Large Cap E&P Deep Dive Vol 3

Transcription

1 Americas/United States Equity Research Oil & Gas Exploration & Production Research Analysts Edward Westlake Mark Lear, CFA Ben Combes, CFA Chandra Meenaga Venkatesh Duvvuri Tom Hughes Veronica Liu Large Cap E&P Deep Dive Vol 3 SECTOR REVIEW Permian Has Inventory Depth to Outrun the Equity Rally Bottom Line: Welcome to the 3rd edition of our quarterly review of shale trends for the larger cap oily E&P. OPEC's decision to cut could hasten the oil market Rebalance. The large cap E&P equities have responded. Yet, there is still room for the best positioned equities to rise further, as long as the Oil Rebalance is in the low $60/bbl's oil by The improvement in EUR's versus our models and the deep inventory does not look reflected in the NAV's of Permian large cap names, e.g., PXD, CXO, DVN. Including blue-sky EUR/well upside, we see 16% upside across the coverage group. Changes to Earnings/TP: Today we are raising MUR's to $37/sh but lowering our recommendation to Underperform. We stress this is a relative call in a likely rising tide for E&P overall. We are trying to balance valuation (MUR is not expensive) vs. growth (MUR growth will lag peers through 2018). Growth has typically won the battle historically as a driver of relative equity performance in the E&P space. Arriving at a higher has been easier due to management actions in the downturn, cutting well costs, improving EUR's and securing more inventory in Canada. MUR only has an enterprise value of $8bn despite producing 170kbd. This means that as MUR derisk the Duvernay, commercialise additional Montney gas and get back on the growth footing in the Eagle Ford, then value upside for shareholders can be delivered. In the large cap deep dive we show the potential uplift as more locations are derisked. We would also note that consensus expectations for volumes are also low. The challenge for relative performance in 2017 is that (1) MUR does not offer the near term production growth of peers given deep cuts to spending in 2016 and (2) it will take time to delineate acquired acreage into the equity value. We stress this "relative lag" call will have a time limit. Other minor model changes across the basins have led to an increase in our TP for CLR to $52/sh. Earnings changes to APA and HES are shown on page 6. Introducing a Screen to Capture Upside from "Over-Acreaged" E&P's: In each Deep Dive we've been showing the potential blue sky upside from well productivity improvements. In this edition we look at "over-acreaged" E&P's, i.e. those companies with a significant inventory of wells which they will not be able to drill by 2025 (without access to more funding). Some of this "over-acreaged" inventory could be monetised without affecting our core NAV's as commodities rise. Unsurprisingly, the Permian names score well. LINK TO THE FULL SLIDE DECK: Please click here for slide deck. DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse 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. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION Client-Driven Solutions, Insights, and Access

2 Blue Sky Upside In the accompanying US Large Cap E&P Shale Deep Dive we delve into the innards of our models and compare it with the leading edge well performance unveiled during 3Q. We continue to see better wells in the Midland, Delaware and STACK than those embedded in our model NAV's which could drive the blue-sky upside shown below. However, more of this blue-sky is in the Permian names than elsewhere. Figure 1: Large Cap E&P: Upside and Downside to and Upside in Blue Sky Shale Scenario (Where We Increase EUR's For the Delaware, Midland and STACK versus Credit Suisse Current NAV Assumptions). This chart is based on the Credit Suisse Oil Deck of $62.5/bbl in % 35% 25% 8% 13% 13% 6% 15% 15% 4% 8% 11% -7% -4% 5% 8% 5% 9% 15% 9% 13% 12% 16% 12% 17% 16% -5% -8% -15% EOG CLR OXY MUR MRO NBL HES APC CXO DVN NFX PXD APA Upside Current (%) Upside Blue Sky (%) Alpine High % Median Upside Current (%) Median Upside Blue Sky (%) Source: Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Large Cap E&P Deep Dive Vol 3 2

3 Figure 2: Location Math Also Points to the Permian Having Outsized Potential 100% 80% 60% 40% 20% 0% -20% CLR EOG OXY HES NBL MRO APC MUR NFX APA DVN CXO PXD Upside/Downside To CS Undrilled Locations Blue Sky Scenario (10% of NPV/location) Undrilled Locations Blue Sky Scenario (30% of NPV/location) Source: Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service Focus on Murphy Bottom Line: Today we are raising MUR's but lowering our recommendation to Underperform. We stress this is a relative call in a likely rising tide for E&P overall. We are trying to balance valuation (MUR is not expensive) vs. growth (MUR growth will lag peers through 2018). Growth has typically won the battle historically as a driver of relative equity performance in the E&P space. Arriving at a higher has been easier due to management actions in the downturn, cutting well costs, improving EUR's and securing more inventory in Canada. MUR only has an enterprise value of $8bn despite producing 170kbd. This means that as MUR derisk the Duvernay, commercialise additional Montney gas and get back on the growth footing in the Eagle Ford, then value upside for shareholders can be delivered. In the large cap deep dive we show the potential uplift as more locations are derisked. We would also note that consensus expectations for volumes are also low. The challenge for relative performance in 2017 is that (1) MUR does not offer the near term production growth of peers given deep cuts to spending in 2016 and (2) it will take time to delineate acquired acreage into the equity value. We stress this "relative lag" call will have a time limit. Large Cap E&P Deep Dive Vol 3 3

