Deutsche Bank Sees Period of Uncertainty in Oil Equities, Downgrades Statoil (STO) to Hold

Deutsche Bank downgraded Statoil (NYSE: STO) from Buy to Hold. Analyst Lucas Herrmann thinks oil equities will be in a period of uncertainty following OPEC's decision yesterday to maintain its 30 million bpd production ceiling.

"With OPEC having seemingly handed the market responsibility for removing the ~1mb/d of supply needed to achieve balance into '15e our concern is that the lack of transparency around the price at which supply breaks and speed/scale of a non-OPEC response leaves oil equities facing a period of uncertainty. In this short note we present valuation and cash flow sensitivities for the Euro IOCs at $70, $80 & $90/bbl. We downgrade Statoil to Hold," said Herrmann.

"With ~1mb/d of supply seemingly needing to be removed to achieve balance going into 2015, OPECs reiteration of its 30mb/d production ceiling (Oct 30.6mb/d) and decision to meet again in June suggest a willingness to let price undermine non-OPEC. As the most visible short-duration barrel the focus is on US tight oil. B/E economics suggest sub-$70/bbl WTI is needed to draw a meaningful response. OK we’re at ~$69, but with pronouncements on capex budgets some two months hence and little transparency over the speed/scale of a supply reaction, oil equities face a period of uncertainty," he continued.

"More aggressive action on spending may prove the tipping point for net FCF revisions, but facing two months of uncertainty ahead of updates and with likely material downgrades to cons earnings pending (sensitivity analysis points to ~15% risk to our $89/bbl 2015e DB EPS at $80, >$30% at $70) we see little reason to hunt for value just yet. That said, on a 12m view the sector’s >40% DY premium to market, levels last seen in ‘09, points to absolute support for names such as Shell (NYSE: RDS-A) where we have real conviction in the solidity of distributions," he added.

For an analyst ratings summary and ratings history on Statoil click here. For more ratings news on Statoil click here.

Shares of Statoil closed at $21.83 yesterday.

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