Barclays on Americas Integrated Oil: Pair Trade - Long in HES, IMO & SU

Barclays on Americas Integrated Oil: Major Oils Asset Value, 2011 Edition

Barclays analyst, Paul Y. Cheng, said, "We estimate that the U.S. integrated oil sector is currently trading at around a 26% discount to its net asset value (NAV) using our long-term Brent oil price assumption of $100/barrel. After the recent selloff, we estimate that the group may now be reflecting a long-term oil price assumption of $80-$85/bl. We believe the sector offers an attractive risk/reward ratio and recommend that investors overweight the group. Within our universe, Petrobras Preferred (NYSE: PBR.A) and Murphy (NYSE: MUR) currently rank the most attractive on this metric while ExxonMobil (NYSE: XOM) and Husky (HSE) rank at the bottom. However, on a risk-adjusted basis, we think Hess (NYSE: HES), Imperial Oil (NYSE: IMO) and Suncor (NYSE: SU) currently offer the best values for the next 12 months, while Husky and Marathon (NYSE: MRO) are the least attractively valued."

"On the basis of NAV, excluding non-proved resource, MUR and PBR.A rank the most attractive while MRO and HSE currently stand at the bottom...For pair trade, we recommend investors long Hess, Imperial and Suncor against Husky and Marathon over the next 12 months. Our pair trade is a relative value recommendation. We reaffirm our Equalweight ratings on MRO and HSE."

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