4 Figure 3: Kaybob Duvernay Source: MUR September Presentation Figure 4: MUR Single Well Economics Source: MUR September Presentation Large Cap E&P Deep Dive Vol 3 4

5 Figure 5: Tupper Montney Source: MUR September Presentation Figure 6: Tupper Montney Performance Source: MUR September Presentation Large Cap E&P Deep Dive Vol 3 5

6 Changes to Earnings Price Price Rating* Year EPS EPS FY1E EPS FY2E EPS FY3E Company Ccy 06 Dec 16 Prev Cur Prev Cur End Ccy Prev Cur Prev Cur Prev Cur Anadarko Petroleum Corp. US$ O*[V] Dec-15 US$ (APC.N) Apache Corp. (APA.N) US$ N Dec-15 US$ Concho Resources, Inc. US$ O Dec-15 US$ (CXO.N) Continental Resources, Inc US$ N*[V] Dec-15 US$ (CLR.N) Devon Energy Corp (DVN.N) US$ O*[V] Dec-15 US$ EOG Resources (EOG.N) US$ N Dec-15 US$ Hess Corporation (HES.N) US$ N Dec-15 US$ Marathon Oil Corp (MRO.N) US$ N*[V] Dec-15 US$ Murphy Oil Corp. (MUR.N) US$ N U*[V] Dec-15 US$ Newfield Exploration (NFX.N) US$ O*[V] Dec-15 US$ Noble Energy (NBL.N) US$ O Dec-15 US$ Occidental Petroleum (OXY.N) US$ N Dec-15 US$ Pioneer Natural Resources (PXD.N) US$ O Dec-15 US$ *O - Outperform, N - Neutral, U - Underperform, R - Restricted [V]= Stock consider volatile ( see Disclosure Appendix). Company data, Credit Suisse estimates Large Cap E&P Deep Dive Vol 3 6

7 Americas/United States Oil & Gas Exploration & Production Rating NEUTRAL [V] Price (06-Dec-16, US$) Target price (12-mth, US$)(from 50.00) week price range Market cap (US$ m) 21, *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ¹Target price is for 12 months. [V] = Stock Considered Volatile (see Disclosure Appendix) Research Analysts Edward Westlake edward.westlake@credit-suisse.com Mark Lear, CFA mark.lear@credit-suisse.com Ben Combes, CFA ben.combes@credit-suisse.com Chandra Meenaga chandra.meenaga@credit-suisse.com Continental Resources, Inc (CLR) Minor Changes to SCOOP Type Curve Valuation: We have increased our SCOOP type curve for CLR in line with peers. We have not adjusted our drilling program. Our NAV based TP increases to $52/sh (from $50/sh). No changes to earnings. For further detail on CLR, please refer to our most recent note CLR: Slight Increase in Target on Bakken Improvements Share price performance Jan A p r Ju l O c t C LR.N S& P IN D EX On 06-Dec-2016 the S&P 500 INDEX closed at Daily Dec08, Dec06, 2016, 12/08/15 = US$28.99 Quarterly EPS Q1 Q2 Q3 Q4 2015A E E Financial and valuation metrics Year 12/15A 12/16E 12/17E 12/18E Revenue (US$ m) 2, , , ,197.6 EBIDAX (US$ m) 2, , , ,064.3 EPS (CS adj.) (US$) Prev. EPS (US$) ROGIC (%) P/E (x) P/E rel. (%) OCFPS (US$) P/OCF (x) Qtrly ent. val./ tot. EBIDAX Net debt (US$ m) 7,106 6,377 6,127 5,456 Dividend (current, US$).0 Dividend yield (%) 0.0 Net debt (current, US$) 6,376.6 Net debt/tot eq (Next Qtr., %) BV/share (Next Qtr., US$) 11.4 GIC (12/16E, US$ m) 10,613.0 EV qtr/gic (x) 2.7 Current WACC (%) - Free float (%) 23.0 Number of shares (m) Source: Company data, Thomson Reuters, Credit Suisse estimates Large Cap E&P Deep Dive Vol 3 7

