UBS commented Wednesday on the second day of U.S. E&P presentations at its oil and gas conference.
Analysts led by William A. Featherston discussed following companies. Below are highlights along with current ratings and price targets.
Anadarko Petroleum Corporation (NYSE: APC) - Buy, $104 price target
Anadarko reiterated its 2015 production guidance of 822-838 MBoed, which implied a flat to +1.5 percent volume year-over-year while 2015 capex guidance of $5.4-$5.7 billion represented a 34 percent decline year-over-year.
“At this level of spending, we estimate APC will generate an organic FCF deficit (after dividends) of ~$550 million this year under current strip prices, but one that can be comfortably funded by ~$2.3 billion of cash on hand at the end of 1Q15 and $700 million in proceeds from the April sale of its EOR assets in Wyoming,” according to Featherston.
Beyond 2015, UBS forecasted that 2016 production would flip “to a decline of ~2% YoY given the lower 4Q15 exit” and it would resume “positive growth in 2017-19 of ~5.5% per annum, the lower end of APC's longer-term guidance given timing uncertainty on cost and price improvement.”
Anadarko Petroleum recently traded at $85.53, up 2.5 percent.
Concho Resources Inc (NYSE: CXO) - Neutral, $128 price target
Concho maintained its 2015 growth guidance of 18-22 percent or 132-137 MBoed and reiterated its 2015 capex range of $1.8-$2.0 billion, while maintaining its “focus on cash flow neutrality through 2015 and the foreseeable future.”
“Notably, CXO has already spent $731 million, or 38% of its full year budget in the first quarter alone. The notable reduction in capex for the balance of the year is driven by reduced drilling and completion activity (it is still at 9 frack spreads but 4 are now on 12-hour shifts vs 24-hour shifts), as well as lower oilfield service costs. CXO previously noted that it has captured ~20% savings in service costs, and expects see incremental savings in 2Q-4Q,” the analysts wrote.
Concho Resources recently traded at $121.23, up 1.9 percent.
Hess Corp. (NYSE: HES) - Buy, $85 price target
Hess maintained its 2015 production guidance (ex-Libya) of 350-360 MBoed, which implied +10-13 percent year-over-year growth from the 2014 pro forma base (adjusted for asset sales and Libya), while its 2015 capex budget of $4.4 billion, 21 percent below 2014 spending, remained unchanged.
Discussing the M&A environment, the analysts said Hess “indicated that while it would like to be opportunistic in the wake of the oil price selloff, it remains hesitant in the current environment, highlighting it sees two major impediments to resurgence in deal activity: 1) recapitalization of financially weaker companies has narrowed the pool of distressed sellers; and 2) investor preference for shorter-cycle, high-growth assets has inflated unconventional resource valuations. The company indicated it has looked at opportunities both within its existing footprint (Bakken and Utica) as well as new areas (Western Canada, Permian and International) but has yet to find an attractive deal.”
Near-term prospects for the company included the Liza-1 discovery offshore Guyana and in “the deepwater Gulf of Mexico, HES and its partner (operated by Chevron) reached target depth at the Sicily prospect (25% w.i.) in the Lower Tertiary in April and are currently evaluating results. The company estimates gross resource potential of 300-400 MMBoe,” the analysts noted.
Hess recently traded at $69.75, up 0.29 percent.
Marathon Oil Corporation (NYSE: MRO) - Neutral, $32 price target
Marathon maintained its 2015 production guidance of 405-435 MBoed, or organic growth of 5-7 percent year-over-year (excluding Norway, Angola, and Libya) while the company reiterated its 2015 capex budget of $3.3 billion, a decline of 45 percent year-over-year.
“Even with the much lower capital budget relative to 2014 spending, we estimate MRO will still generate a rather wide organic free cash flow deficit of >$1.0 billion in 2015 under current strip prices....which it can fund with $1.1 billion of cash on hand and $3.0 billion of capacity on its credit facility,” according to the analysts.
Based on meetings with management, the analysts inferred that “modest growth in U.S. unconventionals and the start-up of Gunflint in the deepwater GoM would be offset by declines elsewhere in the Gulf of Mexico and its international portfolio.”
Featherston forecasted 2016 production at 435 MBoed, somewhat higher than the 2016 guidance and below the consensus of 447 MBoed.
Marathon Oil recently traded at $28.16, up 2.55 percent.
Noble Energy, Inc. (NYSE: NBL) - Buy, $55 price target
Noble reiterated 2015 volume guidance of 300-315 MBoed, which excluded the pending Rosetta Resources Inc. (NASDAQ: ROSE) acquisition. The guidance the mid-point implied a +6 percent year-over-year growth from the pro-forma 2014 base of 291 MBoed (adjusted for asset sales).
The company maintained its 2015 capex budget at $2.9 billion, down 40 percent year-over-year, excluding ROSE.
“At this lower YoY spending level, we forecast NBL will generate an organic FCF deficit of ~$730 million this year under current strip prices, a sharp improvement from >$1.7 billion in 2014 and largely funded by the 1Q15 equity offering of ~$1.1 billion,” Featherston noted.
Noble provided an update on its pending acquisition of Rosetta Resources and expected $350 million in capex in 2016. $500 million in annual capex for 2017-18 will be required for the assets to deliver a greater than 15 percent CAGR through 2018, according to the analysts.
Noble Energy recently traded at $44.04, up 0.07 percent.
Latest Ratings for APC
| Date | Firm | Action | From | To |
|---|
| Apr 2015 | Cowen & Company | Initiates Coverage on | | Outperform |
| Apr 2015 | Nomura | Initiates Coverage on | | Buy |
| Apr 2015 | Imperial Capital | Initiates Coverage on | | Outperform |
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