A Closer Look at Production and Cashflow

European Oil
EUROPEAN INTEGRATED OIL

EQUI TY RESEARCH

Little respite for Big Oil investors
A closer look at production and
cash flow for 2013 and 2014

J anuary 14, 2013
Sector view
Remains
Neutral
Inexpensive for a reasona cautious outlook
If headline production continues to be used as a proxy for cash flow for
European Big Oil, we see no positive inflection point during 1H 2013. The
industry remains in a transition phase, as it builds out long-life low-decline
barrels. This takes time and money and rather than being a multi-year, we
warn this is a multi-decade process. The key beneficiaries in the short term
are not equity investors in Big Oil. Attractive P/Es or dividend yields mask
high breakeven oil prices. Even including the benefits of an aggregate
USD 23bn of disposals (ex-BPs proposed sale of TNK), we see a price of
USD 90/bbl needed this year to fund capex and dividends. We thus remain
cautious on the group. Our best ideas among the large caps remain Shell
and ENI in 1H, while we continue to see differentiated upside in BG Group
and Galp on a 12-18 month view.
Risks to Big Oil EPS estimates; we are 8% below 2013 consensus
We lowered our 2012 volume estimates for the group by 4% during last
year, while consensus EPS estimates were revised 7% lower. It is not a
new story. The group is now producing 13.7mboe/d. Admittedly disposals,
PSCs & nationalisation have taken their toll, but this number is 1.5mboe/d
lower than we forecast in 2009. A review of our production profiles has
seen a cut of 4% on average for the next two years. We now forecast the
sector offers 0.2% growth for 2013 and a 1.9% two-year CAGR, with
growth targets increasingly back-end loaded to 2015 and beyond.
And does it translate into higher cash flow? Not obvious
Most IOCs claim the barrels coming on stream are high margin, in some
cases double the base portfolio. With a CFO estimate of USD 50/boe, we
do not disagree, as many of the projects benefit from early cost recovery
after huge upfront capital investment. Where we push back is that these
profitable barrels are largely replacing mature, but also very high-margin
barrels either in decline or in some cases now sold. We forecast net E&P
CFO growth over 2012 group CFO of only 1% in 2013 and 10% in 2014.
Shell and Eni screen the best of the large caps for 2013/14
Shell benefits as its attempts to catch up with Pearl GTL. Two trains up
and running in 2013 should offer an uplift of around USD 1.5bn (NMRe).
ENI offers headline growth and is the most leveraged name to the
substantial cost recovery expected as the giant Kashagan field starts up.
Total becomes increasingly competitive towards the end of the 2014
period. BP offers high-margin growth barrels, but this is offset in the near
term by disposals, with the additional benefit from the US GoM only likely
now in 2014.
Mid-caps: Repsol offers growth, but lower margins, BG a 2-year story
Our analysis is relatively supportive for Statoil. Repsol grows quickly, but is
more exposed to gas, while BG appears towards the top of the pack on a
two-year view as production from the Santos basin accelerates.
Research anal ysts

European Oil & Gas
Theepan Jothilingam, CFA - NIplc
Theepan.J othilingam@nomura.com
+44 20 7102 6673
Matt Lofting, CFA - NIplc
Matt.Lofting@nomura.com
+44 20 7102 7434
Jocel yn D'souza
jocelyn.dsouza@nomura.com
+91 22 6723 5345
Philippe Van Stratum - NIplc
philippe.vanstratum@nomura.com
+44 20 7102 4885

European Oil & Gas: E&P
Tom Robinson - NIplc
tom.robinson@nomura.com
+44 20 710 23285

European Oilfield Services
Christyan Malek - NIplc
christyan.malek@nomura.com
+44 20 7102 5120
Al astair Pringle - NIplc
alastair.pringle@nomura.com
+44 20 710 26479
Sanat Satyan
sanat.satyan@nomura.com
+44 20 7102 7151

Industry specialist
Al an MacDonald - NIplc
alan.macdonald@nomura.com
+44 20 7102 2741

See Appendix A-1 for analyst
certification, important
disclosures and the status of
non-US analysts.
Nomura | European Oil J anuary 14, 2013

2
Contents

4
No respite for Big Oil investors
5
Sector and company conclusions
7
No inflection point on production in 2013
8
Breaking down 2013/14E growth
9 The key moving parts
10 Assessing risk metrics
12
Converting growth into cash expansion
12 Growth barrels offer a higher margin than base portfolio
12 but some of the decline barrels are high margin too
13 Company conclusions Shell, ENI, BG and Galp the winners
15 Implications for group cash flow forecasts and the cash cycle
17
Company analysis
22 RD Shell (Buy, TP 2,500p, 19% potential TSR)
24 BP (Neutral, TP 455p, 6% potential TSR)
26 Total (Neutral, TP EUR 40, 8% potential TSR)
28 ENI (Buy, TP EUR 19, 7% potential TSR)
31 Statoil (Reduce, TP NOK 145, 8% potential TSR)
33 BG Group (Buy, TP 1,600p, 57% potential TSR)
37 Repsol (Neutral, TP EUR 15.5, 2% potential TSR)
40 OMV (Neutral, TP EUR 27, -3% potential TSR)
42 Galp (Buy, TP EUR 15, 26% potential upside)
46
Appendix A-1

Research anal ysts

European Oil & Gas
Theepan Jothilingam, CFA - NIplc
Theepan.J othilingam@nomura.com
+44 20 7102 6673
Matt Lofting, CFA - NIplc
Matt.Lofting@nomura.com
+44 20 7102 7434
Jocel yn D'souza
jocelyn.dsouza@nomura.com
+91 22 6723 5345
Philippe Van Stratum - NIplc
philippe.vanstratum@nomura.com
+44 20 7102 4885

European Oil & Gas: E&P
Tom Robinson - NIplc
tom.robinson@nomura.com
+44 20 710 23285

European Oilfield Services
Christyan Malek - NIplc
christyan.malek@nomura.com
+44 20 7102 5120
Al astair Pringle - NIplc
alastair.pringle@nomura.com
+44 20 710 26479
Sanat Satyan
sanat.satyan@nomura.com
+44 20 7102 7151

Industry specialist
Al an MacDonald - NIplc
alan.macdonald@nomura.com
+44 20 7102 2741


3
Summary of rating, target price and earnings changes in this report
Issuer Ticker Rating Target price EPS FY1E FY2E
Old New Old New Old New Old New
BG Group BG/ LN Buy Buy GBX 1600 1600 USD 135.8 134.6 153.1 136.6
BP BP/ LN Neutral Neutral GBX 455 455 USD 97.9 94.0 89.7 79.9
Eni ENI IM Buy Buy EUR 19.00 19.00 EUR 2.0 2.0 2.0 1.8
Total FP FP Neutral Neutral EUR 40.00 40.00 EUR 5.4 5.4 5.5 5.3
OMV OMV AV Neutral Neutral EUR 27.00 27.00 EUR 4.8 4.7 4.7 4.5
Royal Dutch
Shell
RDSB LN Buy Buy

GBX 2500 2500

USD 425.3 415.3 466.5 426.1
Statoil STL NO Reduce Reduce NOK 145.00 145.00 NOK 17.0 16.8 17.0 16.3
Note: FY1E =first forecast year, FY2E =second forecast year
Source: Nomura estimates

Fig. 1: The Integrateds lagged behind the market in 2012
USD
Source: Datastream
Fig. 2: And most underperformed their local markets
%
Source: Datastream
Fig. 3: The difference between current 2012 production
expectations and those at the beginning of the year
%
Source: Company data, Nomura estimates
Fig. 4: and the associated 2012E EPS revisions (-12m)
%
Source: Datastream

Fig. 5: While our 2013E production expectations are now
nearly 10% below those of 12 months ago
%
Fig. 6: 2013E EPS revisions (-12m)
%
Source: Datastream

19%
17%
16%
12%
5%
0%
-3%
-4% -4%
-7%
-23%
-29%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
2
0
1
2

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r
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e
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(
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S
D
)
8%
-2%
-5%
-8%
-13% -13%
-16%
-18%
-18%
-26%
-31%
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
2
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1
2

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3.2%
-0.8%
-1.7%
-3.8%
-4.2%
-4.9%
-5.1%
-5.9% -6.0%
-8%
-6%
-4%
-2%
0%
2%
4%
Statoil OMV Repsol Sector BP Shell Total BG ENI
2
0
1
2
E

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9%
3%
-3%
-7% -7% -8%
-9%
-17%
-24%
-30%
-40%
-30%
-20%
-10%
0%
10%
20%
OMV Total Statoil BG Sector Shell Eni BP Repsol Galp
-2%
-2%
-7% -7%
-8%
-8%
-9%
-15%
-16%
-18%
-16%
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2
0
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-4%
-6%
-9%
-12%
-13%
-14%
-15%
-20%
-25%
-28%
-40%
-30%
-20%
-10%
0%
Total OMV Shell Sector Statoil Eni BG BP Galp Repsol

4
No respite for Big Oil investors
In this report, we look at the volume growth and cash flow expansion offered by the
European majors through 2013/14. Investors hoping for an operational pickup to help
reverse last years marked underperformance will be disappointed, in our view. Value
investors point to a 2013 sector P/E of around 8x and a 5% dividend yield. However, our
analysis suggests the sector is not that inexpensive versus history. Furthermore, we
point out that behind inexpensive P/Es, Big Oils capex/DDA ratio remains significantly
above market average levels, while 2013 consensus earnings estimates could be c. 10%
too high. Free cash flow yields (pre-dividends) are only 3.5% and a breakeven oil price of
USD 90/bbl (including disposals) is required this year to fund dividends and capital
spend programmes to deliver new projects, even taking into account sector disposals of
c. USD 23bn (ex-TNK).
Our view is unchanged. Big Oil remains in transition towards more nimble value-
accretive portfolios. The path is longer and tougher than many previously thought, and
during that process the sector will be less defensive than in the past particularly under
the scenario of our more cautious view on oil prices. Thus, despite last years
underperformance, we maintain a selective view on the group for 1H and prefer Shell for
its defensiveness and cash flow benefit through Pearl GTL, ENI for continued
restructuring and near-term growth and Galp for its high impact exploration programme
in the context of inexpensive valuation on a SOTP basis. We also maintain that BG
offers substantial medium-term value, albeit nearer-term catalysts are perhaps more
limited. At the large-cap end, we remain more cautious on BP where we think
consensus estimates could be as much as 15% too high, while we are not yet prepared
to pay a premium multiple for a potential operational and financial inflection at Total in
2014/15. Increasingly Statoil appears more attractive, but with a crude price view skewed
to the downside, we think there may be a better entry point on a relative basis.

Fig. 7: EU Oils c. 20% below the 10-year avg discount on
P/Es

Source: Datastream, Nomura research
Fig. 8: Dividend yield is in line with the market on a rel. basis

Fig. 9: But capex/DDA is significantly above market average
2013E Capex/DDA

Fig. 10: 2013E cash breakeven oil prices disposals are
crucial
Sector average cash breakeven c. USD 90/bbl including disposals
Note breakevens assume a normalised USD 2bn disposals (ex-Russia) at BP
and the sale of the LNG business at Repsol.

-60%
-40%
-20%
0%
20%
J an-03 J an-05 J an-07 J an-09 J an-11 J an-13
EU Oils PE / EU Market PE
10-yr ave. -15%
Current . -33%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
J an-03 J an-05 J an-07 J an-09 J an-11 J an-13
EU Oil Sector DY / EU MarketDY
10-yr ave. 0.5%
Current . 12%
2.3x
1.9x
1.9x 1.9x
1.8x
1.2x 1.2x
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
Total Shell BP Statoil Oil Sector ENI Market
2
0
1
3
E

C
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D
A

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190 185
130
125
110 110
100
90 85
--
50
100
150
BG Galp Total Statoil BP Repsol Eni OMV Shell
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2013 breakeven incl. disposals Disposal impact
Average (ex-disposals) Average (incl. disposals)
Our 2013 EPS estimates based on
USD105/bbl oil are some 8% below
consensus.
Shell and ENI are best ideas
among the large-caps for in H1.
Galp and BG are names that offer
differentiated absolute upside in
the mid-caps.

5
Sector and company conclusions
Sector conclusions:

In terms of volume delivery, 2012 was little different to the past. Our estimates
were some 4% higher than we now expect the outcome to be.

Aggregate sector production for 2012 has been around 13.7mboe/d, 10% lower
than the levels we forecast three years ago. The gap equates to 1.5mboe/d, which is
not far off the equivalent of the daily production of a company the size of Statoil.

Having updated our production profiles, we have lowered our production
estimates for 2013 and 2014 by 4% and 3%, respectively. Our revised sector
production growth estimates are now a muted 0.2% for this year and a two-year
2012-14 CAGR of 1.9%. It increasingly appears that more positive medium-term
growth targets are back-end loaded into 2015+.

We have also reduced our EPS and DACF estimates by 7% and 4% for 2013,
respecti vely, and 7% and 3% for 2014. With explicit guidance given by several of
the mid-caps during the 3Q results season, greater nearer-term risks appear to sit
with the majors Shell, BP, Total, and ENI.

On upstream cash flows, we agree with the industry that new growth barrels are
highly cash generati ve and offer a premium CFO/boe to base portfolios we
estimate an average USD 50/boe (based on long-term USD 95/bbl oil) for 2013/14
growth compared with a 2011 FAS 69 average of c. USD 30/boe (a 65% uplift). We
would suggest this is partly a function of cost recovery on capital-intensive projects.

However, where we push back is that these profitable barrels are largely
replacing mature, but also very high-margin barrels, while disposals and in
some cases value-over-volume decisions are having an increasing effect. We thus
forecast aggregate net upstream cash flow growth over 2012 E&P CFO of only 2%
in 2013 and 15% by 2014. At the sector level, net E&P cash flow implies an
improvement of group CFO by 10% in 2014 relative to a 2012 base.

Capital spend remains structurally high as Big Oil invests in growth projects and
transitioning portfolios, which continues to squeeze free cash flow generation and
elevate the cash breakeven oil price. Even including disposals, we estimate the
group needs USD 90/bbl oil to break even post capex and dividend
commitments. Pre disposals, we estimate a cash breakeven of around
USD 110/bbl for 2013.