8 Americas/United States Oil & Gas Exploration & Production Rating (from NEUTRAL) UNDERPERFORM [V] Price (06-Dec-16, US$) Target price (12-mth, US$)(from 33.00) week price range Market cap (US$ m) 5, *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ¹Target price is for 12 months. [V] = Stock Considered Volatile (see Disclosure Appendix) Research Analysts Edward Westlake edward.westlake@credit-suisse.com Ben Combes, CFA ben.combes@credit-suisse.com Chandra Meenaga chandra.meenaga@credit-suisse.com Murphy Oil Corp. (MUR) MUR Might Lag a Positive Outlook for the Group. Downgrade to Underperform Bottom Line: Today we are raising MUR's but lowering our recommendation to Underperform. We stress this is a relative call in a likely rising tide for E&P overall. We are trying to balance valuation (MUR is not expensive) vs growth (MUR growth will lag peers through 2018). Growth has typically won the battle historically as a driver of relative equity performance in the E&P space. Arriving at a higher has been easier due to management actions in the downturn, cutting well costs, improving EUR's and securing more inventory in Canada. MUR only has an enterprise value of $8bn despite producing 170kbd. This means that as MUR derisk the Duvernay, commercialise additional Montney gas and get back on the growth footing in the Eagle Ford, then value upside for shareholders can be delivered. In the large cap deep dive we show the potential uplift as more locations are derisked. We would also note that consensus expectations for volumes are also low. The challenge for relative performance in 2017 is that (1) MUR does not offer the near term production growth of peers given deep cuts to spending in 2016 and (2) it will take time to delineate acquired acreage into the equity value. We stress this "relative lag" call will have a time limit. Share price performance Jan A p r Ju l O c t M U R.N S& P IN D EX On 06-Dec-2016 the S&P 500 INDEX closed at Daily Dec08, Dec06, 2016, 12/08/15 = US$23.54 Quarterly EPS Q1 Q2 Q3 Q4 2015A E E Financial and valuation metrics Year 12/15A 12/16E 12/17E 12/18E Revenue (US$ m) 5, , , ,004.6 EBIDAX (US$ m) 2, , , ,795.4 EPS (CS adj.) (US$) Prev. EPS (US$) ROGIC (%) P/E (x) P/E rel. (%) n.m OCFPS (US$) P/OCF (x) Qtrly ent. val./ tot. EBIDAX Net debt (US$ m) 2,776 2,058 2,001 1,843 Dividend (current, US$) 1.0 Dividend yield (%) 3.6 Net debt (current, US$) 2,241.2 Net debt/tot eq (Next Qtr., %) 44.1 BV/share (Next Qtr., US$) 40.0 GIC (12/16E, US$ m) 7,067.8 EV qtr/gic (x) 1.2 Current WACC (%) - Free float (%) 83.1 Number of shares (m) Source: Company data, Thomson Reuters, Credit Suisse estimates Large Cap E&P Deep Dive Vol 3 8

9 Americas/United States Oil & Gas Exploration & Production Rating NEUTRAL Price (06-Dec-16, US$) Target price (12-mth, US$) week price range Market cap (US$ m) 26, *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ¹Target price is for 12 months. Research Analysts Edward Westlake Ben Combes, CFA Chandra Meenaga Apache Corp. (APA) Minor Changes to Earnings Model Changes to Earnings: We made minor changes to our drilling program, leading to an increase in EPS for 2017 and 2018 by $0.01. For Further details on Apache, please refer to our most recent note APA: Alpine High Underestimated. Share price performance Jan A p r Ju l O c t A PA.N S& P IN D EX On 06-Dec-2016 the S&P 500 INDEX closed at Daily Dec08, Dec06, 2016, 12/08/15 = US$44.87 Quarterly EPS Q1 Q2 Q3 Q4 2015A E E Financial and valuation metrics Year 12/15A 12/16E 12/17E 12/18E Revenue (US$ m) 6, , , ,130.6 EBIDAX (US$ m) 8, , , ,360.1 EPS (CS adj.) (US$) Prev. EPS (US$) ROGIC (%) P/E (x) P/E rel. (%) n.m OCFPS (US$) P/OCF (x) Qtrly ent. val./ tot. EBIDAX Net debt (US$ m) 7,310 7,917 8,590 9,193 Dividend (current, US$) 1.0 Dividend yield (%) 1.5 Net debt (current, US$) 7,504.0 Net debt/tot eq (Next Qtr., %) 94.1 BV/share (Next Qtr., US$) 17.3 GIC (12/16E, US$ m) 15,669.9 EV qtr/gic (x) 2.2 Current WACC (%) - Free float (%) 91.5 Number of shares (m) Source: Company data, Thomson Reuters, Credit Suisse estimates Large Cap E&P Deep Dive Vol 3 9

