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1、HSBCGlobal Research10 January 2020Big Oils in 2020Sector finally at a turning point?EquitiesOil & GasGlobal After a tough 2019, we expect a better outlook for the BigOils in 2020 as macro conditions improve Fall in FCF breakevens key to restoring confidence and valuation re-rating BP top sector pick
2、; other Buys are Equinor, Total and Repsol; we trim estimates and update target pricesTop debate for 2020: How low really are free cash breakevens?Much of the debate around the attractiveness of the oil majors centres on perceptions of their dividend sustainability and by inference their free cash b
3、reakevens. After five years of steady improvements, breakevens deteriorated in 2019 due to weakness in all macro parameters beyond crude - gas and petrochemicals, in particular. We expect breakevens to improve once again in 2020, falling from USD60/b back to the low USD50s thanks to better macro con
4、ditions and company-specific factors (p.2-3)What else to watch in 2020Prices and margins: was 2019 the trough for macro conditions?Ne tweaked our 2020 oil price assumption in Oil in 2020 (9 January), raising Brent to USD61/b. Spot gas prices could be weaker in 2020 given continued oversupply - we cu
5、t our gas price forecasts in this report (p.17). However, we expect refining margins to improve with help from IMO and petchems margins to recover slowly from their current 9-year lows.Has consensus bottomed out? Nearly. Given trade deal progress and geopolitics, we think the balance of risks to 202
6、0-21 oil price consensus of USD60/b is skewed to the upside - but this may be offset in the near term by downgrades on other macro drivers.Is 2020 the year capex starts to ramp up again? We expect spending to rise only modestly (+5% in 2020), with faster growth in downstream and low-carbon investmen
7、ts.Will we get dividend growth and buybacks? es (mostly). We expect dividend growth and sustained buybacks at Total, ENI, Equinor and Repsol. We think BP has the ability grow dividends and start buybacks in 2020; Shell looks more constrained.Can the oil major sector re-rate? Yes. If oil price breake
8、vens improve visibly, we think a sector re-rating of 15% should be achievable over the next 12 months.One stock to watch in 2020 - BP (TP 600p, 19% upside)We think BP is potentially the most interesting of the major oil stocks for 2020. BP could announce a dividend increase and accretive buybacks as
9、 it makes progress on debt reduction. An updated climate roadmap (1Q) and a major strategy update (2H) under the new CEO could be important catalysts (p.11).Our other Buys are Equinor, Total and Repsol, with our TPs implying 10% upside (p.12-14). We trim 2019-21 e CFPS estimates by 2% for the sector
10、 following the changes to our macro assumptions, and update our target prices.砌 This video is available as a podcast 、, Subscribe via research.hsbc Gordon Gray*Global Head of Oil and Gas Equity ResearchHSBC Bank plcgordon.grayhsbcib +44 20 7991 6787Kim Fustier* Analyst,Oil & Gas HSBCBank plckim.fust
11、ierhsbc +44 20 3359 2136* Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations15thHSE4 - 5 Feb3c ESG C ruary 2020 |onferenceFrankfurtIssuer of report: HSBC Bank plcDisclosures & DisclaimerThis report must be read with the disclosu
12、res and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it.View HSBC Global Research at: s :/ research, hsbc. comOil prices have two downside protection mechanisms - first, OPEC.second, slowing US shale supply growth USD45/b USD55/b USD65/bSource:
13、US EIA, HSBC estimatesSource: US EIA, HSBC estimatesHistorically, that shift to a supply-driven market has rested almost entirely on OPEC intervention, triggered in recent down-cycles by an OPEC supply cut aimed at offsetting weak demand and supporting prices. In our view, nothing has changed in thi
14、s regard - OPEC policy of the past 14 months has 川ustrated its continued determination to defend price.However, we now have a second supply-side correcting mechanism that we would expect to kick in if prices weaken significantly, in the form of US tight liquids. US tight oil and NGL production now e
15、xceeds 12mbd, or 12% of global liquids supply. We have already seen the price sensitivity of this relatively short-cycle supply to weak prices - dramatically so in 2015-16 - and to some extent in recent months as US supply growth has decelerated in response to WTI prices in the mid-USD50s/b.US tight
16、 liquids supply at various WTI prices, mbdIn our view, if Brent prices were to average as low as USD50/b (and WTI at USD45/b), US growth would shrink to 0.4mbd as soon as 2020, and US volumes would fall in absolute terms in 2021.We think this is an important context for the big oils, since several o
17、f them have 2020e free cash breakevens around or even below USD50/b Brent on our estimates, illustrating their robustness in what we would consider to be close to a worst-case scenario.One stock to watch for 2020 一 BPBP | Buy | CP 504.1 p, TP 600p: plenty of upside, plenty of catalystsWe think BP is