Fig. 11: 2012E production is now c. 10% below equivalent
expectations from three years ago
%
Fig. 12: The backdrop production misses have been a
systematic issue across the group
Sector y-o-y volume growth vs. start of year expectations

-4%
-6%
-6%
-7%
-8%
-9%
-10%
-10%
-18%
-20%
-16%
-12%
-8%
-4%
0%
Total Repsol Shell ENI Statoil OMV Sector BG BP
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(
%
)
5.2%
2.9%
1.7%
0.8%
1.7%
5.5%
0.2%
-2.2%
-0.6%
0.0% 0.2%
-6.3%
1.6%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
2007 2008 2009 2010 2011 2012E 2013E
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(
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)
Estimate at beginning of year Actual
2011 impacted by
the outage in Libya

6
Company conclusions

On headline volume growth, the winners for the next two years are Repsol,
Galp (off a low base effect) and ENI of the majors. Working off a smaller ex-YPF
base, Repsol stands out among the mid-caps with a c. 10% two-year CAGR, albeit
there is a relative bias to lower margin LatAm gas. ENI appears best placed of the
large caps, with a 3.5% 2012-14E CAGR and leverage to cost recovery at
Kashagan once production finally starts up later this year.

Taking proper account of disposals and operational decisions is becoming
increasingly important in volume forecasts. These elements are set to have a
significant impact this year on production at BP and Statoil in particular.

Translating production trends into cash flow highlights the opportunity at Shell
from the benefit from Pearl (sector leading 9% 2013E net E&P CFO growth over
2012 E&P CFO), while ENI again screens relati vely well on both a one- and
two-year view.

Total is increasingly competitive through 2014 and into mid-decade as its growth
projects ramp-up. BP offers high-margin growth barrels, but these are offset in
the nearer term by its disposal programme. Indirectly, the analysis underlines
once again the importance to BP of the return of its high-margin GoM barrels from
within the base portfolio, which now looks set to have a more meaningful impact in
2014, rather than 2013.

Of the midcaps, Repsol grows quickly, but a relative gas bias and portfolio weighting
towards the mid- and downstream mutes the cash uplift in a group sense. Relatively
strong oil exposure within its growth barrels and value-over-volume substitution
makes our cash flow analysis more supportive for Statoil, while BG stands out on a
two-year view as production from the Santos basin accelerates.

Fig. 13: Summary conclusions by company


2013
2012-14
CAGR
2013 as %
2012 E&P
2014 as %
2012 E&P
2014 as %
2012 group
Shell 1.9% 2.0% 58 9% 26% 12%
BP (ex-Russia) -4.8% -1.0% 53 -14% 1% 1%
Total 0.8% 1.8% 47 2% 15% 11%
ENI 2.7% 3.5% 46 6% 14% 14%
Statoil -1.0% 1.0% 50 6% 16% 13%
BG 0.3% 3.8% 41 6% 35% 20%
Repsol 8.9% 10.2% 28 6% 16% 6%
OMV 0.1% 1.7% 23 -3% -2% -2%
Galp 22.4% 41.0% 38 3% 35% 9%
Sector Avg. 0.2% 1.9% 50 2% 15% 10%
Production Growth (%)
Avg. CFO/boe
2013/14 growth
projects (USD)
Comments
- A full ramp-up at Pearl GTL (after a more intermittent contribution in 2012)
presents the clearest opportunity of the majors in terms of E&P production & cash
flow momentum for 2013. Incremental CFO estimate USD 1.0-1.5bn.
Cash Flow
Net E&P CFO growth
- With Libyan volumes recovered we expect little growth in 2013 and what there is to
be more gas biased. Growth potential appears more significant 2015+. Ongoing re-
developments in Romania remain important for base production.
- Multi-year E&P production growth off a low base, fuelled by Brazil. Net E&P CFO
growth in 2014 over 2012 group CFO in-line with sector at 9% owing to a greater
R&M bias, but expect R&M CFO to expand also via the Sines upgrade.
- Offers strong CFO from its growth barrels, but this is offset by disposals (guidance -
150kboe/d y/y in 2013) on an absolute cash flow basis. The return of the US GoM
remains key and is excluded from this analysis on the basis it doesn't represent
'new' growth as such. We estimate this could add USD 1.2bn CFO by 2014 taking
net E&P CFO growth over 2012 group CFO to 5% (vs. 1%).
- Essentially mid-ranking on a 2-year view, but with momentum building through
2014 as growth projects feed through. Arguably scope for a further pick-up 2015+
as projects like Laggan Tormore, CLOV & Kashagan reach plateau.
- Screens relatively robustly on both production growth and E&P cash flows over the
next two years. A greater E&P portfolio bias ex-Snam makes ENI one of the
winners on net E&P CFO growth by 2014 as % of 2012 group CFO at 14%.
- A 2-3% CAGR 2012-16 equity production target appears more backend loaded,
though a strong oil bias to its growth barrels and a 'value of volume' approach
means Statoil screens more positively 2012-14 on cash flows.
- Nearer term momentum is more muted post late October's production downgrade,
but BG still stands out on a 2-year view (estimated 20% growth in net E&P CFO by
2014 as % of 2012 group CFO) as Brazil volumes accelerate.
- Stands out positively on production growth, with a 2-year CAGR of 10% led by
Brazil (BM-S-9), Margarita & Kinteroni. CFO uplift more muted though, owing to a
gas bias to growth and relative portfolio bias to the mid- & downstream.
Pearl GTL could contribute an
incremental USD 1.5bn CFO this
year once the two-trains are
running concurrentl y.
Disposals at BP may impact cash
flow this year by between USD 1.5
2bn dependant on oil prices. The
GoM could offset a large part of
this in 2014.

7
No inflection point on production in 2013
While perceptions of the Integrateds access to resource and exploration businesses
have improved, concerns around the groups ability to successfully execute on
development projects have, if anything, increased. Although a number of the companies
now point to relatively robust multi-year production CAGRs, we argue 2013/14 is unlikely
to see material growth, with the inflection back-end loaded into 2015+ in many cases.
Positive multi-year CAGRs appear back-end loaded

A number of the European Integrateds now forecast robust multi-year growth rates into
the middle of the decade and beyond. Looking at recent updates, we have seen:

Total Raised its mid-term 2011-15 production growth target to c. 3% (prev. 2.5%)
and pointed to a path to c. 3mboe/d in 2017 with its September strategy update.

Eni Targets a 3%+CAGR 2011-15 with its October upstream seminar, and a
longer-term objective of continued growth at 3% CAGR 2015-22.

Statoil Despite highlighting 2013 would likely be lower than 2012 y-o-y, the
company reiterated its long-term objective of 2.5mboe/d equity production in 2020
with its 3Q update in November.

BP Pointed to a distinctive platform for growth with its recent Upstream Investor
Day and reiterated CFO targets of +50% in 2014 versus 2011 at USD 100/bbl oil.
Concerns around resource access, prevalent 5-10 years ago, have arguably eased and
exploration success has picked up supporting development hoppers and an improved
logic for growth relative to a chequered track record. Against this though, recent nearer-
term guidance (mainly from the mid-caps) and closer inspection of our updated
production profiles for the majors suggest 3-4 year volume CAGRs are more back-end
loaded, with a genuine inflection point in production more mid-decade than 2013/14 in
many cases.
It is not that the growth barrels are not there but execution risks and underlying decline
rates remain, while more proactive portfolio management (which we welcome) means
asset disposals and value-over-volume business decisions on areas such as North
American gas need accurately incorporating into estimates. Combined, we now see
2013 sector production growth of only 0.2% and a two-year 2012-14E CAGR of 1.9%.

Fig. 14: Production targets and guidance

Nomura macro assumptions: Brent - USD 105/bbl 2013, USD 100/bbl 2014, USD 95/bbl 2015+; WTI - USD 90/bbl 2013, USD 90/bbl 2014, USD 85/bbl 2015+; Henry Hub - USD
4/mmbtu 2013, USD 4/mmbtu 2014, USD 5/mmbtu 2015

Near term Longer term 2012e 2013e 2014e
Shell
2012: 'c.100kboe/d below Feb guidance' (3.4mboe/d)
2013: No explicit guidance to date
2017-18: 4.0mboe/d
Brent: $80-100/bbl; improved US
Gas and R&M from 2011
3,263 3,325 3,395
BP (ex-Russia)
2012: Lower than 2011
2013: Some underlying growth ex-disposals
- Brent: $100/bbl 2,315 2,202 2,268
Total
2012: Slightly lower than 2011
2011-15: 3% CAGR; 2017: c. 3mboe/d Brent: $100/bbl 2013-17 2,314 2,334 2,400
Eni
2012: Expected to grow vs. 2011
2011-15: >3% CAGR; 2015-22: c.3% CAGR
Brent: $90/bbl 2012-13; $85/bbl
2014-15; +2% pa thereafter
1,690 1,736 1,810
Statoil
2010-12: 3% CAGR equity production
2013: Lower than 2012 levels
2012-16: 2-3% CAGR, 2016-20: 3-4%
CAGR, 2020: >2.5mboe/d (all equity prodn)
- 1,793 1,776 1,828
BG
2012: Some 3% growth y/y
2013: Expected to be in-line with 2012
2015: >1.0mboe/d, 2020: 6-8% CAGR off
2005 base year
Brent: $95/bbl 2013; $90/bbl
2014. US gas: $3/mmbtu 2013;
$4/mmbtu 2014; $5/mmbtu 2015.
660 658 711
Repsol
2012: Upstream (ex- YPF) prodn c. 330kboe/d
2013: c. 10% higher y/y
2011-16: >7% CAGR to c. 500kboe/d (2011
adj for Libya)
Brent: $95/bbl 2013; $97/bbl
2014; $100/bbl 2015. US gas:
$3.5/mmbtu 2013; $4/mmbtu
2014; $4.5/mmbtu 2015.
330 360 401
OMV
2012: 4Q broadly in-line with 3Q (309kboe/d)
2013: "Will be challenging to grow production"
2011-16: 2% organic CAGR to c. 350kboe/d - 305 306 316
Galp
2012: 4Q WI prodn c. 24kboe/d
2015: >70kboe/d, 2020: 300kboe/d (all WI
prodn)
Brent: $95/bbl 2012-16. 18 22 37
Production guidance
Macro assumptions
NMR production estimates (kboe/d)
2013 volume risks now sit more
with the majors
A number of the mid-caps used 3Q
reporting season as a platform to
manage expectations on 2013
Statoil, BG and OMV all guided to
production being flat y-o-y at best,
while Repsols guidance for c. 10%
growth (ex-YPF) was still well below
prior consensus expectations, which
we understand were nearer 18%.
With the majors yet to provide more
specific 2013 guidance, they in many
ways carry greater uncertainty around
near-term production into FY results
and annual strategy updates. On
balance, the risks are to the
downside. With this report, we have
lowered our 2013 growth projections
for the four large caps from 3.4% to
(0.7)% reflecting among other
things recent asset sales such as
Usan at Total, the US gas price
environment and potential delays at
projects including Kashagan, Elgin
Franklin, J asmine and Angola LNG.

8
Breaking down 2013/14E growth
On 2013/14E volume growth, Repsol stands out of the midcaps off an ex-YPF base,
while ENI appears best placed among the large caps. Across the majors we lower
production estimates, in part reflecting recent asset sales, delays and uncertainty on the
ADCO concession renewal in UAE which is due in 2014. In assessing growth, we argue
the markets ability to accurately incorporate portfolio management, maintenance and
value-over-volume business decisions remains mixed, while viewing growth in the
context of risk parameters geography, technical challenges and control through
operatorship, for example is becoming increasingly important.

Fig. 15: 2013E production growth
%
Fig. 16: 2012-14E production two-year CAGR
%

Headline production trends:

Repsol stands out in the midcaps
Repsol guided to c. 10% growth for 2013 in early November and we forecast a similar
level as a two-year CAGR, underpinned by Kinteroni, Margarita, Carabobo, Brazil and
then Perla later in 2014. The numbers screen strongly relative to the group, though
should arguably be viewed in the context that: 1) growth now works off a smaller ex-YPF
starting point, and; 2) we think a relative bias to LatAm gas means the CFO/boe
generated by those growth barrels are unlikely to carry the premium some of the peers
point to, limiting the resultant cash flow expansion (see pages 12-16 for further analysis).
ENI appears best placed of the majors
ENI offers a 3.5% two-year CAGR off a 2012 base that includes the return of Libya, and
a relatively balanced oil/gas mix within the growth barrels (roughly 60/40%). The ramp-
up of the much delayed Kashagan (also relevant to Total and Shell) will be important,
while from a risk perspective, we flag relatively high exposure to Venezuela and Russia
particularly into 2014. For the two-year period, we estimate the three countries account
for 40% of ENIs growth. After ENI, Shells growth in part reflects the assumption of more
consistent output from Pearl GTL in 2013 (and beyond) after an intermittent ramp-up.
though your view on an ADCO contract renewal is important in 2014+
ADCO is an onshore UAE J V between Abu Dhabi National Oil Co (ADNOC, 60%) and
an IOC consortium of RD Shell, Total, BP, Exxon (9.5% each) and Partex (2%). The 75-
year concession, which has contributed 110-130kb/d net to each of the three EU majors,
expires in 2014. Reports have suggested BP in particular may not be invited to join the
contract renewal tendering process (Bloomberg, July 2012), albeit there have been more
positive comments since on BPs possible participation. We now adopt a conservative
approach and risk post mid-2014 volumes at 50% for all three Europeans pending
further clarity and see this is an underappreciated negative risk to production today.
Accounting for operational/strategic decisions is increasingly important
In particular: 1) value-over-volume decisions around gas production in regions such as
Norway and North America, and; 2) incorporating the impact of disposals (the market
appears to have been slow to do this at BP, in particular).
9%
3%
2%
1%
0%
0%
-1%
-5%
-6%
-3%
0%
3%
6%
9%
12%
2
0
1
3

p
r
o
d
u
c
t
i
o
n

g
r
o
w
t
h

(
%
)
22%
Sector Average =0.2%
10%
4%
3%
2% 2% 2%
1%
-1%
-5%
0%
5%
10%
15%
2
0
1
2
-
1
4

C
A
G
R

(
%
)
41%
Sector average =1.9%
Repsol provides good headline
growth, while off a considerably lower
base starting point than the peers, we
also expect significant multi-year
growth at Galp, fuelled by Brazil.

