Large Cap E&P Companies Better Positioned Than Many Investors Believe, Barclays Says (EOG) (DVN) (APA) (CLR)

Barclays analyst Thomas Driscoll sees large cap E&P are better positioned than many investors believe them to be. He said if oil prices in 2015 approximate the current forward curve of ~$70/bbl for WTI, they expect capital spending to decline in line with cash flows and production growth to slow modestly for the large cap independents. Despite lower oil prices, they expect solid double digit oil volume growth in 2015 from many of the companies in their universe.

"Cash flows should be cushioned somewhat by continued volume growth next year," he said. "At $70/bbl WTI, we estimate large cap E&P cash flows will be down ~20% in 2015, excluding hedges. Accounting for current hedge positions among the large caps, we expect 2015 cash flows will be down ~15%. The impact of lower commodity prices will be somewhat, but not fully, offset by continued production growth (greater than 10%)."

He notes Capital budgets will be set with both cash flow and drilling economics in mind - and they expect budgets to decline ~15% in 2015. He also said balance sheets for the U.S. E&Ps remain strong.

While Driscoll recommended investor caution in the near term given concerns around valuation for the group, he highlighted Overweigh-rated Devon Energy (NYSE: DVN) and EOG Resources (NYSE: EOG) for those investors seeking higher quality/lower volatility names and Apache Corp. (NYSE: APA) and Continental Resources (NYSE: CLR) for investors comfortable with a bit more volatility.

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