Market Overview

Goldman Sachs On Oil: 5 Key Topics You Need To Know

Goldman Sachs On Oil: 5 Key Topics You Need To Know
Related COP
Oil Slide Fallout Continues; Devon Energy, ConocoPhillips Downgraded
Benzinga's Top Upgrades, Downgrades For July 6, 2017
Glenview State Bank Trust Dept. Buys Bed Bath & Beyond Inc, Kansas City Southern, Marriott ... (GuruFocus)
Related CVE
How Cenovus Energy Stock Stands Out In A Strong Industry
The Zacks Analyst Blog Highlights: Cheniere Energy, Jones Energy, Sanchez Energy, Cenovus Energy and Petrobras
Cenovus to hold conference call and webcast on second quarter —…–7 results (GuruFocus)

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.

Related Link: Goldman On Midstream Group: Upgrades 4, Downgrades One

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.

Related Link: UBS Upgrades Xcel Energy, Expects Management To Maintain 4–6% EPS Forecast Through 2018

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.

Full ratings data available on Benzinga Pro.

Do you have ideas for articles/interviews you'd like to see more of on Benzinga? Please email with your best article ideas. One person will be randomly selected to win a $20 Amazon gift card!

Latest Ratings for COP

Jul 2017BernsteinDowngradesOutperformMarket Perform
Jun 2017Goldman SachsReinstatesNeutral
May 2017JefferiesUpgradesHoldBuy

View More Analyst Ratings for COP
View the Latest Analyst Ratings

Posted-In: Analyst Color Long Ideas News Commodities Markets Analyst Ratings Movers Trading Ideas Best of Benzinga


Related Articles (COP + CVE)

View Comments and Join the Discussion!