9
The key moving parts
A high-level assessment of growth projects due to feed through over the next couple of
years initially points to the conclusion that production growth has scope to be
considerably higher than the 1.9% CAGR we now forecast. Figure 17, for example,
suggests that growth barrels (new start-ups plus ramp-ups) feeding through next year
equates to 6% of the groups 2012 production. In explaining the gap, we highlight:

Decline rates: If anything, perceptions of underlying decline rates continue to
accelerate. In Figure 19, where we show a top-down reconciliation of implied 2013
production against our underlying bottom-up estimates, we now assume a
standardised 5% decline rate on the mature base portfolio (assumed to make up
around 2/3 of total production for each company).

Portfolio management: The impact of asset disposals will likely have a material
effect on 2013 production at BP (guidance of 150kboe/d y-o-y) and Statoil (NCS
asset sales to Centrica and Wintershall this year) in particular. The growth barrels
coming from Total have also been cut recently, with the sale of Usan (a net c.
30kboe/d).

Other effects: Most significant are lower US gas production in response to low
Henry Hub pricing at Statoil, BG and Shell, increasingly onerous maintenance
schedules post-Macondo and specific reservoir performance issues flagged by BG
in Egypt. On the positive side, with Libyan production now back at c. 90% of pre-
crisis levels, we would highlight the likely return of Elgin in the North Sea for Total,
Eni and BG (where we assume a progressive re-start from early 2013).

Aggregating the moving parts implies little y-o-y growth in 2013: At the sector
level, c. 800kboe/d of growth this year is almost entirely offset by these effects.

Fig. 17: 2013E growth barrels as % of 2012 group production
%
Fig. 18: Oily growth at STL & RDS, TOT & OMV more gasy
Breaking down growth barrels between oil & gas, %
Fig. 19: Top-down reconciliation of 2013 production forecasts
2012E +2013E growth - assumed 5% decline rate on base portfolio (assumed as 2/3 of total) +/- disposals and 'other' effects

11%
9%
9%
7%
6%
6%
5%
4%
3%
0%
2%
4%
6%
8%
10%
12%
2
0
1
3

G
r
o
w
t
h

b
a
r
r
e
l
s

a
s

%

2
0
1
2

p
r
o
d
n
0%
20%
40%
60%
80%
100%
Shell Statoil Galp BP Eni BG Repsol Total OMV
O
i
l

/

g
a
s

g
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b
a
r
r
e
l
s

2
0
1
3
/
1
4
Oil growth bbls (kb/d) Gas growth bbls (kboe/d)
2012E
production
(kboe/d)
2013E
growth bbls
(kboe/d)
Assumed % of
mature fields
Decline
rate
Decline
bbls
(kboe/d)
Disposals
(kboe/d)
Other
(kboe/d)
2013 top-down
implied prodn
(kboe/d)
2013E
production
(kboe/d) Delta Comments
Shell 3,263 208 67% 5% 109 18 40 3,304 3,325 1% Disposals:OML30Nigeria;Other:adjustmentforUSgas
BP (ex-Russia) 2,315 123 67% 5% 77 150 0 2,210 2,202 0% Disposals:Companyguidance150kboe/dy/y
Total 2,314 97 67% 5% 77 15 20 2,339 2,334 0% Disposals:OML138Nigeria;Other:assumedreturnofElgin
Eni 1,690 104 67% 5% 56 0 9 1,747 1,736 1% Other:assumedreturnofElgin
Statoil 1,793 159 67% 5% 60 54 25 1,813 1,776 2% Disposals:Wintershall/CentricaNCSsales;OtherUSgas
BG 660 48 67% 5% 22 0 39 647 658 2% OtherEgyptandUSgas,partiallyoffsetbyElgin
Repsol 330 35 67% 5% 11 7 0 348 360 3% Disposals:Block16andTivacuno,Ecuador
OMV 305 10 67% 5% 10 2 0 303 306 1% Disposals:BerylandBoafields,UKNorthSea
Galp 18 2 67% 5% 1 0 0 19 22 16%
Sector 12,689 785 423 245 75 12,731 12,719 0%
BP has not provided guidance, but
Shell, for example, assumes a 4-6%
decline rate (ex-tight gas) and Total
some 5%, with both companies
hoping these levels fall as long-life
assets come on-stream. Elsewhere,
BG recently upgraded its estimate of
base portfolio decline rate by 50bp to
4.4%.

10
Assessing risk metrics
A track record of missed growth expectations coupled with recent updates on near-term
production (in particular BG) has left the market increasingly sceptical around the
industrys ability to execute. Partly as a consequence, we argue production growth
should increasingly be viewed not just in terms of the absolute barrels, but in the context
of associated risk parameters what those barrels are, where they are being sourced
geographically, the technical challenges and the extent to which individual companies
have control over their own destiny (operatorship).
From a nearer-term perspective, we draw the following conclusions:

Operatorship: On a volume weighted basis Shell, Repsol and OMV offer a greater
bias to operatorship, though in OMVs case the projects are relatively small in a
group context. Galp, BG and ENI appear more reliant on the execute capability of
industry partners Galp and BG through Petrobras as the operator of pre-salt
Brazil. In ENIs case, it operates MLE & CAFC (Algeria) and we have classified it as
operator of Kashagan (RDS takes over once production starts next year).
Elsewhere, Chevron operates Angola LNG, the SeverEnergia partnership runs its
Russian projects (incl. Samburgskoye) and J asmine in the UK is Conoco operated.

Geography: Statoil stands out in offering OECD biased growth through Norway and
the US, regions many would traditionally view as lower risk. Elsewhere, it is
noticeable that of the majors BP and Shell offer a relative OECD bias compared with
Total and ENI. Within the non-OECD, we note Total remains relatively exposed to
growth in Nigeria, where disruptions remain an industry problem, with three projects
and 10% of its new barrels through 2014 sourced from there.

Concentration risk: Of the various ways one can view concentration, in this case
we show the % of two-year growth being sourced from each companys single
largest project (in net volume terms) in Figure 22 ie, the degree of dependency on
one single project. Galps gearing to Brazil is well flagged. Elsewhere, we would
point to the importance of a successful ramp-up at Kinteroni (Peru) for Repsol and a
more normalised contribution from Pearl at Shell.

Technical risk: Arguably less applicable over this time frame when implicitly
projects are already sanctioned and 50%+developed. In the longer term though,
with portfolios becoming more exposed to less mature regions and play-types like
East Africa LNG, unconventionals and the Arctic, we argue the market will
increasingly attempt to assess relative technical risk and challenges.

Fig. 20: OMV, RDS & REP have a greater operatorship bias
Operatorship of 2013/14 growth projects, weighted by production
Fig. 21: While STL, BP & RDS are more OECD growth biased
OECD/non-OECD mix of 2013/14 growth, weighted by production

0%
20%
40%
60%
80%
100%
OMV Shell Repsol Total BP Statoil Eni BG Galp
O
p
e
r
a
t
o
r
s
h
i
p

o
f

2
0
1
3
/
1
4

g
r
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w
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p
r
o
j
s
Operator Non-operator
0%
20%
40%
60%
80%
100%
Statoil BP Shell Sector BG Total Eni Repsol OMV Galp
O
E
C
D

/

n
o
n
-
O
E
C
D

2
0
1
3
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1
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g
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OECD non-OECD
Nigeria: In absolute terms, Shell
remains the biggest producer of the
EU Oils in Nigeria through its 30%
interest in SPDC. However, in
2013/14 Shell has limited growth
projects in the country (just Bonga
North West).

11
Fig. 22: Largest single project in net volume terms as % of
total 2013/14 growth barrels sector average 20%

Source: Wood Mackenzie; Nomura estimates
Fig. 23: Assessing growth in the context of the dependency
to new start-ups versus project ramp-ups
%
Source: Company data, Wood Mackenzie, Nomura estimates

Fig. 24: Top 3 2014 projects for each company based on net incremental production versus 2012

Source: Wood Mackenzie, Company data, Nomura estimates

93%
45%
32%
25%
22%
20%
17% 17% 16%
14%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Galp OMV Repsol Shell BG Sector Total BP Statoil Eni
C
o
n
t
r
i
b
u
t
i
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n

o
f

l
a
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e
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n
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v
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p
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a
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%

o
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1
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g
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b
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l
s
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
0% 20% 40% 60% 80% 100%
2
0
1
2
-
1
4

p
r
o
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C
A
G
R

(
%
)
% 2013/14 growth barrels dependent on new-start-up's
Galp
Repsol
BP (ex-Russia)
Shell
Total
ENI
Statoil
OMV
BG
41%
Lower growth;
Higher risk
Higher growth;
Lower risk
Project Country Project Type Interest Operator
Net Volumes
(kboe/d)
% of total growth
bbls
% total 2012
production
Shell
Pearl GTL Qatar GTL 100% Shell 97 25% 3%
North Rankin 2 Australia LNG 21% Woodside Petroleum 54 14% 2%
Mars B US Deepwater 72% Shell 40 11% 1%
BP
North Rankin 2 Australia LNG 17% Woodside Petroleum 44 17% 2%
PSVM Angola Deepwater 27% BP 36 14% 2%
Skarv Norway Conventional Gas 24% BP 31 12% 1%
Total
Laggan Tormore UK Conventional Gas 80% Total 39 17% 2%
Kashagan Kazakhstan Conventional Oil 17% ENI 30 13% 1%
Utica US Shale/Tight Oil & Gas Various Various 28 12% 1%
Eni
J asmine UK Conventional Gas 33% ConocoPhillips 33 14% 2%
Kashagan Kazakhstan Conventional Oil 17% Eni 30 13% 2%
Yaro-Yakhinskoye Russia Conventional Gas 29% SeverEnergia 28 12% 2%
Statoil
Skarv Norway Conventional Gas 36% BP 47 16% 3%
Eagle Ford US Shale/Tight Oil & Gas Various Various 44 15% 2%
Gudrun Norway Conventional Gas 75% Statoil 42 15% 2%
BG Group
J asmine UK Conventional Gas 31% ConocoPhillips 30 22% 5%
Lula (BMS-11) Brazil Deepwater 25% Petrobras 29 21% 4%
Sapinhoa (BMS-9) Brazil Deepwater 30% Petrobras 24 18% 4%
Repsol
Kinteroni Peru Conventional Gas 54% Repsol 20 33% 6%
Mississippian Hz OIL US Shale/Tight Oil & Gas 100% Repsol 12 20% 4%
Sapinhoa (BMS-9) Brazil Deepwater 15% Petrobras 12 20% 4%
OMV
Latif Pakistan Conventional Gas 33% OMV 5 45% 2%
Mehar Pakistan Conventional Gas 59% OMV 4 34% 1%
Cherouq Tunisia Conventional Oil 50% OMV 3 22% 1%
Galp
Lula (BMS-11) Brazil Deepwater 7% Petrobras 8 93% 44%
Growth Volumes 2014

12
Converting growth into cash expansion
Macroeconomic volatility has contributed to the market viewing volume growth as a
proxy for underlying cash flow/earnings growth. We argue it is actually inflection points in
cash generation that are more important in changing investor perceptions. Many of the
Integrateds state their growth offers a premium cash flow/boe versus the base portfolio.
We agree, but would suggest many of the mature decline barrels within the base are
also relatively high margin this plus the impact of disposals and selective business
decisions around gas production mutes the extent of the rise in absolute E&P cash flows.

Fig. 25: Cash flow targets and guidance

Nomura macroeconomic assumptions: Brent - USD 105/bbl 2013, USD 100/bbl 2014, USD 95/bbl 2015+; WTI - USD 90/bbl 2013, USD 90/bbl 2014, USD 85/bbl 2015+; Henry
Hub - USD 4/mmbtu 2013, USD 4/mmbtu 2014, USD 5/mmbtu 2015.
Growth barrels offer a higher margin than base portfolio
A number of the group point not just to robust potential production growth rates, but
growth coming at a higher cash margin than the base portfolio bringing higher absolute
CFO generation and stronger oil price gearing. We agree in principle our analysis
(which leverages some of Wood Mackenzies upstream work) suggests new 2013/14
growth comes at an average CFO of USD 50/boe against a 2011 FAS 69 average of c.
USD 30/boe (a 65% uplift). This increase is despite forward estimates being based on a
slightly lower oil price USD 95/bbl normalised vs. a 2011 average of c. USD 110/bbl.
but some of the decline barrels are high margin too
Although we agree the new barrels offer a premium cash flow/boe, we argue investors
should be wary of directly extrapolating this through to total upstream and group cash
flows. The issue is there is a partial offset. The decline barrels within the mature part of
the Integrateds portfolios are in many cases also relatively high margin it is not
necessarily a simple case of mature barrels dropping out the portfolio at an implicit USD
35/boe and introducing new barrels at USD 50-60/boe at the other end. In Figure 29, we
have taken a selection of mature producing provinces such as the UK, Norway, US
offshore, and Nigeria and looked at the cash flows from each region under a simplified
proxy of one representative field per country for each of the large-cap companies.
Clearly there is a range of CFO/boes being produced around the base portfolio average
and the simple conclusion is that in many cases some of the mature declining barrels
have also been contributing a premium cash flow.
The risk is thus that the market overstates the future cash flow uplift through a
combination of not accounting for the premium nature of some of the mature barrels and
not fully adjusting for disposals and value-over-volume decisions around gas.