10 Americas/United States Integrated Oil & Gas Rating NEUTRAL Price (06-Dec-16, US$) Target price (12-mth, US$) week price range Market cap (US$ m) 18, *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ¹Target price is for 12 months. Research Analysts Edward Westlake Ben Combes, CFA Chandra Meenaga Hess Corporation (HES) Minor Changes to Earnings Changes to Earnings: We make minor changes to our Bakken type curve and Midstream model, leading to EPS changes in 2017/18 of $0.03/sh and $0.04/sh respectively. For further detail on HES, please refer to our most recent note HES: Significant Progress Will Eventually Drive A Catch-Up For the Shares. Share price performance Jan A p r Ju l O c t H ES.N S& P IN D EX On 06-Dec-2016 the S&P 500 INDEX closed at Daily Dec08, Dec06, 2016, 12/08/15 = US$51.95 Quarterly EPS Q1 Q2 Q3 Q4 2015A E E Financial and valuation metrics Year 12/15A 12/16E 12/17E 12/18E Revenue (US$ m) 6, , , ,012.3 EBIDAX (US$ m) 4, , , ,461.4 EPS (CS adj.) (US$) Prev. EPS (US$) - - (3.09) (1.60) ROGIC (%) P/E (x) P/E rel. (%) OCFPS (US$) P/OCF (x) Qtrly ent. val./ tot. EBIDAX Net debt (US$ m) 3,914 4,261 5,442 6,164 Dividend (current, US$) 1.0 Dividend yield (%) 1.7 Net debt (current, US$) 4,260.9 Net debt/tot eq (Next Qtr., %) 20.8 BV/share (Next Qtr., US$) 66.3 GIC (12/16E, US$ m) 24,720.6 EV qtr/gic (x) 0.9 Current WACC (%) - Free float (%) 88.6 Number of shares (m) Source: Company data, Thomson Reuters, Credit Suisse estimates Large Cap E&P Deep Dive Vol 3 10

11 Companies Mentioned (Price as of 06-Dec-2016) Anadarko Petroleum Corp. (APC.N, $68.21, OUTPERFORM[V], TP $77.0) Apache Corp. (APA.N, $66.35, NEUTRAL, TP $77.0) Concho Resources, Inc. (CXO.N, $143.25, OUTPERFORM, TP $160.0) Continental Resources, Inc (CLR.N, $57.72, NEUTRAL[V], TP $52.0) Devon Energy Corp (DVN.N, $47.31, OUTPERFORM[V], TP $55.0) EOG Resources (EOG.N, $103.97, NEUTRAL, TP $96.0) Hess Corporation (HES.N, $59.81, NEUTRAL, TP $65.0) Marathon Oil Corp (MRO.N, $18.35, NEUTRAL[V], TP $20.0) Murphy Oil Corp. (MUR.N, $33.29, UNDERPERFORM[V], TP $37.0) Newfield Exploration (NFX.N, $47.18, OUTPERFORM[V], TP $53.0) Noble Energy (NBL.N, $39.87, OUTPERFORM, TP $46.0) Occidental Petroleum (OXY.N, $70.41, NEUTRAL, TP $67.0) Pioneer Natural Resources (PXD.N, $184.77, OUTPERFORM, TP $216.0) Disclosure Appendix Analyst Certification Edward Westlake and Mark Lear, CFA, each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. 3-Year Price and Rating History for Anadarko Petroleum Corp. (APC.N) APC.N Closing Price 13-Dec O 24-Jan Mar Apr Apr Jul Jul Aug Oct Dec Jan Mar Apr Jun R 05-Jun O 22-Jul * 08-Sep Dec Jan Feb May N 20-May Jul Jul Sep Oct Nov O O U T PERFO RM REST RIC T ED N EU T RA L Closing Price APC.N Jan Jan Jan Large Cap E&P Deep Dive Vol 3 11

12 3-Year Price and Rating History for Apache Corp. (APA.N) APA.N Closing Price 24-Jan O 11-Feb N 24-Apr Jul Oct Dec Dec Jan Apr Jul * 07-Aug Sep Oct Nov Nov Dec Jan Mar Apr May May Jul Sep Sep Oct Nov Nov O U T PERFO RM N EU T RA L Closing Price APA.N 01- Jan Jan Large Cap E&P Deep Dive Vol 3 12

