Goldman Sachs On Oil: 5 Key Topics You Need To Know
Neil Mehta of Goldman Sachs recently discussed five key debate topics concerning the oil sector.
According to Mehta's research note, the past five years have certainly been "challenging" for major oil players given the decline in oil prices, project cost over-runs and poor volume growth. However, the analyst expects fundamentals to "finally bottom" in 2016, and oil prices will "modestly recover" to his 2017–2020 range of $50 to $60 per barrel of WTI crude oil.
Topic No. 1: Dividends
Mehta suggested that all the U.S. oil majors now offer "sustainable" dividend levels, even when factoring a "lower-for-longer" oil price outlook.
Specifically, ConocoPhillips (NYSE: COP)'s dividends are sustainable at $46 per barrel of Brent, Exxon Mobil Corporation (NYSE: XOM) at $48 per barrel and Chevron Corporation (NYSE: CVX) at $49 per barrel.
In addition, all three of these companies can even "modestly" grow their dividend payments in 2017 given a higher free cash flow level.
Topic No. 2: Exxon A Top Play
Mehta continues to recommend Exxon Mobil as "part of a beta-barbell strategy" due to its strong balance sheet, premium returns on capital and underweight investor positioning.
Topic No. 3: Micro Catalysts
Mehta stated that outside of the crude oil macro environment, investors should focus on :1) progress on major projects including Kashagan, Horizon and Gorgon, 2) whether Chevron boosts its dividends in the fourth quarter, 3) ConocoPhillips's upcoming analyst day presentation on November 10 and 4) any asset sale announcements or plans.
Topic No. 4: Canadian Equities
Mehta believes Canadian oil equities will rise over the next 12 months. The analyst recommends Buy-rated Suncor Energy Inc. (USA) (NYSE: SU) and Cenovus Energy Inc (USA) (NYSE: CVE) given their strong balance sheets.
Topic No. 5: Downstream Segments
Finally, Mehta is projecting downstream earnings to be "well below" 2015's peak, but the chemicals and refining businesses are still viewed as an "attractive source" of free cash flow that could support dividend payments.
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Latest Ratings for COP
|Dec 2016||Cowen & Co.||Upgrades||Hold||Outperform|
|Nov 2016||Goldman Sachs||Upgrades||Neutral||Buy|
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