2012e 2013e 2014e
Shell 2012-15: +30-50% vs 2008-11
Brent: $80-100/bbl; improved US Gas and R&M from
2011
46,005 44,396 45,717
BP 2014: +50% vs 2011 Brent: $100/bbl 28,885 28,804 30,339
Total
2012-14: avg c. USD 30bn, 2015-17: avg
c. USD 40bn
Brent: $100/bbl 2013-17 21,707 21,490 21,328
Eni 2012-15: c. EUR 75bn
Brent: $90/bbl 2012-13; $85/bbl 2014-15; +2% pa
thereafter
16,408 17,531 18,349
Statoil - - 135,876 117,506 116,900
BG
No explicit cash flow target; revenue target
to exceed USD 35bn by 2015
Brent: $95/bbl 2013; $90/bbl 2014. US gas:
$3/mmbtu 2013; $4/mmbtu 2014; $5/mmbtu 2015.
2,648 2,639 -491
Repsol
2012-16 avg: CFO EUR 23.2bn; FCF EUR
1.2bn (at c. USD 100/bbl oil)
Brent: $95/bbl 2013; $97/bbl 2014; $100/bbl 2015.
US gas: $3.5/mmbtu 2013; $4/mmbtu 2014;
$4.5/mmbtu 2015.
5,204 4,639 5,171
OMV - - 3,513 3,420 3,557
Galp - Brent: $95/bbl 2012-16. 982 1,103 1,282
Cash flow guidance Macro assumptions
NMR CFO ex-WC estimates (rep ccy, m)

13
Fig. 26: CFO/boe from 2013 growth projects (USD)
CFO/boe (USD)
Source: Wood Mackenzie, Nomura research
Fig. 27: Avg CFO/boe from 2013/14 growth projects (USD)
CFO/boe (USD)

Fig. 28: Uplift in CFO/boe 2013/14 growth vs. 2012 base
CFO/boe increase (%)
Source: Wood Mackenzie, FAS 69 data, Nomura research
Fig. 29: But some of the decline bbls are also high margin
CFO/boe (USD)
Company conclusions Shell, ENI, BG and Galp the winners
In Figures 30-33, we translate this CFO/boe analysis into net incremental cash flow
growth from E&P projects in 2013 and then 2014 relative to 2012 E&P and group CFO
to assess potential upstream cash flow momentum and the extent of the uplift at the
group level. We measure cash flow growth on a net basis, taking gross incremental
operating cash flows from growth projects less the estimated effect of disposals and
other business decisions (for example, the return of Elgin Franklin in some cases and
lower US gas production in others). The main conclusions of this analysis are:

Shell delivery of a full ramp-up at Pearl is critical: In the context of a muted
sector average uplift in net upstream cash flows this year (avg 2% y-o-y growth over
2012 E&P CFO), a more normalised contribution from Pearl GTL 2013+leaves the
clearest opportunity of the majors at Shell (+9%). Ex-Pearl, the momentum is more
muted, underlining the importance of efficient operations from Pearl from 2013.

BP strong cash flows from growth barrels offset by disposals: BP's growth,
led by PVSM, Angola LNG and Skarv, offer one of the higher average CFO/boes of
the group. When translated into net E&P cash flow growth in 2013/14 though, we
estimate disposals offset and leave little aggregate benefit. Indirectly, the analysis
again highlights the importance of the return of BPs US GoM barrels, excluded from
this analysis as they do not represent new growth as such. If we were to include a
return of the GoM, we estimate an incremental USD 1.2bn CFO by 2014 and
adjusted net E&P CFO growth over 2012 group CFO of 5% (vs. 1%).

Total mid-ranking, with further longer-term growth potential: With its FY 2011
update in February, Total stated operating cash flow from 2011-15 start-ups should
be c. USD 50/boe at USD 100/bbl Brent. Our analysis is pretty consistent with this at
USD 47/boe for 2013/14 at USD 95/bbl Brent, leaving the net CFO increase from
58
51
49
49 48
46
43
41
27
24
0
10
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30
40
50
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70
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(
U
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Sector Avg =USD49/boe
58
53
50 50
47
46
41
38
28
23
0
10
20
30
40
50
60
70
2
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(
U
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)
Sector Avg =USD50/boe
125%
123%
93%
85%
76%
49%
40%
29%
-16%
-25% -40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
2
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4

C
F
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2
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1
2

b
a
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0
10
20
30
40
50
60
70
Shell BP Total Eni Statoil
C
F
O
/
b
o
e

(
U
S
D
)
2011 E&P avg 2013 selected decline bbls 2013 growth bbls
BP has indicated a y-o-y disposal
effect of 150kboe/d for 2013, the
majority of which we think relates to
relatively high margin barrels. We
estimate the cash flow impact to be in
excess of USD 2bn.

14
E&P growth projects in 2014 over 2012 E&P cash flow at a sector average 15%.
We argue there is potential for a further pickup at Total once projects including
Laggan Tormore, CLOV and Kashagan reach a full-year plateau, which is more
2015.

ENI volume growth coupled with increased E&P gearing makes ENI one of
the 'winners': A USD 46 CFO/boe from ENIs 2013/14 growth barrels is actually
slightly below the sector average. However, it offers decent volume growth potential
and ex-Snam is highly geared to E&P cash flows (especially while the contribution of
unregulated G&P remains lower). This leaves ENI one of the group's potential
winners in the context of the net uplift over group 2012 CFO at 14% (Figure 33).

Statoil 'value-over-volume' approach keeps upstream cash flow growth
around the sector average: The CFO/boe from Statoil's growth projects appear to
be above sector average, largely owing to the 'oily' bias of projects like Skarv,
Gudrun, the US onshore and CLOV. NCS disposals and lower US gas volumes are
a negative offset, but we think the 'value-over-volume' exchange of higher margin
growth versus lower margin bbls lost/deferred keeps the net benefit broadly in line
with the sector though we expect FCF to be squeezed by rising capex.

BG the key beneficiary in 2014 as volume growth resumes: With little growth
in 2013 now, we think BG is more in line with the sector this year on upstream
operating cash flow growth...but in 2014 the ramp-up of Sapinhoa (BM-S-9),
J asmine and the start of QCLNG (Australia) leaves BG with the strongest estimated
increase in net cash flows from upstream growth in 2014 as % of group CFO (20%).

Repsol strong volume growth, but relatively 'gasy': We think Repsols leading
10% CAGR 2012-14E volume growth is less impactful on a relative basis when
translated into operating cash flows. Net E&P cash flow growth increases at slightly
above the sector average ex-YPF, though a higher R&M bias means the benefit is
more muted at the group level (a below average 6% net increase in 2014 vs. 2012).

OMV an inflection appears more mid-decade: With Libyan volumes recovered,
we expect limited net E&P cash flow growth 2013/14 at OMV, with growth relatively
muted and more gas biased. Growth is more significant 2015+with Edvard Greig
and Aasta Hansteen (Norway), Schiehallion (UK) and possibly Bina Bawi
(Kurdistan). Redevelopments are ongoing in Romania they are small in isolation
and so do not screen in this analysis, but are important in maintaining production.

Galp cash flows set to grow in both E&P and R&M: Galp now offers multi-year
volume growth from Brazil at a greater discount to NAV than at times in the past. We
estimate net E&P CFO growth 2013/14 to be above sector average (particularly in
2014 at 35% vs. 2012 E&P CFO) and while this only translates into a 9% uplift over
2012 group cash flows (in line with the sector average) owing to Galp's relative
downstream bias, the difference is we expect downstream cash flows to grow too
(despite a cautious view on margins) as Galp's R&M upgrade projects take full effect
from 2013. In total, we estimate group CFO to grow by 31% by 2014 over 2012.

Fig. 30: Gross & net 2014E CFO from growth projects (USD)
Net =gross CFO - estimated decline +/ - disposals and other adjustments
Source: Wood Mackenzie, Nomura estimates
Fig. 31: Net E&P CFO growth in 2013E as % 2012 E&P CFO

-2,000
0
2,000
4,000
6,000
8,000
U
S
D
Gross incremental CFO from growth projects in 2014 vs. 2012
Net incremental CFO from growth projects in 2014 vs. 2012
9%
6%
6% 6% 6%
3%
2%
1%
-3%
-14%
-15%
-10%
-5%
0%
5%
10%
N
e
t

i
n
c
r
e
m
e
n
t
a
l

C
F
O

f
r
o
m

g
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p
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j
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t
s

i
n

2
0
1
3

a
s

%

2
0
1
2

E
&
P

C
F
O
Sector avg =2%
Repsol's gas growth projects through
2014 in South America are Margarita
(Bolivia), Kinteroni (Peru) and Perla
(Venezuela).

15
Fig. 32: Net E&P CFO growth in 2014E as % 2012 E&P CFO

Fig. 33: Net E&P CFO growth in 2014E as % of 2012 group
CFO
Implications for group cash flow forecasts and the cash cycle
Factoring in: 1) decline barrels; 2) a relatively cautious view on the contribution of the
downstream for the next couple of years; 3) disposals, and 4) a slightly lower oil price
assumption for 2014 (forward curve derived) of USD 100/bbl versus c. USD 110/bbl in
2012, we estimate sector group CFO in 2014 to only be some 3% above 2012.
Normalising the negative oil price delta at 2012 levels takes the uplift to 12%.
Looking at the cash cycle, we expect strategy update season early this year to point
once again to rising capex budgets selected names such as Statoil and OMV have
already alluded to this likelihood during 3Q results. As Figure 35 shows, this leaves the
cash cycle reasonably balanced post capex and dividends for 2013, under an assumed
USD 105/bbl Brent. From that organic starting point disposal programmes then bring
cash breakevens lower in several cases (notably at Total and BP) but still leave the
sector average breakeven including disposals in the region of USD 90/bbl and dividend
upside arguably relatively limited given wider macroeconomic uncertainty (though well
covered at 2.5x average cover).

Fig. 34: 2014E versus 2012 group cash flow comparatives
Sector increase of c. 12% at under flat normalised oil prices (USD)
Fig. 35: 2013E sources and uses of funds
USD m (Brent assumption USD 105/bbl)

35% 35%
26%
16% 16% 16%
15%
14%
1%
-2%
-10%
0%
10%
20%
30%
40%
N
e
t

i
n
c
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m
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a
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C
F
O

f
r
o
m

g
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o
w
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p
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o
j
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c
t
s

i
n

2
0
1
4

a
s

%

2
0
1
2

E
&
P

C
F
O
Sector avg =15%
20%
14%
13%
12%
11%
9%
8%
6%
1%
-2%
-5%
0%
5%
10%
15%
20%
25%
N
e
t

i
n
c
r
e
m
e
n
t
a
l

C
F
O

f
r
o
m

g
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w
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p
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j
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2
0
1
4

a
s

%

2
0
1
2

g
r
o
u
p

C
F
O
Sector average =10%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
Galp BG Eni BP Statoil Shell Total OMV Repsol
%

c
h
g

C
F
O

(
e
x
-
W
C
)

2
0
1
4

v
s

2
0
1
2
Under NMR assumptions Under flat 2012 oil prices
Avg under NMR assumptions Avg at flat 2012 oil prices
-40,000
-30,000
-20,000
-10,000
-
10,000
20,000
30,000
40,000
50,000
Shell BP Total ENI Statoil BG
Group
Repsol OMV Galp
U
S
D

m
CFO (ex WC &A&D) Capex
Dividends FCF (post dividends)

16
Updating production and earnings estimates

The table below shows all production and EPS changes for the group by company, for
the period 2012-14. The updates to our production profiles (primarily across the majors
and at Galp post BGs production update on Brazil) incorporate recent disposals (for
example, Usan in the case of Total), reports of potential delays at projects including
Kashagan, Elgin Franklin, J asmine and Angola LNG and uncertainty over the renewal of
the ADCO concession in the UAE for BP, Shell and Total where we now risk future
volumes post mid-2014 at 50% pending further clarity. In terms of other changes:

Shell Our model update incorporates: 1) the publishing of 3Q actuals, and; 2)
higher oil price assumptions for 2013/14 of USD 105/bbl and USD 100/bbl
respectively, reflecting forward prices and in line with the price deck used across the
rest of the peer group.

BP We have: 1) incorporated recent disposals such as the Yacheng gas field
(China) to KUPFEC, Sean (UK) to SSE and the package of UK North Sea assets
(including Devenick) to Taqa; 2) reflected the Macondo payment schedule of
USD 4.5bn agreed in November to resolve all criminal charges with the US DoJ and
claims by the SEC; 3) the assumption of a USD 5bn buy-back from 3Q 2013, with
BP having indicated it will activate buy-backs to offset dilution from the sale of TNK.

BG We lower earnings estimates by 11% for 2013 and 8% for 2014 through LNG,
partly reflecting a more conservative view on the contribution of Egypt. We now
assume LNG EBIT grows from USD 2.9bn in 2012 to USD 3.3bn this year
(previously USD 4.1bn).

Statoil We incorporate the recent US onshore acquisition of further (liquids rich)
acreage in the Marcellus.
In aggregate, sector earnings changes are -2% 2012E, -7% 2013E and -7% 2014E.

