Credit Suisse
Long-term investors can find good opportunities in North
American producers based on the shorter duration limited downside
to a down-cycle but relative value and long/short investors have a
more challenging view.
And, while we are of little help calling oil prices and bottoms,
we have compiled some ideas for pair trades based on the current
market rather than typical "conventional wisdom" of playing an
oil-price move, up or down.
Anadarko Petroleum (ticker: APC)/Apache ( APA) -- We believe
Anadarko shares are poised to Outperform Apache as we believe
Anadarko will be able to sustain middle-single-digit production
growth even at oil prices below $80 per barrel. On the other hand,
we believe Apache could be poised to reduce its spending and growth
rate given the impact of lower commodity prices. In our view, there
are more company specific catalysts (commercialization of the
Delaware Basin, second appraisal well at Shenandoah, value
acceleration potential from Minerals, wet gas potential, and
Mozambique) for Anadarko.
Devon Energy ( DVN)/Southwestern Energy ( SWN) -- Within the
context of a cautious near-term outlook for exploration and
production firms (E&Ps) given oil price risk through first-half
2015, we believe Devon is well positioned to Outperform...given its
defensive valuation, top quartile oil growth largely within cash
flows, and further accretion potential from [joint venture] EnLink
Midstream. Given the valuation discrepancy between Devon and
Southwestern, we believe Devon shares are poised to outperform
Southwestern, particularly given the potential for a looming equity
raise at Southwestern plus rapidly deteriorating natural gas
fundamentals. While we applaud Southwestern management for making a
bold acquisition that plays to the company's core strength, we
believe it comes at too high of a purchase price as the transaction
looks meaningfully dilutive to our net asset value (NAV) and cash
flow forecasts.
Marathon Oil ( MRO)/ConocoPhillips ( COP) -- A key driver of the
cash flow growth and margin expansion at both ConocoPhillips and
Marathon is a low cost "core of the core" Eagle Ford position and
core Bakken position. Both companies reiterated that they could
deliver growth at lower prices, partly based on low break-even
shale and for ConocoPhillips some major projects in [joint venture]
Australia Pacific LNG, heavy oil and offshore that are nearing
completion. As cash margins and volumes expands, the break-even oil
price for both company's cash cycle falls. Both companies have
substantial flexibility to dial up and down activity at different
oil prices, given shale is mainly held by production (HBP).
However, we would argue Marathon shares trade at a wider discount
to NAV, on lower cash flow multiples, have greater per share
exposure to low-cost "core of the core" shales (Eagle Ford, Bakken
and the Emerging South Central Oklahoma Oil Province (Scoop) play),
have international assets that are long-lived in nature and a
better balance sheet after the Norway sale. The market is still
digesting the positive news on shale inventory from the Barclays'
conference and the very strong actual shale performance in the
third quarter. Marathon has a better rate of change.
Diamondback Energy ( FANG)/Whiting Petroleum ( WLL) -- We argue
Diamondback is drilling some of the best wells in U.S. onshore
E&P and expect the market to increasingly look for shelter in
the best shale in the declining oil price environment. Conversely,
we do not think returns on Whiting's legacy inventory hold up well
in a sub-$80 oil environment.
-- James Wicklund
-- Edward Westlake
-- Arun Jayaram
-- Mark Lear
-- Gregory Lewis
-- Jonathan Sisto
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