18、 potentially the most interesting of the major oil stocks for 2019 - we are reiterating our Buy rating and our 600p price target, equivalent to USD47.4/ADR (BP US, CP USD39.9). In our view, the main things to look for from BP in 2020 are as follows: Good progress on debt reduction: BP has previously
19、 indicated that it would look at additional cash distributions when balance sheet gearing approaches the mid-20%. Gearing (pre-IFRS 16) is likely to remain above 30% at 4Q, but we see it falling steadily thereafter. In addition to operating cash flow strength, BP expects to more or less reach its US
20、DIObn disposals target by YE19, and most of the cash proceeds should be in by mid-2020.Line of sight on higher cash distributions: We forecast an increase in the quarterly dividend at 4Q19 results in early February, although ifs possible the company may want to reduce gearing more first. Nevertheles
21、s, as gearing falls through 2020, we expect investors to become more confident on the outlook for not just dividends, but additional buybacks, and we forecast a resumption of accretive buybacks in 2H20e.Change of CEO, update on strategy: In 1Q, in conjunction with Bernard Looney assuming the role of
22、 CEO, we expect BP to update its existing corporate strategy. In particular, we expect the company to underline its confidence in getting to its existing 2021 target, equivalent to USD14-15bn pa of post-tax (but pre-dividend) free cash flow.Re-launch on climate strategy: In the coming months, we exp
23、ect BP to give much greater clarity on its response to the energy transition, where, in managements words, it is plotting a quicker course for the future In our view, greater clarity on its low-carbon and climate strategy - and especially on its longer term ambitions - could be an important step in
24、closing market perceptions on this issue relative to those perceived as “best in class”.2H20 - major strategy update: BP has indicated that later in 2020 (most likely in 3Q, in our view, after the new CEO is more settled) it will give a more comprehensive update on its strategic outlook. We think th
25、is is critically important. Current targets arent far away (2021) now, and a clearer view on the companys longer-term potential is needed. In our view, more explicit guidance on this outlook in terms of free cash generating capacity and cash distribution potential - potentially out to 2025 or so - c
26、ould be an important catalyst for the stock.Valuation: BPs 2020-21 e EV/DACF multiples are now on average 6% below those of Total, and more than 10% lower than Shell, as well as being c30% below the US majors. On P/CF multiples, BP is also the cheapest of the group, trading on an average discount of
27、 13% to RDS and Total, and 40% vs the US majors. Moreover, BPs prospective dividend yield of 6.5% for 2020e is also the highest of the supermajors. These valuations look attractive in absolute terms to us, but even more so in the context of the strength of BPs growth outlook, and a free cash yield t
28、he highest of the supermajors on our estimates at an average of 8-9% for 2020-21 e (pre IFRS 16).Other Buy-rated stocksEquinor | Buy | CP NOK185, TP NOK210(vs NOK200)Investment case: Equinor remains one of our top picks among European (ex-UK) oil majors, given the strength of FCF growth in 2020-21 u
29、nderpinning competitive cash distributions.The USD5bn buyback programme to end 2022 (8% of share capital) announced in September 2019 demonstrated managements confidence in strong FCF generation, boosted by the Johan Sverdrup field and (generally) good capital discipline. We see the USD5bn programme
30、 as well underpinned, but would be surprised to get an update to this figure at the February Capital Markets Update.Johan Sverdrup continues to ramp up well: it reached 350kbd in early December and is expected to be at a plateau of 440kbd by the summer. We forecast 8% and 2.5% y/y volume growth in 2
31、020 and 2021, respectively (with half of 2020 growth from Sverdrup alone) and sector-leading cashflow growth over the next two years. We believe the market underestimates FCF from Sverdrup and Equinor because it misunderstands Norwegian upstream fiscal modelling. Strong FCF from Sverdrup (c1/3 of gr
32、oup FCF over 2020-24e) drives a sharp drop in Equinors FCF breakeven to USD50/b in 2020, one of the lowest in the sector.European gas prices have failed to rise much at the start of winter 2019/20, depressed by high storage levels and the resolution of the Russia-Ukraine transit issue. We should not
33、 overemphasise the weakness in European gas prices as other drivers are more important (crude prices and the scale of cashflow growth from Sverdrup). In this report, we reduce our European gas price forecasts further, but this leads only to 2% cuts to our Equinor CFPS 2020-22e estimates given the hi
