Morning update from DnBNOR (Norway)

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Morning update from DnBNOR (Norway)

posted on Oct 16, 2009 05:51AM

Oil and gas sector update. 16.10.2009

2010 looking stronger

1) We keep our oil price forecasts for Q4, 2010 and 2011 when embarking upon the q3 earning season. $70/$85 oil in 2010/2011 is reiterated. Among the integrated oil companies we repeat our preference for BP, StatoilHydro and Royal Dutch Shell. In the E&P segment Det norske and Questerre are top-picks due to valuation support and upcoming catalyst.

2) We rate BP, StatoilHydro and RD Shell BUY.

We prefer integrated oil names with high oil exposure and modest middle distillate refining exposure, but also the defensive RD Shell due to attractive valuation, its production growth 2010-2013 and new cost cutting focus. We have 640GBp 12-month share price target on BP, 160NOK on Statoil and 2,000 GBp on RD Shell. In shifting focus onto 2010 we increase BP, Statoil and RD Shell share price targets somewhat.

3) We do not favor high middle distillates or high PSA exposure.

We have a HOLD on Total and Eni and SELL Neste Oil, Finalnds largest refiner. Total has a high share of PSC contracts, together with Eni - but Total also has the highest middle distillate refining exposure. Defensive names may display resilient earnings in a downturn, when oil prices plunge, like in 2H'08. Neste oil is going to experience very weak earnings due to a massive global supply overhang in the middle distillates markets - especially in Europe. There is c. 70million bbl of middle distillate on floating storage, in additon to brim-full global onshore diesel inventories.

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