13 3-Year Price and Rating History for Concho Resources, Inc. (CXO.N) CXO.N Closing Price 24-Jan N 24-Apr Jul Aug Oct Dec Jan Apr Jul O * 05-Aug Sep Sep R 01-Oct O 22-Oct Dec Jan Apr May Jul Aug Aug R 16-Aug O 24-Aug Nov N EU T RA L O U T PERFO RM REST RIC T ED Closing Price CXO.N 01- Jan Jan Year Price and Rating History for Continental Resources, Inc (CLR.N) CLR.N Closing Price 06-Jun N * 04-Aug Sep Oct Nov Closing Price CLR.N 01- Jul Sep Nov N EU T RA L Large Cap E&P Deep Dive Vol 3 13

14 3-Year Price and Rating History for Devon Energy Corp (DVN.N) DVN.N Closing Price 11-Dec N 24-Jan Feb O 03-Apr Jun Jun R 12-Sep O 15-Oct Dec Jan Mar May Jul * 08-Sep Nov Dec Jan Feb Feb R 26-Feb O 05-May May Jul Aug Sep Oct Nov N EU T RA L O U T PERFO RM REST RIC T ED Closing Price DVN.N Jan Jan Jan Year Price and Rating History for EOG Resources (EOG.N) EOG.N Closing Price 24-Jan O 24-Apr Jul Oct Nov Dec Jan Apr Jul * 11-Aug Sep N 12-Nov Dec Jan Apr Jul Aug Oct Nov O U T PERFO RM N EU T RA L Closing Price EOG.N 01- Jan Jan Large Cap E&P Deep Dive Vol 3 14

15 3-Year Price and Rating History for Hess Corporation (HES.N) HES.N Closing Price 10-Jan O 17-Jul Jul Sep Oct Oct Nov Dec Jan N 28-Jan Apr Apr Jun Jul O 30-Jul Sep Sep Oct Dec Jan Jan Feb Apr Apr N 13-Jul Jul Sep Oct O U T PERFO RM N EU T RA L Closing Price HES.N Jan Jan Jan Year Price and Rating History for Marathon Oil Corp (MRO.N) MRO.N Closing Price 10-Jan O 06-Aug Dec Jan Apr May Jul Sep Jan Mar Apr Jun Jul Sep N 13-Oct Nov O U T PERFO RM N EU T RA L Closing Price MRO.N Jan Jan Jan Large Cap E&P Deep Dive Vol 3 15

16 3-Year Price and Rating History for Murphy Oil Corp. (MUR.N) MUR.N Closing Price 10-Jan N 31-Jan Sep Dec Jan U 30-Jan Apr Jul N 08-Sep Jan Jan Apr May Jul Oct N EU T RA L U N D ERPERFO RM Closing Price MUR.N Jan Jan Jan Year Price and Rating History for Newfield Exploration (NFX.N) NFX.N Closing Price 09-Sep O * 22-Oct Dec Jan Feb R 26-Feb O 01-Mar Apr May Jul Aug Oct O U T PERFO RM REST RIC T ED Closing Price NFX.N Sep Jan May Sep Large Cap E&P Deep Dive Vol 3 16

17 3-Year Price and Rating History for Noble Energy (NBL.N) NBL.N Closing Price 20-Dec O 24-Jan Apr Jul Aug Oct Dec Jan N 17-Apr Jul O * 08-Sep Jan Feb Apr May Jul Oct Nov O U T PERFO RM N EU T RA L Closing Price NBL.N Jan Jan Jan Year Price and Rating History for Occidental Petroleum (OXY.N) OXY.N Closing Price 10-Jan O 06-May Oct N 14-Nov Dec Jan Jan Apr May Jul Sep Oct Dec Jan Feb Apr May May Jul Aug Oct Nov O U T PERFO RM N EU T RA L Closing Price OXY.N Jan Jan Jan Large Cap E&P Deep Dive Vol 3 17

18 3-Year Price and Rating History for Pioneer Natural Resources (PXD.N) PXD.N Closing Price 24-Jan O 24-Apr Jul Aug Oct Dec Jan Apr Jul * 06-Aug Sep Oct Nov Dec Jan Apr Apr Jun R 16-Jun O 21-Jun Jul Jul Nov O U T PERFO RM REST RIC T ED Closing Price PXD.N 01- Jan Jan The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts stock rating are defined as follows: Outperform (O) : The stock s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-japan Asia stocks, ratings are based on a stock s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock s absolute total return potential to its current share price and (2) the relative attractiveness of a stock s total return potential within an analyst s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products. Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts sector weightings are distinct from analysts stock ratings and are based on the analyst s expectations for the fundamentals and/or valuation of the sector* relative to the group s historic fundamentals and/or valuation: Overweight : The analyst s expectation for the sector s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst s expectation for the sector s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst s expectation for the sector s fundamentals and/or valuation is cautious over the next 12 months. *An analyst s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors. Large Cap E&P Deep Dive Vol 3 18