34、gh upstream tax rate in Norway.Climate: Equinor updated its climate targets in January 2020 and aims for near zero net carbon emissions in its Norwegian upstream business (scope 1-2) by 2050. It has also made good progress on its offshore wind business in recent months and is on track to invest 15%
35、of capex in renewables in the next few years, the highest proportion in the peer group. We think Equinors good climate credentials could help the shares continue to re-rate in the medium term.Valuation: Johan Sverdrups ramp-up points to a sharp rise in FCF in 2020. With a FCF yield of 8-10% (pre-IFR
36、S 16) in 2020-21 e (among the sectors highest) and a 2019e dividend yield of 5.0%, the USD5bn buyback looks very well underpinned. Buybacks push its total distribution yield to 7% in 2020-21 e, a competitive level vs its European peer group. Equinor has re-rated in recent months but remains at a 10%
37、 discount to peers on 2020-21 ecash flow multiples.Repsol | Buy | CP EUR14.35, TP EUR16.0 (unchanged)Investment case: We maintain our Buy rating on Repsol given a) competitive cash returns to shareholders and b) earnings growth in 2020, driven by higher refining margins and IMO 2020.More buybacks? R
38、epsol announced a 5% buyback programme in July 2019 and completed it in November, ahead of schedule. RepsoPs CEO implied on the 3Q19 call that buybacks could potentially continue in order to offset past scrip dilution, which we estimate at c20% over 2012-17. We see capacity to buy back EUR500m per y
39、ear from 2020 onwards (representing 2.2% of share capital annually), and believe the company could announce such a programme with FY19 results or later in the year.RepsoPs leverage to the IMO 2020 theme remains a small positive in its investment case. Although we have cut our European refining margi
40、n assumptions in this report, we expect them to rise from current levels over 1H 2020.Repsol has a weaker E&P outlook than most peers. Despite its already high exposure to weak North American gas prices, the company doubled down in US shale gas with the USD325m purchase of Eagle Ford assets from Equ
41、inor announced in 4Q19. The acquisition should lead to significant volume growth in 2020 of 8% y/y on our estimates. In the longer run, Repsol is likely to prioritise investments in downstream and its low-carbon business over upstream growth projects - a strategy which could be well received in some
42、 parts of the market.Climate: With its new climate roadmap published in December 2019, Repsol put itself at the leading edge of the climate debate among oil companies. The company aims to achieve zero net emissions by 2050 including customer emissions (scope 1 -3). We think RepsoPs good climate cred
43、entials should minimise risks of the shares de-rating in the medium term.Valuation: We retain our Buy rating. Repsol trades at a 20% 2020e/2021e EV/DACF discount to BP/RDS/TOT. RepsoPs valuation discount is explained by its geographical mix, lower E&P production growth and more opaque financial disc
44、losure than peers. We think Repsol could re-rate modestly vs its peer group given its strong distribution yield.Total | Buy | CP EUR50.44, TP EUR57.0 (vs EUR53.3)Investment case: We continue to like Total alongside BP among the supermajors, but we believe its investment case is well known and leaves
45、 little scope for surprises. TotaPs FCF breakeven of USD50/b and lower CF volatility should be helpful in a lower oil price environment. However, we see no upside to buybacks in the medium term, and its dividend yield remains noticeably (0.8ppts) below that of UK peers BP and Shell even after the 6%
46、 increase announced in September 2019. See Masterfully balancing prioHties at USD60/b (11 September 2019).Cash distributions: Total has been very clear about its policy on the use of cash for some time: after investment and dividends (+5-6% pa growth in the medium term), the priority remains balance
47、 sheet deleveraging after the acquisition of Anadarkos African assets. We expect gearing (ND/CE) to exceed the 20% ceiling by 2-3ppts after the deal completes some time in 2020 (USD5bn left to pay for the Algeria and Ghana assets), and return below 20% by mid or late 2021. In this context, we see sp
48、ace for buybacks to continue at an annual rate of USD1 -2bn in 2021 -22 - in line with the run-rate of USD1.75bn in 2019-20, but below what TotaPs solid organic FCF generation seen in isolation would suggest.We expect an update on the topic of buybacks at the February 2020 presentation, to be held a
49、t its North Sea upstream centre in Aberdeen. In theory, there could be upside to this figure of USD1-2bn pa if oil prices remain in the high USD60s, but we are sceptical about a meaningful increase given TotaPs conservative approach to balance sheet management. Market expectations on buybacks might remain overly optimistic ah