Fig. 36: Earnings and production changes; 2012-14E


2012E 2013E 2014E 2012E 2013E 2014E
RD Shell New EPS (c) 415.3 426.1 426.4 BG Group New EPS (USD) 1.35 1.37 1.57
Prior EPS (c) 425.4 466.5 452.6 Prior EPS (USD) 1.36 1.53 1.70
% Change -2% -9% -6% % Change -1% -11% -8%
New Production (kboe/d) 3,263 3,325 3,395 New Production (kboe/d) 660 658 711
Prior Production (kboe/d) 3,324 3,631 3,676 Prior Production (kboe/d) 660 655 711
% Change -2% -8% -8% % Change 0% 1% 0%
BP New EPS (c) 94.0 79.9 84.4 Repsol New EPS (EUR) 1.55 1.54 1.68
Prior EPS (c) 97.9 89.7 96.1 Prior EPS (EUR) 1.57 1.54 1.68
% Change -4% -11% -12% % Change -1% 0% 0%
% Change -1% -3% -2% % Change 0% 0% 0%
Total New EPS (EUR) 5.36 5.32 5.09 OMV New EPS (EUR) 4.72 4.51 4.82
Prior EPS (EUR) 5.37 5.48 5.27 Prior EPS (EUR) 4.78 4.69 4.89
% Change 0% -3% -3% % Change -1% -4% -1%
% Change 0% -3% -4% % Change 0% 0% 0%
ENI New EPS (EUR) 1.95 1.77 1.78 Galp New EPS (EUR) 0.44 0.61 0.69
Prior EPS (EUR) 2.01 1.95 2.03 Prior EPS (EUR) 0.44 0.64 0.76
% Change -3% -9% -12% % Change -1% -6% -8%
% Change -1% -2% -1% % Change 0% -21% -19%
Statoil New EPS (NKr) 16.76 16.31 15.97
Prior EPS (NKr) 17.01 16.95 16.03
% Change -1% -4% 0%
New Production (kboe/d) 1,793 1,776 1,828
Prior Production (kboe/d) 1,788 1,774 1,815
% Change 0% 0% 1%

17
Company analysis

Fig. 37: 2013/14 growth projects EU majors


Key Growth and Ramp-up projects for the Majors
Projects:
52
Project Country Project type
Start-up /
Ramp-up
Interest Operator
Total
production
(kboe/d)
Total
production
(kboe/d)
Total
production
(kboe/d)
2012 2013 2014
Shell
Pluto LNG Australia LNG 2012 21% Woodside Petroleum 15 24 25 282 424 420
Gumusut-Kakap Malaysia Deepwater 2012 33% Shell 1 12 29 20 580 571
Eagle Ford US Shale/Tight Oil & Gas 2012 Various Various 12 30 46 111 285 482
Caesar Tonga US Deepwater 2012 22% Anadarko 6 10 9 201 209 207
Pearl GTL Qatar GTL 2012 100% Shell 162 233 259 3,277 4,921 5,246
Kashagan Kazakhstan Conventional Oil 2013 17% North Caspian Operating Co 0 10 30 0 182 670
North Rankin 2 Australia LNG 2013 21% Woodside Petroleum 0 18 54 3 68 844
BC-10 Phase 2 Brazil Deepwater 2013 50% Shell 0 3 13 -109 -36 230
Majnoon FCP Iraq Conventional Oil 2013 45% Shell 0 30 16 -36 888 402
Perimian Basin US Shale/Tight Oil &Gas 2013 100% Shell 0 25 25 0 319 319
Mars B US Deepwater 2014 72% Shell 0 0 40 -39 -41 1,107
Cardamom US Deepwater 2014 100% Shell 0 0 19 -26 -32 516
Gorgon LNG Australia LNG 2014 25% Chevron 0 0 6 0 0 89
Bonga North West Nigeria Deepwater 2014 55% Shell 0 0 9 0 0 270
Sabah Gas Kebabangan Malaysia Deepwater 2014 30% Petronas Carigali 0 0 1 0 0 11
195 394 580 3,685 7,768 11,385
BP
Clochas Mavacola Angola Deepwater 2012 27% ExxonMobil 11 23 22 268 524 472
Rumaila Iraq Conventional Oil 2012 38% BP 30 40 50 878 668 840
Isabella (Galapagos) US Deepwater 2012 67% Noble Energy 4 11 13 96 234 282
Santiago & Santa Cruz (Galapagos) US Deepwater 2012 47% Noble Energy 3 8 10 91 174 176
Angola LNG Angola LNG 2013 14% Chevron 0 15 25 134 164 330
PSVM Angola Deepwater 2013 27% BP 0 24 36 631 588 860
Skarv Norway Conventional Gas 2013 24% BP 0 26 31 0 558 719
North Rankin 2 Australia LNG 2013 17% Woodside Petroleum 0 15 44 2 55 684
In Amenas Compression Algeria Conventional Gas 2013 46% In Amenas J V 0 11 12 161 181 197
Kinnoull UK Conventional Oil 2014 77% BP 0 0 21 0 0 673
Sunrise Canada Heavy Oil 2014 50% Husky Energy 0 0 2 0 0 23
Mars B US Deepwater 2014 29% Shell 0 0 16 -15 -16 438
Chirag Oil Azerbaijan Conventional Oil 2014 36% BP 0 0 8 0 0 254
CLOV Angola Deepwater 2014 17% Total 0 0 9 0 0 219
Na Kika Phase 3 US Deepwater 2014 50% BP 0 0 9 0 -15 264
58 191 330 2,324 3,254 6,634
Total
Chinook US Deepwater 2012 33% Petrobras 2 3 6 30 72 177
Bongkot South Thailand Conventional Gas 2012 33% PTTEP 12 21 21 164 270 256
Sulige China Shale/Tight Oil & Gas 2012 49% Petrochina 3 13 18 33 142 198
Islay UK Conventional Gas 2012 100% Total 11 15 8 254 223 49
Halfaya Iraq Conventional Oil 2012 19% PetroChina 7 9 10 236 297 287
Utica US Shale/Tight Oil & Gas 2012 Various Various 5 18 33 66 257 478
South MahakamPh. 1&2 Indonesia Conventional Gas 2012 50% Total 0 17 15 0 336 250
Kashagan Kazakhstan Conventional Oil 2013 17% North Caspian Operating Co 0 9 30 0 180 663
Anguille redev. Gabon Conventional Oil 2013 58% Total 0 11 12 0 274 174
OML 58 Upgrade Nigeria Conventional Gas 2013 40% Total 0 4 13 -6 -5 38
Laggan Tormore UK Conventional Gas 2014 80% Total 0 0 39 0 0 899
West Franklin Ph2 UK Conventional Gas 2014 46% Total 0 0 6 0 -1 136
Block 15/06 East Hub Angola Deepwater 2014 15% Eni 0 0 3 0 0 61
Ofon 2 Nigeria Conventional Gas 2014 40% Total 0 0 5 -5 -5 50
Block 15/06 West Hub Angola Deepwater 2014 15% Eni 0 0 3 0 0 74
39 136 271 904 2,205 4,706
Eni
MLE & CAFC Algeria Conventional Gas 2012 75% Eni 18 30 31 325 466 462
Samburgskoye Russia Conventional Gas 2012 29% ServerEnergia 9 21 30 38 102 217
Clochas Mavacola Angola Deepwater 2012 20% Exxon 8 18 16 201 401 368
Zubair Iraq Conventional Oil 2012 33% Eni 8 14 17 228 371 450
Kashagan Kazakhstan Conventional Oil 2013 17% Eni 0 9 30 0 180 663
El Merk Algeria Conventional Oil 2013 12% Anadarko 0 14 15 0 318 332
Yaro-Yakhinskoye Russia Conventional Gas 2013 29% SeverEnergia 0 6 28 -1 48 157
J asmine UK Conventional Gas 2013 33% ConocoPhillips 0 11 33 0 577 571
Block 15/06 West Hub Angola Deepwater 2014 35% Eni 0 0 8 0 0 173
Goliat Norway Conventional Oil 2014 65% Eni 0 0 10 0 -5 266
Block 15/06 East Hub Angola Deepwater 2014 35% Eni 0 0 7 0 0 144
West Franklin Ph2 UK Conventional Gas 2014 22% Total 0 0 3 0 0 64
J unin 5 Venezuela Heavy Oil 2014 40% PetroJ unin 0 0 8 0 0 34
Perla Venezuela Conventional Gas 2014 33% Cardon IV 0 0 8 0 0 23
44 137 271 923 2,622 4,317
Incremental CFO 2014 over 2012:
$19.2bn
Incremental Growth bbls 2014
over 2012: 1.1mmboe/d
2012 2013 2014 CFO ($mn)

18
Fig. 38: 2013/14 growth projects - mid-cap Integrateds

Note: Repsol and Galps stakes in Brazil stated on an economic basis, net of Sinopecs share.

Key Growth and Ramp-up projects for the Mid-cap Integrateds
Projects:
42
Project Country Project type
Start-up /
Ramp-up
Interest Operator
Total
production
(kboe/d)
Total
production
(kboe/d)
Total
production
(kboe/d)
2012 2013 2014
Statoil
Bakken tight oil US Shale/Tight Oil &Gas 2012 Various Various 27 40 49 545 679 802
Three Forks tight oil US Shale/Tight Oil &Gas 2012 Various Various 10 15 19 223 288 352
Caesar Tonga US Deepwater 2012 24% Anadarko 8 11 11 216 235 232
Skuld Norway Conventional Oil 2012 39% Statoil 3 30 25 107 687 319
Clochas Mavacola Angola Deepwater 2012 13% ExxonMobil 5 12 11 134 262 236
Marulk Norway Conventional Gas 2012 50% Eni 9 13 13 169 166 117
Visund South Norway Conventional Gas 2012 53% Statoil 1 2 2 -5 17 16
Skarv Norway Conventional Gas 2013 36% BP 0 40 47 0 846 1,091
PSVM Angola Deepwater 2013 13% BP 0 12 18 0 291 429
Stjerne Norway Conventional Oil 2013 49% Statoil 0 14 12 0 308 155
Hyme Norway Conventional Oil 2013 35% Statoil 0 4 7 0 116 152
Visund North Norway Conventional Oil 2013 53% Statoil 0 2 6 0 47 174
Svalin Norway Conventional Oil 2013 57% Statoil 0 2 19 0 2 19
Big Foot US Deepwater 2014 28% Chevron 0 0 3 0 0 75
Gudrun Norway Conventional Gas 2014 75% Statoil 0 0 42 0 0 847
Goliat Norway Conventional Oil 2014 35% Eni 0 0 5 0 -3 143
St Malo US Deepwater 2014 22% Chevron 0 0 1 0 0 0
J ack US Deepwater 2014 25% Chevron 0 0 1 0 0 0
Valemon Norway Conventional Gas 2014 54% Statoil 0 0 5 0 0 97
78 237 368 1,578 4,410 6,327
BG Projects
Lula (BMS-11) Brazil Deepwater 2012 25% Petrobras 33 39 62 539 582 836
Margarita Ph1 &2 Bolivia Conventional Gas 2012 38% Repsol 13 15 18 111 103 113
Bongkot South Thailand Conventional Gas 2012 22% PTTEP 8 14 14 109 180 171
Gaupe Norway Conventional Gas 2012 60% BG 7 10 8 168 132 78
Sapinhoa (BMS-9) Brazil Deepwater 2013 30% Petrobras 0 8 24 0 141 457
J asmine UK Conventional Gas 2013 31% ConocoPhillips 0 10 30 0 534 528
Starfish Trinidad &Tobago Conventional Gas 2013 50% BG 0 3 7 0 21 58
Cernambi (BMS-11) Brazil Deepwater 2014 25% Petrobras 0 0 2 0 0 10
QCLNG Australia LNG 2014 50% BG 0 0 8 -28 -62 216
WDDM Ph 9 Egypt Conventional Gas 2014 50% Burullus 0 0 6 0 0 47
Knarr Norway Conventional Oil 2014 45% BG 0 0 17 0 0 347
West Franklin Ph2 UK Conventional Gas 2014 14% Total 0 0 2 0 0 42
61 99 198 899 1,632 2,904
Repsol Projects
Margarita Ph1 &2 Bolivia Conventional Gas 2012 38% Repsol 13 15 18 111 103 113
Mississippian Hz OIL US Shale/Tight Oil & Gas 2012 100% Repsol 3 9 15 50 144 243
Lubina Spain Conventional Oil 2012 75% Repsol 1 4 2 27 81 50
Montanazo Spain Conventional Oil 2012 100% Repsol 1 2 1 19 34 13
Sapinhoa (BMS-9) Brazil Deepwater 2013 15% Petrobras 0 4 12 0 71 229
Carabobo Venezuela Heavy Oil 2013 11% Petrocarabobo 0 1 2 0 3 10
Kinteroni Peru Conventional Gas 2013 54% Repsol 0 19 20 0 119 121
Perla Venezuela Conventional Gas 2014 33% Cardon IV 0 0 8 0 0 23
17 52 77 207 555 802
OMV Projects
Latif Pakistan Conventional Gas 2013 33% OMV 0 4 5 0 22 31
Cherouq Tunisia Conventional Oil 2013 50% OMV 0 3 3 0 47 46
Mehar Pakistan Conventional Gas 2013 59% OMV 0 3 4 0 17 23
0 10 12 0 86 100
Galp Projects
Lula (BMS-11) Brazil Deepwater 2012 7% Petrobras 9 11 17 216 233 334
Cernambi (BMS-11) Brazil Deepwater 2014 7% Petrobras 0 0 1 0 0 4
9 11 18 216 233 338
Incremental Growth bbls 2014
over 2012: 0.5mmboe/d
Incremental CFO 2014 over 2012:
$7.6bn
2012 2013 2014 CFO ($mn)

19

Fig. 39: 2013E P/E multiples

Fig. 40: 2013E EV/DACF


Fig. 41: 2013E FCF yield

Fig. 42: 2012E dividend yield


Fig. 43: 2013E EV/capital employed

Fig. 44: Discount to SOTP


Fig. 45: 2012-16E production growth

Fig. 46: 2012E gearing (ND/E)


21.1x
12.2x
11.4x
11.2x
9.3x 9.2x
8.9x
8.3x
7.8x
6.7x
-1x
1x
3x
5x
7x
9x
11x
13x
15x
Galp BG Eni Repsol Statoil BP Sector Shell Total OMV
12.2x
9.9x
7.0x
5.7x
5.4x 5.2x 5.2x 5.1x
4.8x
4.6x
0x
2x
4x
6x
8x
10x
12x
14x
Galp BG Repsol BP Eni Total Sector Shell Statoil OMV
6.5%
6.2%
4.6%
3.8%
3.5%
1.8%
0.7%
0.6%
-0.7%
-6.1%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
OMV Eni Shell BP Sector Repsol Total Statoil Galp BG
5.8%
5.5%
5.0% 5.0%
4.8%
4.6% 4.6%
3.9%
2.2%
1.5%
0%
1%
2%
3%
4%
5%
6%
7%
Total Eni Shell Sector Repsol BP Statoil OMV Galp BG
1.4x
1.3x
1.2x 1.2x 1.2x
1.2x 1.1x
1.1x
1.0x
0.8x
0.0x
0.2x
0.4x
0.6x
0.8x
1.0x
1.2x
1.4x
1.6x
BG Galp Statoil Shell Eni Total Sector BP Repsol OMV
-47%
-35%
-34%
-26% -26% -26%
-24%
-20%
-18% -18%
-50%
-40%
-30%
-20%
-10%
0%
BG Galp Statoil Shell OMV Sector Total ENI BP Repsol
43.9%
10.6%
8.1%
3.5%
3.2%
3.0%
2.3% 2.3%
1.5%
0.2%
-3%
-1%
1%
3%
5%
7%
9%
11%
13%
15%
Galp Repsol BG OMV Eni Sector Statoil Shell Total BP
52%
34%
29%
28%
26%
24%
23% 23%
21%
10%
0%
20%
40%
60%
Repsol BG Statoil OMV ENI BP Total Sector Galp Shell

