UBS is out with its annual Global Oil & Gas Analyser report, which goes into great depth about world’s largest exploration and production companies.
Lately, everyone’s been talking about how the U.S. has now become ‘Saudi America.’
And the UBS team, led by Jon Rigby, says America’s shale boom is nowhere close to running out.
North American shale production will continue to dominate non-OPEC output, with the U.S. alone contributing half the average annual output growth in the coming years alone.
By 2020, the U.S. becomes the world’s largest oil producer.
On shale gas, “the US in particular enjoys a combination of factors — the scale of the resource, the scale and depth of the market, the scale and depth of the infrastructure and the oil service industry and the particular legal and regulatory conditions that are not exactly replicated anywhere else.”
UBS’s analysts sees an average 8% upside for the energy exploration and production companies it covers.
Here, we highlight the 14 North American-based firms that offer positive returns.
Price target: $US42
Recent price: $US36.24
Upside case: Marathon's recently added holdings in the Eagle Ford will give it one of the best cash flow per debt adjusted growth rates in the industry. 'Our upside case assumes MRO develops its Eagle Ford and Bakken Shale positions on tighter 40-acre and 320-acre spacing, respectively, enabling upside to its current unbooked resource estimates of 1 BBoe (Eagle Ford) and ~270 MMBoe (Bakken).'
Price target: $US110
Recent price: $US100
Upside case: As the leading producer in North Dakota's Williston Basin, UBS says Continental is the best play for taking advantage of that state's oil boom. 'CLR's goal of tripling production by 2017 offers unparalleled 5-year growth outlook among the mid-to-large cap E&Ps.'
Price target: $US73
Recent price: $US63.94
Upside case: Noble is UBS' overall top pick among the group, thanks to a large, diverse backlog of projects, lower costs, and impressive production rates. 'Our upside scenario assumes that NBL exceeds its near-term production targets (+20% YoY in 2013) and continues to outperform operational expectations, particularly in its Niobrara (Colo./Ne./Wyo.) development where we see significant upside to the company's conservative 2.1 BBoe resource estimate.'
Price target: $US45
Recent price: $US37.76
Upside case: Southwestern is yet another acquisition target thanks to extensive holdings in both Arkansas' Fayetville and Pennsylvania's Marcellus shale. Those formations, 'offer the most attractive returns amongst gas plays,' UBS says
Price target: $US105
Recent price: $US93.97
Upside case: UBS foresees Anadarko getting acquired, calling it a 'one-stop solution' for oil majors who have under-invested in global exploration in addition to U.S. shale. The company 'has a huge inventory of unbooked international discoveries and unconventional resources in the US that should enable ~7% per annum growth for the next several years.'
Price target: $US175
Recent price: $US162.60
Upside case: EOG is another acquisition target for UBS, thanks to its substantial exposure in Texas' Eagle Ford and North Dakota's Bakken. 'We believe the combination of its strong all-around operational results, the large 2Q results beat, better than expected guidance and superior debt-adjusted growth relative to the peers should enable EOG to re-capture the premium valuation it has carried historically.'
Price target: $US94
Recent price: $US89.50
Upside case: OXY will almost certainly spin-off its Middle East and North Africa assets to focus on North America (though it may also sell off assets there as well). 'Assuming a divestiture that values the Middle East/North Africa business in excess of $US26 billion and improvement in domestic returns and free cash flow, OXY could re-rate back to its historical multiple of 7.5x, implying a target of $US99 per share.'
Price target: $US80
Recent price: $US77.93
Upside case: Range owns the second-largest acreage position in Pennsylvania's gas-rich Marcellus play, and represents yet a purchase target for an oil major. 'Our upside scenario assumes RRC is acquired, given its enviable growth profile, above- average unbooked resource inventory and operational expertise in the largest and lowest-cost shale gas play in the US.'
Price target: $US79
Recent price: $US78.33
Upside case: Hess' most important assets are concentrated in North Dakota's booming Bakken oil play. It recently had to sell off a significant amount of holdings to pay down debt.
Price target: $US27
Recent price: $US26.37
Upside case: Chesapeake still boasts 'one of the best unconventional onshore resource asset portfolios in the U.S,' with holdings across North America. It continues to focus on reducing debt and selling off non-core assets.
Price target: $US90
Recent price: $US86.75
Upside case: Though it fell short of volume targets last year, Apache still possesses substantial plays in British Columbia, West Texas' Permian Basin and Oklahoma's Granite Wash. 'Our upside scenario assumes APA reaches its debt reduction/share repurchase goals, delivers better than expected volume growth in the near-term and provides more clarity on future long-term growth targets from its post-disposal production base, enabling a more visible long-term production outlook. '