19 Credit Suisse's distribution of stock ratings (and banking clients) is: Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 44% (63% banking clients) Neutral/Hold* 38% (60% banking clients) Underperform/Sell* 15% (55% banking clients) Restricted 3% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors. Important Global Disclosures Credit Suisse s research reports are made available to clients through our proprietary research portal on CS PLUS. Credit Suisse research products may also be made available through third-party vendors or alternate electronic means as a convenience. Certain research products are only made available through CS PLUS. The services provided by Credit Suisse s analysts to clients may depend on a specific client s preferences regarding the frequency and manner of receiving communications, the client s risk profile and investment, the size and scope of the overall client relationship with the Firm, as well as legal and regulatory constraints. To access all of Credit Suisse s research that you are entitled to receive in the most timely manner, please contact your sales representative or go to Credit Suisse s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: Valuation Methodology and Risks: (12 months) for Anadarko Petroleum Corp. (APC.N) Method: Our 12-month target price for Anadarko is $77 per share. Our TP assumes the stock trades at parity with our net asset value. Our OUTPERFORM rating is a function of total shareholder return over the next twelve months and the relative risk/reward versus our coverage universe. Risks to our $77 target price and OUTPERFORM rating on APC include the following: oil and gas companies are subject to a number of risks including volatility of commodity prices, accidents, weather and geological related issues, government regulations, and equipment malfunctions that can disrupt operations. Valuation Methodology and Risks: (12 months) for Apache Corp. (APA.N) Method: Our 12-month target price of $77 per share for Apache Corp. assumes the stock trades at parity with our net asset value. Our NEUTRAL rating is a function of total shareholder return over the next twelve months and the relative risk/reward versus our coverage universe. We see several risks to APA achieving our $77 TP and our Neutral rating. APA has nearly 15% of its production coming from Egypt, which is going through a revolution. Political, social and economic conditions in the country could significantly worsen, and may lead to a reduction in the company's production, profits and stock price. In general, oil and gas companies are subject to changes in global commodity supply/demand, as well as geopolitical related issues that could adversely affect the company's ability to achieve our TP and could potentially lower our Rating. Valuation Methodology and Risks: (12 months) for Concho Resources, Inc. (CXO.N) Method: Our $160 price target for CXO is based on our proved developed plus projects net asset value (NAV) estimate, which is based on longterm prices of $62.50 per barrel oil and $3.50 per million Btu (MMBtu). Our NAV is derived from our discounted cash flow model, which values total proved developed reserves (395 million barrels of oil equivalent or MMBoe) at $19 per barrel of oil equivalent (Boe) to which we assign an NAV of $32 per share net of debt. To this estimate we add another $128 per share for undeveloped and unbooked reserves totalling 2,852 MMBoe. Our Outperform Rating is a function of total shareholder return over the next twelve months and the relative risk/reward versus our coverage universe. Risks to achievement of our $160 target price and Outperform rating for CXO are (1) a protracted downturn in oil and gas prices would impact the company's ability to grow within cash flow and deliver the current long-term growth plan, (2) higher than expected decline rates in producing wells, (3) rising well costs. Valuation Methodology and Risks: (12 months) for Continental Resources, Inc (CLR.N) Large Cap E&P Deep Dive Vol 3 19