20
Fig. 47: Integrateds 2012 price performance
USD terms
Source: Datastream
Fig. 48: 2012 performance/local indices
USD terms
Source: Datastream

Fig. 49: Integrateds price performance 1H 2012
USD terms
Source: Datastream
Fig. 50: Integrateds price performance 2H 2012
USD terms
Source: Datastream

Fig. 51: 1H 2012 performance/local index
USD terms
Source: Datastream
Fig. 52: 2H 2012 performance/local index
USD terms
Source: Datastream

Fig. 53: 1H 2012 sub-sector performance
USD terms
Source: Datastream
Fig. 54: 2H 2012 sub sector performance
USD terms
Source: Datastream

19%
17%
16%
12%
5%
0%
-3%
-4% -4%
-7%
-23%
-29%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
OMV EU
Market
ENI MOL Galp Tot al St at oil BP Oil
sect or
Shell BG Repsol
2
0
1
2

s
h
a
r
e

p
r
i
c
e

p
e
r
f
o
r
m
a
n
c
e

(
U
S
D
)
8%
-2%
-5%
-8%
-13% -13%
-16%
-18%
-18%
-26%
-31%
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
2
0
1
2

r
e
l
a
t
i
v
e

p
r
i
c
e

p
e
r
f
o
r
m
a
n
c
e

2%
0% 0%
-1%
-3%
-5%
-8%
-8%
-9%
-13% -14%
-46%
-50%
-40%
-30%
-20%
-10%
0%
10%
30%
22%
16%
15% 14% 14% 11%
5%
5%
4% 1%
-19%
-30%
-20%
-10%
0%
10%
20%
30%
40%
13%
4%
-1%
-5%
-8%
-10%
-11% -11%
-13%
-32% -35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
Y
T
D
r
e
l
a
t
iv
e

p
r
ic
e

p
e
r
f
o
r
m
a
n
c
e

9%
3%
-3%
-5% -5%
-7% -7%
-8%
-13%
-27%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
Y
T
D

r
e
l
a
t
i
v
e

p
r
i
c
e

p
e
r
f
o
r
m
a
n
c
e

15.3%
7.4%
3.1%
0.9%
-6.2%
-6.8%
-8.1%
-9.3%
-10%
-5%
0%
5%
10%
15%
20%
24.2%
15.5% 15.1%
6.7%
5.6%
4.5% 4.4%
2.0%
0%
5%
10%
15%
20%
25%
30%

21
Fig. 55: EU Integrated Oils: Summary valuation sheet

Rating
2011 2012E 2013E 2014E 2011 2012E 2013E 2014E
BP Neutral 449.0 455.0 1% 6.3x 7.8x 9.2x 8.7x 1.2x 1.2x 1.0x 0.9x
Shell Buy 2,201 2,500 14% 8.8x 8.5x 8.3x 8.3x 1.2x 1.1x 1.0x 0.9x
Eni Buy 18.84 19.00 1% 8.3x 10.1x 11.4x 11.3x 1.0x 1.1x 1.1x 1.1x
Total Neutral 39.39 40.00 2% 7.7x 7.5x 7.8x 8.2x 1.3x 1.2x 1.1x 1.1x
Statoil Reduce 141.0 145.0 3% 8.8x 8.8x 9.3x 9.5x 1.6x 1.4x 1.3x 1.2x
Repsol Neutral 16.00 15.50 (3%) 14.0x 10.8x 11.2x 10.2x 1.1x 0.8x 0.8x 0.8x
BG Buy 1,033 1,600 55% 16.2x 12.4x 12.2x 10.6x 1.6x 1.1x 1.0x 0.8x
OMV Neutral 29.00 27.00 (7%) 8.2x 6.2x 6.7x 6.3x 0.7x 0.6x 0.6x 0.5x
Galp Buy 12.05 15.00 24% 47.4x 28.2x 21.1x 18.5x 4.0x 1.5x 1.4x 1.4x
Sector Avg. na na na 10% 8.0x 8.4x 8.9x 8.8x 1.2x 1.1x 1.1x 1.0x
Majors Avg. na na na 6% 7.9x 8.4x 8.9x 8.8x 1.2x 1.1x 1.0x 1.0x
2011 2012E 2013E 2014E 2011 2012E 2013E 2014E 2011 2012E 2013E 2014E
BP 171,597 174,464 170,910 165,757 3.7x 4.2x 4.6x 4.3x 4.2x 5.3x 5.7x 5.3x
Shell 245,616 240,440 236,998 232,587 4.1x 3.7x 3.6x 3.5x 5.9x 5.2x 5.1x 4.9x
Eni 94,235 101,715 90,751 89,154 3.6x 3.5x 3.2x 3.1x 5.3x 6.6x 5.4x 5.0x
Total 145,412 141,640 141,726 143,551 3.2x 3.1x 3.3x 3.3x 5.1x 4.9x 5.2x 5.3x
Statoil 96,593 95,050 93,898 97,361 2.4x 2.2x 2.2x 2.4x 6.9x 6.0x 4.8x 5.0x
Repsol 64,704 42,658 45,309 45,829 5.9x 4.8x 4.9x 4.6x 7.3x 6.6x 7.0x 6.5x
BG 90,647 75,313 75,933 80,636 8.1x 6.1x 6.3x 5.8x 12.2x 9.8x 9.9x 9.4x
OMV 22,953 21,338 20,598 19,908 4.0x 3.1x 3.3x 3.1x 4.9x 4.2x 4.6x 4.4x
Galp 20,937 16,485 15,362 15,775 19.7x 12.1x 9.3x 8.1x 21.4x 16.3x 12.2x 10.9x
Sector Avg. 154,827 151,612 148,834 147,596 3.6x 3.5x 3.5x 3.4x 5.4x 5.4x 5.2x 5.1x
Majors Avg. 183,671 182,621 178,788 175,959 3.7x 3.7x 3.7x 3.6x 5.3x 5.4x 5.3x 5.1x
2011 2012E 2013E 2014E 2011 2012E 2013E 2014E 2011 2012E 2013E 2014E
BP ($) 21,658 17,888 15,174 15,732 114.6 94.0 79.9 84.4 4.9% (17.9%) (15.1%) 5.6%
Shell ($) 24,764 25,876 26,165 26,185 398.0 415.3 426.1 426.4 35.5% 4.4% 2.6% 0.1%
Eni 6,987 7,070 6,391 6,406 1.93 1.95 1.77 1.78 1.7% 1.2% (9.3%) 0.6%
Total 11,424 12,137 12,055 11,545 5.06 5.36 5.32 5.09 16.0% (2.3%) (3.4%) (4.2%)
Statoil 50,788 53,396 51,954 50,883 15.9 16.8 16.3 16.0 26.3% 5.1% (2.7%) (2.1%)
Repsol 1,923 1,859 1,965 2,228 1.58 1.55 1.54 1.68 (5.0%) (1.7%) (0.8%) 9.1%
BG ($) 4,632 4,582 4,593 5,274 1.36 1.35 1.37 1.57 15.1% (0.9%) 1.4% 14.8%
OMV 1,067 1,542 1,477 1,577 3.41 4.72 4.51 4.82 (8.2%) 38.3% (4.4%) 6.8%
Galp 251 367 504 576 0.30 0.44 0.61 0.69 (16.0%) 35.1% 33.5% 14.4%
Sector Avg. na na na na na na na na 18.9% (1.2%) (4.0%) 0.6%
Majors Avg. na na na na na na na na 18.9% (2.9%) (4.7%) 0.6%
2011 2012E 2013E 2014E 2011 2012E 2013E 2014E 2011 2012E 2013E 2014E
BP ($) 28,967 26,056 28,388 29,939 21,518 6,316 5,304 5,339 15.8% 4.5% 3.8% 3.9%
Shell ($) 36,747 46,704 46,528 46,107 14,037 15,735 10,620 12,107 6.2% 6.9% 4.6% 5.3%
Eni 14,394 14,026 17,310 18,162 3,170 3,692 4,500 4,452 5.5% 5.2% 6.2% 6.1%
Total 19,536 21,707 21,490 21,328 3,325 2,391 688 526 3.8% 2.6% 0.7% 0.6%
Statoil 111,463 112,796 117,506 116,945 39,066 36,071 2,521 341 8.8% 8.0% 0.6% 0.1%
Repsol 4,120 4,867 4,640 5,172 145 1,667 500 1,040 0.4% 6.5% 1.8% 3.6%
BG ($) 6,736 7,846 7,988 8,912 (2,990) (2,771) (3,412) (2,788) (4.0%) (4.9%) (6.1%) (5.0%)
OMV 2,514 3,634 3,420 3,557 2,057 1,178 641 713 22.6% 12.3% 6.5% 7.2%
Galp 346 537 1,090 1,318 (238) (112) (77) 82 (2.0%) (1.1%) (0.7%) 0.8%
Sector Avg. na na na na 19,099 13,311 7,587 7,236 8.4% 5.6% 3.5% 3.7%
Majors Avg. na na na na 11,913 8,803 6,292 6,847 7.9% 5.1% 3.8% 4.1%
2011 2012E 2013E 2014E 2011 2012E 2013E 2014E 2011 2012E 2013E 2014E
BP (c) 29.0 34.0 37.0 40.5 4.0% 4.6% 5.0% 5.5% 25% 36% 46% 48%
Shell ($) 1.68 1.72 1.76 1.81 4.8% 5.0% 5.1% 5.3% 42% 41% 41% 43%
Eni 1.04 1.08 1.10 1.12 6.5% 5.5% 5.4% 5.5% 55% 55% 62% 63%
Total 2.28 2.34 2.36 2.40 5.9% 5.8% 5.7% 5.8% 45% 44% 44% 47%
Statoil 6.50 6.50 6.63 6.83 4.7% 4.6% 4.7% 4.8% 41% 39% 41% 43%
Repsol 1.16 0.80 0.80 0.80 5.2% 4.8% 4.7% 4.7% 72% 51% 52% 48%
BG (c) 23.8 24.5 25.2 26.0 1.1% 1.5% 1.5% 1.6% 17% 18% 18% 17%
OMV 1.10 1.15 1.15 1.18 3.9% 3.9% 3.8% 3.9% 32% 24% 25% 24%
Galp 0.20 0.27 0.33 0.38 1.4% 2.2% 2.6% 3.0% 66% 61% 54% 55%
Sector Avg. na na na na 5.0% 5.0% 5.2% 5.4% 40% 42% 45% 47%
Majors Avg. na na na na 5.1% 5.2% 5.3% 5.5% 41% 43% 46% 48%
2011 2012E 2013E 2014E 2011 2012E 2013E 2014E 2011 2012E 2013E 2014E
BP ($) 30,146 29,095 21,171 24,381 26.8% 24.0% 15.1% 16.4% 3,454 3,321 3,123 3,173
Shell ($) 25,883 19,345 14,583 10,546 15.1% 10.2% 7.2% 4.8% 3,215 3,263 3,325 3,395
Eni 27,958 16,253 13,154 12,694 46.2% 26.1% 20.3% 18.7% 1,581 1,690 1,736 1,810
Total 17,507 17,416 18,449 20,234 25.2% 23.1% 22.5% 23.0% 2,346 2,314 2,334 2,400
Statoil 117,846 94,080 104,168 124,950 41.3% 29.1% 29.3% 32.4% 1,650 1,793 1,776 1,828
Repsol 15,717 12,219 12,323 11,867 64.6% 51.7% 48.8% 43.4% 794 330 360 401
BG ($) 11,536 11,184 12,895 17,038 38.9% 33.8% 35.0% 41.3% 642 660 658 711
OMV 4,486 4,041 3,562 3,010 33.3% 27.5% 21.9% 16.7% 288 305 306 316
Galp 3,504 1,448 1,845 2,109 119.1% 21.2% 25.8% 28.1% 12 18 22 37
Sector Avg. na na na na 35.9% 22.5% 23.9% 21.7% 2,615 2,629 2,617 2,679
Majors Avg. na na na na 24.8% 18.7% 14.3% 13.6% 2,842 2,838 2,826 2,891
EV ($) EV/EBITDA EV/DACF($)
Pri ce
(Local)
Target
Price
TP Upside
P/E ($) P/BV ($)
Adjusted Net Income (Local) Adjusted EPS (Local) EPS Growth
CFO (Local) FCF(Local) FCF Yiel d
Dividend per Share (Local) Dividend Yield Payout Ratio
Net Debt (Local ) Gearing (Net Debt/Equity) Production (kboe/d)

22
RD Shell (Buy, TP 2,500p, 19% potential TSR)
2012 was disappointing in terms of delivery. The ramp-up of Pearl GTL was six months
late, the start-up of the Port Arthur refinery expansion deferred alongside drilling in
Alaska, while a failed bid for Cove Energy and lower-than-expected dividend increase
did little to brighten investor sentiment. The positives (and arguably the concerns) are
well known. Shell ticks the boxes on its management quality, resource base, capacity to
operate, financial resilience and ability to deliver a consistent dividend policy through a
range of macroeconomic conditions. At the same time, we believe that Shell will spend
through the cycleit needs to just to stand still. So why remain buyers? 1) We think full
upside from Pearl is yet to come through arguably there is 50-100kboe/d of upside
relative to 2012; 2) inexpensive valuation for its characteristics, and 3) Shells relative
defensiveness. Within a Big Oil in transition thesis Shell is further along the path than its
peers. Trading in line with the group at a 2013E P/E of 8.3x and an EV/DACF of 5.1x, we
see potential for a modest re-rating, particularly if we see a negative oil price correction.
Key issues/catalysts
Pearl GTL: Guidance was for full operational capacity on both trains by Y/E 2012. We
estimate y-o-y incremental production from Pearl this year could be 75kboe/d. Coupled
with greater output of base oils (higher margin), 2013 could see incremental CFO from
this project in the order of USD 1.0bn-1.5bn dependent on macroeconomic conditions.
Production: Shell operated projects contributing to 2013 growth are Pearl and an early
phase of Gumusut Kakap (Malaysia). There should also be contributions from Kashagan,
a continued ramp-up from the US liquid-rich shales and Woodsides Pluto and North
Rankin projects. On underlying decline, guidance is 4-6% pa ex the tight gas portfolio.
Capex: 4Q capex is likely play catch-up, but 2012 should still be light vs. guidance of
USD 32bn organic. The four-year plan on capex is c. USD 125bn-130bn. It implies
organic capex for the rest of the period at c. USD 34bn-35bn per annum.
Disposals: Guidance has been for c. USD 2bn-3bn pa and that is what we carry.
However, we still see scope for a more aggressive approach, starting possibly with the
sale of the rest of Shells Woodside stake. 2012 disposals aggregated some USD 6bn.
Cash return: Shell may well pre-announce the 1Q 2013 dividend with FY results on 31
J anuary. Management refers to measured affordable steps; we estimate a 1c/sh
increase to 44c/sh.
US downstream: The 325kb/d Port Arthur expansion is expected onstream again early
this year, after a fire last summer during commissioning. We expect an earnings pickup,
but understand the cash impact will be muted initially as the J V pays down debt from
project financing. Elsewhere, we expect more on strategy from a new downstream head
(Van Beurden) in a division CEO Voser recognises has underperformed in recent years.
China unconventional gas: Shell has indicated China remains a focus region and plans
20 wells for 2013 versus 24 wells drilled over the 2010-12 period.
Exploration: Focus is on Alaska. However, several other areas of interest remain with
French Guinea (Priodontes spudded recently), US GoM (follow-up on Appomattox and
Vito), subsalt Gabon, Benin, Brazil (BM-S-54), China, Albania, South Africa and Qatar.

