting has been done. Big
oil works at $50/bbl with the much maligned scrip now officially consigned to
the coffin. Look to the future and there is much to encourage. Supported by
the continuing
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