20 Method: Our 12-month for Continental Resources is $52 per share, which assumes the stock trades at parity with our net asset value (NAV) estimate. Our NAV is based on the company's proved developed reserves and our estimate of undeveloped reserves that the company will be exploited over the next 10 years. Our NEUTRAL rating is a function of total shareholder return over the next twelve months and the relative risk/reward versus our coverage universe. CLR faces a number of risks that could prevent the stock from reaching our $52 target price and NEUTRAL rating including; CLR has high debt and low cashflow at the bottom of the cycle that could inhibit it's ability to maintain or grow production. In general, CLR and oil and gas companies are subject to changes in global commodity supply/demand, accidents, equipment malfunctions, as well as a number of geological related issues that could adversely affect the company's ability to conduct its operations as planned. Valuation Methodology and Risks: (12 months) for Devon Energy Corp (DVN.N) Method: Our 12-month for Devon Energy is $55 per share, which assumes the stock trades at parity with our net asset value (NAV) estimate. Our NAV is based on the company's proved developed reserves and our estimate of undeveloped reserves that the company will exploit over the next 5 years. Our OUTPERFORM rating is a function of total shareholder return over the next twelve months and the relative risk/reward versus our coverage universe. DVN faces a number of risks that could prevent the stock from reaching our $55 target price and Outperform rating including; DVN has oil sands operations in Canada, that could be adversely affected with changes in Canadian Royalty and/or environmental regulations. In general, DVN and oil and gas companies are subject to changes in global commodity supply/demand, accidents, equipment malfunctions, as well as a number of geological related issues that could adversely affect the company's ability to conduct its operations as planned. Valuation Methodology and Risks: (12 months) for EOG Resources (EOG.N) Method: Our $96 price target for EOG is based on our proved developed plus projects net asset value (NAV) estimate, which is based on long-term prices of $62.50 per barrel oil and $3.50 per million Btu (MMBtu). Our NAV is derived from our discounted cash flow model, which values total proved developed reserves (1,346 million barrels of oil equivalent or MMBoe) at $12 per barrel of oil equivalent (Boe) to which we assign an NAV of $19 per share net of debt. To this estimate we add another $77 per share for undeveloped and unbooked reserves totalling 7,052 MMBoe. Our Neutral Rating is a function of total shareholder return over the next twelve months and the relative risk/reward versus our coverage universe. Risks to achievement of our $96 target price and Neutral rating for EOG are (1) a protracted downturn in oil and gas prices, (2) higher than expected decline rates in producing wells, (3) rising well costs, and (4) infrastructure constraints that would impede EOG from getting its production to market. Valuation Methodology and Risks: (12 months) for Hess Corporation (HES.N) Method: Method: Our $65 target price for HES is equal to our core NAV (net asset value) estimate, derived from an asset-by-asset review of the HES portfolio and estimates of well returns and drilling programs. Our primary long-term assumptions are: $65/bbl oil price (Brent) and $3.50/mcf gas price. Our Neutral rating is a function of total shareholder return over the next twelve months and the relative risk/reward versus our coverage universe. Risks to our $65 target price and Neutral rating for Hess Corporation include: Short-term: Financial leverage, earnings volatility, commodity market volatility, storm and other enviromental damages; Long-term: returns, oil & natural gas prices, and political risk in developing countries. Valuation Methodology and Risks: (12 months) for Marathon Oil Corp (MRO.N) Method: We use the net asset value method to reach our $20/sh target price for MRO. Our oil price expectation is $62.50/bbl long term WTI and long-term natural gas expectation is $3.50/mcf NYMEX. Our NEUTRAL rating is a function of total shareholder return over the next twelve months and the relative risk/reward versus our coverage universe. Risks to MRO's achievement of our $20/sh target price and NEUTRAL rating are: (1) regional operating risk (2) highly exposed to US natural gas business; (3) long-term: returns, oil & natural gas prices; and (4) storm and other weather related damages. Valuation Methodology and Risks: (12 months) for Murphy Oil Corp. (MUR.N) Method: Method: Our $37 target price for MUR incorporates the NAV (Net Asset Value) discounted cash flows method using expected modeling of revenue and expenses for each project, as well as a multiples-based approach to valuation based on industry cash flow metrics. Our primary long-term assumptions are: $65/bbl oil price (Brent) and $3.50/mcf gas price. Our UNDERPERFORM rating is a function of total shareholder return over the next twelve months and the relative risk/reward versus our coverage universe. Large Cap E&P Deep Dive Vol 3 20