Fig. 56: RDS Key valuation metrics

Fig. 57: RDS three-year rel. performance vs. EU Oils (USD)

Metric 2012E 2013E 2014E 2015E
PE ($) 8.5x 8.3x 8.3x 8.3x
EV/DACF ($) 5.2x 5.1x 4.9x 4.8x
FCF Yield 6.9% 4.6% 5.3% 5.4%
Div. Yield 5.0% 5.1% 5.3% 5.5%
Adj. EPS ( c ) 415.3x 426.1x 426.4x 424.4x
Production
(kboe/d)
3,263 3,325 3,395 3,430
-10%
0%
10%
20%
30%
40%
50%
J an-10 J ul-10 J an-11 J ul-11 J an-12 J ul-12 J an-13
Al aska: After failing to get the
necessary approvals on the
containment system and the weather
window closing, Shell was limited to
drilling a number of top holes last
year. Questions now remain as to
whether Shell will be able to execute
on 2013 forward plans if the drillship
cannot be repaired or replaced. The
original plans were for a campaign in
the Chukchi Sea to test the Burger
prospect and to drill the Sivulliq and
Torpedo prospects in the Beaufort
Sea.
Elsewhere on cash return, we
forecast Shell will continue to buy
back shares on the B line in order to
offset the dilution for the scrip. The
buy-back is limited to 25% of ADV,
which implies c. USD 25m-30m per
day. As of 3Q results, the CFO
indicated Shell had not yet been able
to discuss any revised fiscal terms
with a new Dutch government in order
to begin a buy-back on the A line.

23
Fig. 58: RD Shell financial summary: 2011-2016E


Assumptions 2011 2012E 2013E 2014E 2015E 2016E
Brent ($/bbl) 111.3 111.5 105.0 100.0 95.0 95.0
US composite gas price ($/mbtu) 4.01 2.74 4.00 4.00 5.00 5.00
/$ average 1.60 1.59 1.60 1.60 1.60 1.60
/$ average 1.38 1.29 1.25 1.25 1.25 1.25
Production (kboe/d) 3,215 3,263 3,325 3,395 3,430 3,576
Clean Income Statement, US$ m 2011 2012E 2013E 2014E 2015E 2016E
Upstream 20,600 21,067 22,159 21,989 21,576 21,246
-Integrated Gas 6,418 9,394 9,952 10,145 10,687 10,253
Downstream 4,274 5,305 4,417 4,529 4,731 4,783
-Oil Products 2,201 3,789 3,215 3,441 3,636 3,680
-Chemicals 2,073 1,516 1,201 1,087 1,095 1,104
Operating Segments 24,874 26,372 26,575 26,518 26,307 26,029
Corporate ex-currency 140 -193 54 131 213 289
Minority Interest -250 -303 -465 -464 -460 -456
Adj CCS Profit 24,764 25,876 26,165 26,185 26,060 25,863
Currency exchange gains/(losses) -77 155 0 0 0 0
Special items 3,938 191 0 0 0 0
Rep CCS Profit 28,625 26,222 26,165 26,185 26,060 25,863
CCS Adjustments 2,293 192 -408 0 -200 0
Net Income 30,918 26,414 25,757 26,185 25,860 25,863
Per share data 2011 2012E 2013E 2014E 2015E 2016E
No. of shares (avg) 6,131 6,141 6,141 6,141 6,141 6,141
Adj CCS EPS ($) 3.98 4.15 4.26 4.26 4.24 4.21
DPS ($, net) 1.68 1.72 1.76 1.81 1.87 1.92
CC Adj EPS (p) 248.5 262.1 266.3 266.5 265.2 263.2
DPS (p, net) 105.5 108.1 110.0 113.3 116.7 120.2
Clean Cash Flow, US$ m 2011 2012E 2013E 2014E 2015E 2016E
Net income 30,918 26,414 25,757 26,185 25,860 25,863
Minority Interest 250 303 465 464 460 456
DD&A 13,228 15,095 17,598 18,658 19,178 20,270
Exploration expense 1,462 2,113 800 800 800 800
Working capital -6,471 876 1,908 0 200 0
Other -2,640 1,904 0 0 0 0
Cash Flow from Operations 36,747 46,704 46,528 46,107 46,498 47,389
Disposals 7,080 5,352 3,000 3,000 3,000 3,000
Other -929 9 0 0 0 0
Total Sources of Funds 42,898 52,065 49,528 49,107 49,498 50,389
Capex -29,181 -30,093 -34,000 -34,000 -34,000 -35,000
Acquisitions 0 -5,550 0 0 0 0
Dividends -6,877 -7,648 -7,536 -7,749 -7,982 -8,221
Share purchases -1,106 -1,850 -3,230 -3,321 -3,421 -3,523
Total Uses of Funds -37,164 -45,140 -44,765 -45,070 -45,403 -46,745
Cash surplus / (deficit) 5,734 6,925 4,762 4,036 4,095 3,644
Change in minority 8 -2 0 0 0 0
FX / other -737 -385 -0 0 0 -0
Decrease/(Increase) in Net Debt 5,005 6,538 4,762 4,036 4,095 3,644
Balance Sheet, US$ m 2011 2012E 2013E 2014E 2015E 2016E
Cash and Cash Equivalents 11,292 18,839 18,839 18,839 18,839 18,839
Net Debt 25,883 19,345 14,583 10,546 6,451 2,807
Equity 171,003 188,973 203,921 218,979 233,378 247,436
Capital Employed 196,886 208,318 218,504 229,525 239,829 250,242
Net Debt / Equity 15.1% 10.2% 7.2% 4.8% 2.8% 1.1%
ROACE 13.4% 13.3% 12.5% 11.9% 11.3% 10.7%

24
BP (Neutral, TP 455p, 6% potential TSR)
We can see the growing attraction of owning BP for some investors. It remains one of
the more event driven names in the group. The likelihood of a settlement with the US
DoJ is increasingly being priced in following the Transocean settlement, while the
completion of the sale of TNK-BP in 1H should prompt a meaningful share buy-back.
The sticking points for us in turning more positive are: 1) Earnings risk we think
production numbers remain too optimistic in spite of recent guidance on the profile of the
high margin barrels (UK, Angola, Azerbaijan and US GoM). Our 2013 EPS estimates
are some 15% below consensus; 2) Timing it is increasingly clear the operational and
financial turnaround will be realised only in 2014; 3) The financial framework beyond
2014. A 50% increase in CFO is in market numbers. With capex at c. USD 24bn and a
dividend commitment of c. USD 6.5bn, BP has little underlying change at USD 100/bbl
oil pre-disposals. The upstream day last month was welcome, but it missed crucially, in
our view, in terms of providing detail on the long-term prize around cash generation
(and/or how cash return could evolve) beyond 2014; 4) Relative valuation we are more
cautious on upside for the group given our current USD 95/bbl outlook for crude, but we
disagree with consensus that BP is relatively inexpensive. On our estimates, perhaps
partly as a result of our more cautious outlook on production, the shares are in line with
the group at a 2013 P/E of 9.2x. In the absence of a clearer long-term strategy, we find it
hard to advocate the shares trading at a premium and maintain a Neutral rating.
Deepwater Horizon: In the absence of a wide-ranging civil settlement, the MDL-2179 is
due to recommence in New Orleans on 25 February. Court approval of the PSC
settlement has been granted, while we have incorporated the payment schedule of
USD 4.5bn agreed to resolve all federal criminal charges and all claims by the SEC.
Production: Disposals guidance for 2013 is 150kboe/d y-o-y, with some underlying
growth ex-disposals. Five major projects (PSVM, Clochas Mavacola, Galapagos, Skarv
& Devenick) were delivered in 2012, with Angola LNG due to start in 1Q (CVX operator).
Capex: BP has indicated capex will rise, with half of the 50% increase in CFO (2014 vs.
2011) being allocated to increased spend and expects gross capex of USD 24bn-25bn to
2014. We assume 2013 capex of USD 23.5bn. Beyond that, BP has guided that capex
will tend between USD 24bn-27bn as we move through the decade.
Cash return: BP indicated it would offset any dilution from the TNK sale. We incorporate
a buy-back of USD 5bn for 2013 from 3Q. With the dividend increased to USD 9c/quarter
in November, we expect no change in 1H.
US downstream: Whiting is due to start-up in late 2013. BP has indicated a profitability
improvement opportunity of c. USD 2bn pa pre-tax.
Exploration: Key well results are likely to include Ogonga (pre-salt Angola), Kaskida
(appraisal), Tiber (appraisal) & Gila (all US GoM), North Uist in the UK and the Campos
basin (Brazil). We should also see continued activity in the South China, India with the
KG basin and possible start-up of exploration in Libya.

Fig. 59: BP: Key valuation metrics

Fig. 60: BP three-year rel. performance vs EU Oils (USD)


Metric 2012E 2013E 2014E 2015E
PE ($) 7.8x 9.2x 8.7x 8.6x
EV/DACF ($) 5.3x 5.7x 5.3x 5.3x
FCF Yield 4.5% 3.8% 3.9% 4.9%
Div. Yield 4.6% 5.0% 5.5% 6.0%
Adj. EPS ( c ) 94.01 79.87 84.35 84.22
Production
(kboe/d)
3,321 3,123 3,173 3,280
-40%
-30%
-20%
-10%
0%
10%
Russia: Completion of the sale of
TNK-BP should occur in 1H with BP
receiving USD 12.3bn cash and
ending up with 19.75% of Rosneft
shares. Outside support on the
integration of TNK-BP, the upside
may lie with some of the
unconventional resource (Bashenov)
as well as greenfield developments in
the Yamal and Arctic regions.
Disposals: The sale of the Yacheng
gas field took divestments to USD
37.8bn, meaning BP has essentially
reached its target (ex TNK-BP). The
assumption going forward is for the
rate to normalise at between USD 2-
3bn. We incorporate for USD 2bn for
2013.

25
Fig. 61: BP financial summary: 2011-16E

Brent ($/bbl) 111.3 111.9 105.0 100.0 95.0 95.0
US composite gas price ($/mmbtu) 4.04 2.86 4.00 4.00 5.00 5.00
BP refining marker margin (RMM, $/bbl) 11.72 15.27 12.38 11.96 11.72 11.69
/$ average 1.60 1.59 1.60 1.60 1.60 1.60
Production ex Russia (TNK-BP/Rosneft) 2,468 2,315 2,202 2,268 2,350 2,391
Upstream 29,359 23,717 21,907 22,527 22,595 23,159
-Of which: TNK-BP (net income) 4,185 3,631 0 0 0 0
-Of which: Rosneft (net income) 0 0 2,270 3,013 3,098 3,185
Downstream 6,013 6,678 4,473 4,747 4,908 4,972
Other Businesses & Corporate -1,656 -2,050 -2,000 -2,000 -2,000 -2,000
Consolidation adjustments -113 -148 0 0 0 0
RC Operating Profit 33,603 28,197 24,380 25,274 25,503 26,131
Interest expense -1,188 -962 -942 -1,025 -1,117 -1,184
Other finance expense 263 57 280 280 280 280
RC Profit before Tax 32,678 27,293 23,718 24,529 24,666 25,227
Taxation -10,623 -9,112 -8,064 -8,340 -8,387 -8,577
RC Profit after Tax 22,055 18,180 15,654 16,189 16,280 16,650
RC Profit 21,658 17,888 15,174 15,732 15,853 16,307
No. of shares (avg) 18,904 19,026 18,999 18,651 18,822 19,001
Rep EPS (c) 135.95 74.48 162.34 82.21 82.10 85.83
RC Adj EPS (c) 114.6 94.0 79.9 84.4 84.2 85.8
DPS (c, net) 29.00 34.00 37.00 40.50 42.00 44.00
Rep profit EPS (p) 84.8 46.9 101.5 51.4 51.3 53.6
RC Adj EPS (p) 71.5 59.2 49.9 52.7 52.6 53.6
DPS (p, net) 18.3 21.2 23.1 25.3 26.3 27.5
Net income 25,700 14,172 30,843 15,332 15,453 16,307
DD&A 12,159 13,158 12,425 13,551 13,919 14,100
Exploration expense 0 148 549 570 627 645
Working capital (ex. Gulf of Mexico spill) -10,714 (2,829) (416) (400) (400) 0
Other 1,653 1,115 (15,493) 429 437 374
Disposals 3,033 11,593 33,100 2,000 2,000 2,000
Shares issued 371 382 394 405 418 430
Capex -18,163 -22,569 -23,500 -25,000 -25,000 -25,000
Acquisitions -11,503 -1,189 -14,500 0 0 0
Dividends -4,072 -5,619 -6,184 -6,715 -7,098 -7,421
Share purchases -297 -226 -5,000 0 0 0
Gulf of Mexico Oil Spill costs / Claims Fund / Criminal & Civil Fines -6,813 -6,892 -4,701 -3,770 -3,530 -1,040
Other -245 -90 -72 -69 -64 -51
Cash surplus / (deficit) -8,722 1,447 7,924 -3,209 -2,811 686
FX / other 5,356 -396 0 0 -0 -0
Decrease/(Increase) in Net Debt -3,366 1,051 7,924 -3,209 -2,811 686
Balance Sheet, US$ m 2011 2012E 2013E 2014E 2015E 2016E
Net Debt 30,146 29,095 21,171 24,381 27,192 26,506
Equity 112,482 121,360 140,569 148,753 156,718 165,095
Net Debt / Equity 26.8% 24.0% 15.1% 16.4% 17.4% 16.1%
ROACE 16.6% 12.6% 10.4% 10.1% 9.6% 9.3%