21 Risks to our $37 target price and Neutral rating for Murphy Oil Corporation include: Short-term: Financial leverage, earnings volatility, commodity market volatility, storm and other enviromental damages; Long-term: returns, oil & natural gas prices. More specific to MUR, we are relying on continued exploration success - weak results could have an impact on valuation. Valuation Methodology and Risks: (12 months) for Newfield Exploration (NFX.N) Method: Our $53 price target for NFX and Outperform rating is based on our proved developed plus projects net asset value (NAV) estimate, which is based on long-term prices of $62.50 per barrel oil and $3.50 per million Btu (MMBtu). Our NAV is derived from our discounted cash flow model, which values total proved developed reserves (329 million barrels of oil equivalent or MMBoe) at $12 per barrel of oil equivalent (Boe) to which we assign an NAV of $9 per share net of debt. To this estimate we add another $44 per share for undeveloped and unbooked reserves totaling 2,041 MMBoe. Our Outperform Rating is a function of total shareholder return over the next twelve months and the relative risk/reward versus our coverage universe. Risks to achievement of our $53 target price and Outperform rating for NFX are (1) a protracted downturn in oil and gas prices, (2) higher than expected decline rates in producing wells, (3) exploration failures in the Oklahoma Resource Basin (ORB), and Bakken shales would remove a material catalyst for NFX shares, (4) rising well costs, and (5) infrastructure constraints that would impede NFX from getting its production to market. Valuation Methodology and Risks: (12 months) for Noble Energy (NBL.N) Method: Our 12-month of $46 on NBL assumes that the stock trades at par with our calculated NAV. Our NAV and rating are based on the company's proved developed reserves and our estimate of undeveloped reserves that the company will exploit over the next several years. Our Outperform Rating is a function of total shareholder return over the next twelve months and the relative risk/reward versus our coverage universe. Risks to our $46 target price and Outperform rating on NBL are as follows: NBL has operations concentrated in a few key areas, namely in the Central DJ Basin, offshore West Africa, and the Eastern Mediterranean. Disruptions to operations in any of these key regions would result in a significant negative impact to NBL's cash flows and profitability. NBL also has significant international operations, relative to peers, and are subject to contract modifications, regulation and other political factors that could have adverse consequences. In general, NBL and oil and gas companies are subject to changes in global commodity supply/demand, accidents, equipment malfunctions, as well as a number of geological related issues that could interrupt adversely affect the company's ability to conduct its operations as planned. Valuation Methodology and Risks: (12 months) for Occidental Petroleum (OXY.N) Method: Our $67 target price for Occidental Petroleum is based on a net asset valuation of OXY, using a standard discounted cash flow analysis to production assets and applying a 10x 2018 EV / EBITDA multiple to midstream assets. Our long-term oil price is $62.50WTI / $65 Brent. Our NEUTRAL rating is a function of total shareholder return over the next twelve months and the relative risk/reward versus our coverage universe. Risks to our $67 target price and Neutral rating for OXY are (1) political risk in OXY's Middle-East operations in Oman, Libya, and Qatar; 2) commodity prices, particularly oil prices; (3) timing delays on the ramp-up of the large scale projects; and (4) exploration risk outside of its core enhanced oil recovery operations. Valuation Methodology and Risks: (12 months) for Pioneer Natural Resources (PXD.N) Method: Our $216 price target and Outperform rating for PXD is based on our proved developed plus projects net asset value (NAV) estimate, which is based on long-term prices of $62.5 per barrel oil and $3.50 per million Btu (MMBtu). Our NAV is derived from our discounted cash flow model, which values total proved developed reserves (593 million barrels of oil equivalent or MMBoe) at $16 per barrel of oil equivalent (Boe) to which we assign an NAV of $51 per share net of debt. To this estimate we add another $166 per share for undeveloped and unbooked reserves totalling 4,881 MMBoe. Our Outperform Rating is a function of total shareholder return over the next twelve months and the relative risk/reward versus our coverage universe. Risks to achievement of our $216 target price and Outperform rating for PXD are (1) a protracted downturn in oil and gas prices, (2) delays and lower recovery factors than projected in PXD's heavy oil recovery projects, (3) higher than expected decline rates in producing wells, (4) rising well costs, and (5) infrastructure constraints that would impede PXD from getting its production to market. Please refer to the firm's disclosure website at for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names The subject company (APA.N, APC.N, CXO.N, DVN.N, EOG.N, MRO.N, NBL.N, NFX.N, OXY.N, PXD.N) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (APC.N, CXO.N, DVN.N, NFX.N, OXY.N, PXD.N) within the past 12 months. Large Cap E&P Deep Dive Vol 3 21

22 Credit Suisse has managed or co-managed a public offering of securities for the subject company (APC.N, CXO.N, DVN.N, NFX.N, PXD.N) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (APC.N, CXO.N, DVN.N, NFX.N, OXY.N, PXD.N) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (APA.N, APC.N, CXO.N, DVN.N, EOG.N, MRO.N, MUR.N, NBL.N, NFX.N, OXY.N, PXD.N, CLR.N) within the next 3 months. As of the date of this report, Credit Suisse makes a market in the following subject companies (CXO.N). For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to the link: Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (APC.N, CXO.N, DVN.N, EOG.N, HES.N, NFX.N, PXD.N) within the past 3 years. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. This research report is authored by: Credit Suisse Securities (USA) LLCEdward Westlake ; Mark Lear, CFA ; Venkatesh Duvvuri ; Ben Combes, CFA ; Tom Hughes ; Chandra Meenaga ; Veronica Liu For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at or call +1 (877) Large Cap E&P Deep Dive Vol 3 22