26
Total (Neutral, TP EUR 40, 8% potential TSR)
Management appears comfortable in its strategy and able to discuss the key issues
more succinctly than in the past, while we welcome the clarity and measures put in place
for investors to judge strategy on. Medium term to 2015, we see the risks skewed to the
upside under EUR 40/sh, Total is not expensive with a yield of 5.8%. Furthermore,
stripping out the delayed uplift at Shell from Pearl GTL, there is little to differentiate in
terms of growth (2014 vs. 2012). We also recognise Total arguably offers the most
meaningful exploration campaign of the Big Oils in 1H. So why not buy the shares? Our
thesis for some time has been that Total is a good example of the transition phase the
industry is going through, rebuilding and repositioning for the future. The disposal
programme bridges a gap in the cash cycle, but does not make execution any easier.
We thus believe we can wait (which may mean we miss the first leg of performance if, for
example, Total provides differentiated drill-bit success) particularly given our
macroeconomic concerns a falling oil price leaves Total more exposed than most
among the Big Caps while we remain more cautious on the European downstream, a
challenging business to which Total remains overly exposed compared to its peers.
Exploration: We highlight: French Guiana (Priodontes), Ivory Coast (CI-100), offshore
Kenya L7 (Kubwa) & 11B (Kiboko) which is ongoing, Mauritania with the onshore
Taodeni block (spud expected in February), Mozambique Areas 3 & 6, the Diaba block
in pre-salt Gabon (Mango & Mango South prospect with a spud in 2Q), US GoM (follow-
up drilling on the recent North Platte discovery), Egypt and East Burullus on Block 4 and
Kurdistan (the Harir, Safen, Taza blocks). In South America, Total continues to test the
unconventional play in Argentina, while in Brazil it has became operator of the deepwater
Xerelete concession in the Campos Basin
E&P production growth: We forecast modest growth of 0.8% in 2013. The main drivers
include the return of Elgin Franklin, Kashagan, Angola LNG and OML 58, plus ramp-ups
in Asia (Bongkot and Mahakam South). Partly offsetting this will be natural field decline
(4-5%) and the sale of Usan, which we incorporate into our estimates.
Restructuring: Total achieved c. USD 5bn of sales by end 3Q including the exiting of
Sanofi. After Usan the most advanced transaction appears to be TIGF, the French gas
distribution network. Total expects a minimum sale price of c. EUR 2.5bn.
Elgin restart: Total aims to restart production in 1H, once safety approvals are granted
by DECC. Of USD 450m in overall costs, the net impact after insurance is USD 50m-
60m.
Non-sanctioned projects: The list includes: a) Egina (Nigeria); recommendations have
been made to the Nigerian authorities; b) Moho North (Congo) A FID is expected soon;
c) 2 FPSOs for Kaombo (Block 32, Angola) - FID planned for 1H 2013. Post 2017, Yamal
remains on the agenda and ahead of Shtokman, partly as it has specific tax holidays.
Jubail (Saudi Arabia): A start-up has been scheduled for 3Q, but, according to several
sources, Aramco and Total began testing units in 4Q 2012 raising the possibility of an
earlier start. We estimate EBIT net to Total EUR 200m-300m pa at full capacity.

Fig. 62: Total: Key valuation metrics

Fig. 63: Total three-year rel. performance vs. EU Oils (USD)


Metric 2012E 2013E 2014E 2015E
PE ($) 7.5x 7.8x 8.2x 8.0x
EV/DACF ($) 4.9x 5.2x 5.3x 5.3x
FCF Yield 2.6% 0.7% 0.6% 1.4%
Div. Yield 5.8% 5.7% 5.8% 6.0%
Adj. EPS 5.36 5.32 5.09 5.20
Production
(kboe/d)
2,314 2,334 2,400 2,488
-25%
-15%
-5%
5%
Total's strategy centres around: 1)
A group production target of 3%
CAGR to 2015 and 3mb/d by 2017
(with 70% of the incremental
production under construction). 2)
USD 2.5bn spend pa on exploration
with a focus on frontier acreage, oil
prospects, high interests and
operatorship. 3) Asset sales of c.
USD 15bn-20bn through 2013/14.
The long-term CFO target is c.
USD 40bn pa on average for 2015-17
at USD 100/bbl, compared with
USD 30bn pa during 2012-14. 4)
Improving Refining and Chemicals
profitability from 6% to 13% ROACE.
FY results and strategy update on
13 Feb: With the strategy clearly laid
out, we expect little new. There may
be some emphasis on the relative low
exposure to France as Total expands
its E&P business, plus a firm
reiteration that organic growth is the
priority.
On capex, 2012 guidance is for net
capex of USD 20bn which increases
modestly to USD 21bn-22bn in the
outer years. We assume this
translates into gross capex rising
modestly beyond USD 25bn pa and
estimate USD 25bn this year, rising to
USD 27bn in the medium term.
Sanctioned projects: Michel
Hourcard leads Totals upstream
development team and this is an area
that will be key in order to improve
investor confidence and support a
multiple re-rating. The key projects in
the 2014/15 timeframe include
Ekofisk, Laggan Tormore, CLOV,
GLNG, Surmont ph.2 and Eldfisk.

27
Fig. 64: Total financial summary, 2011-16E


Brent ($/bbl) 111.4 111.8 105.0 100.0 95.0 95.0
Total Realised gas price ($/mbtu) 6.54 6.45 6.40 6.31 6.50 6.42
Total TRCV refining margin ($/bbl) 2.36 5.04 3.30 3.30 3.80 3.80
/$ average 1.39 1.29 1.25 1.25 1.25 1.25
Clean Income Statement, m 2011 2012E 2013E 2014E 2015E 2016E
Exploration & Production 22,474 22,478 22,167 21,551 21,859 22,707
Refining & Chemicals 613 1,447 795 919 1,420 1,502
Supply & Marketing 1,322 1,392 1,465 1,494 1,524 1,554
Corporate & Other -506 -542 -500 -500 -500 -500
Operating Profit 23,903 24,775 23,927 23,465 24,303 25,263
Other Income -106 183 100 100 100 100
Cost of Net Debt -440 -529 -345 -376 -416 -466
Financial Income 180 96 200 200 200 200
Profit Before Tax 23,537 24,526 23,882 23,388 24,187 25,097
Tax charge -13,811 -14,244 -13,859 -13,405 -13,641 -14,225
Equity in Income (loss) of Affiliate 1,984 2,069 2,245 1,782 1,468 1,524
Consolidated Net Income 11,710 12,350 12,268 11,765 12,014 12,396
Minority Interest (286) (214) (213) (219) (226) (233)
Adjusted Net Income 11,424 12,137 12,055 11,545 11,788 12,163
No. of shares (avg) 2,258 2,266 2,268 2,268 2,268 2,268
Rep EPS () 5.44 4.93 5.32 5.09 5.20 5.36
Adj EPS () 5.06 5.36 5.32 5.09 5.20 5.36
DPS () 2.28 2.34 2.36 2.40 2.48 2.56
Rep EPADS ($) 7.57 6.34 6.64 6.36 6.50 6.70
Adj EPADS ($) 7.04 6.88 6.64 6.36 6.50 6.70
Clean Cash Flow, m 2011 2012E 2013e 2014E 2015E 2016E
Reported income 12,581 11,376 12,268 11,765 12,014 12,396
Affiliates net income -107 92 0 0 0 0
DD&A (incl. expl expense) 8,628 9,836 9,222 9,563 10,085 10,595
Other -1,566 402 0 0 0 0
Cash Flow From Operations 19,536 21,707 21,490 21,328 22,099 22,991
Disposals 8,578 5,183 5,000 4,500 3,000 3,000
Shares issued 481 32 0 0 0 0
Capex -17,950 -18,867 -20,802 -20,802 -20,802 -20,802
Acquisitions -5,379 -1,008 0 0 0 0
Dividends -5,140 -5,248 -5,583 -5,631 -5,772 -5,962
Share purchases 0 -68 0 0 0 0
Other -862 415 -1,138 -1,180 -1,246 -1,330
Cash surplus / (deficit) -736 2,146 -1,033 -1,784 -2,721 -2,103
FX / other -3,299 -2,055 0 0 0 0
Decrease/(Increase) in Net Debt -4,035 91 -1,033 -1,784 -2,721 -2,103
Balance Sheet, m 2011 2012E 2013e 2014E 2015E 2016E
Net Debt 17,507 17,416 18,449 20,234 22,955 25,058
Equity 68,037 74,250 80,722 86,637 92,652 98,854
Capital employed 87,596 94,690 102,245 109,996 118,786 127,145
Net Debt / Equity 25.2% 23.1% 22.5% 23.0% 24.4% 25.0%
ROACE 14.0% 13.3% 12.3% 10.9% 10.3% 9.9%

28
ENI (Buy, TP EUR 19, 7% potential TSR)
ENI was the best-performing European large cap oil last year as it accelerated a process
to sell down stakes in Snam and Galp. The process was welcome as it meaningfully
deleveraged ENIs balance sheet (through the deconsolidation of SRGs debt), reduced
exposure to Italy and allowed investors to focus on a read-through valuation notably
cheaper than the peers. 1H 2013 should see more of the same as management looks to
bring gearing below 20%, a level that should allow ENI to maintain its single A rating.
This should invariably support the shares, albeit we think the next more meaningful leg of
ENIs re-rating will be led by greater investor conviction on the quality of its upstream
business and development capabilities. We think this is likely to come through the
delivery of Kashagan, potential further exploration success (namely in East Africa,
Norway or Indonesia) and valuation support of its Mozambique business through a farm-
down. The tension continues to be around profitability of the gas supply business and the
downstream (refining and chemicals). Here we continue to see risks to the downside.
Nonetheless, with attractive valuation (2013E EV/DACF of 5.4x and a dividend yield of
5.5%) and management intent on continued restructuring, we reiterate our Buy rating.
Production: Kashagan is central to 2013 growth (2Q 2013 start-up). The restart of
Totals Elgin Franklin, CVXs Angola LNG and COPs J asmine (UK) all contribute, plus
gas from Yaro-Yaskhinskoye. Our 2013 forecast is 1,736kboe/d, +2.7% y-o-y. Expect
updated guidance with FY results on 14 February and the strategy update on 14 March.
Snam: Eni now has 20.2% remaining following last years sales to CDP and institutional
investors. ENI has booked EUR 3.5bn cash during 4Q and deconsolidated a further
EUR 1bn of debt off the balance sheet. The last tranche of cash (EUR 0.9bn) will be
received by May 2013. ENI expects a full separation by September 2013.
Galp: The 90-day lock-up associated with ENIs transaction in late November expires on
27 February. Incorporating the convertible bond (8%), a 5% call option and 3.34% right
of first refusal from Amorim leaves ENI with some 8%, which may be sold through 2013.
R&M/Chemicals: An efficiency target of EUR 600m (2012-15) is largely focused on
R&M and Chemicals. Elsewhere, ENI announced in September the conversion of the
Venice refinery into a bio-refinery, with first production planned for 2014.
Cash return: We forecast a FY dividend for 2012 of EUR 1.08/sh with the 1H dividend
having been raised by 4% to EUR 0.54/sh. We also expect a buy-back to be initiated
post the March strategy update, with approval already gained for EUR 6bn, albeit we
think the run-rate will be dependent on macroeconomic conditions and relatively muted.
Exploration: ENI indicated a budget of EUR 5.5bn 2012-15, (up some 50% on 2011-
14). A multi-well campaign is expected around the Skrugard discovery in the Barents
Sea (with STL), while ENI will also drill Bonna-1 as operator on PL 529. Elsewhere,
expect continued E&A in Mozambique (the well to watch will be drilled to the south of
Area 4 and may be more liquids prone) and Indonesia with the appraisal of J angkrik.

Fig. 65: ENI: Key valuation metrics

Fig. 66: ENI three-year rel. performance vs. EU Oils (USD)

Metric 2012E 2013E 2014E 2015E
PE ($) 10.1x 11.4x 11.3x 10.9x
EV/DACF ($) 6.6x 5.4x 5.0x 4.7x
FCF Yield 5.2% 6.2% 6.1% 8.6%
Div. Yield 5.5% 5.4% 5.5% 5.7%
Adj. EPS 1.95 1.77 1.78 1.86
Production
(kboe/d)
1,690 1,736 1,810 1,888
-20%
-10%
0%
10%
Gas markets: 2013 is set to be
another 'difficult year'. It appears the
three-year rollover for the Russian
gas contracts was in December 2012
with ENI previously using the joker to
renegotiate. Eni and GazpromExport
recently met in Moscow for a working
session and are expected to meet
again this month. Our G&P EBIT
estimate for this year is a loss of
EUR (188)m.
Capex: Guidance from last years
annual strategy update was EUR
59.6bn for the period 2012-2015,
including EUR 7.2bn for Snam. Our
forecast for 2013 is EUR 12.8bn,
broadly in line with 2012.
Mozambique: Mamba South-2 and
Coral-2 in Area 4 took total gas in
place to 68tcf. ENI has indicated the
resource exclusively in Area 4 (ENI
70%) is c. 23tcf with full potential of
Mamba c. 75tcf and plans for 2
further wells (Coral-3 & Mamba
South-3). ENI signed a HoA with
Anadarko in December outlining
separate (but coordinated) offshore
activities across Area 4 (ENI
operated) & Area 1 (APC operated).
The two have agreed to jointly plan
and construct common onshore LNG
liquefaction facilities in the Cabo
Delgado Province. Unitisation is
ongoing and we expect there may be
farm-downs through 2013. APC
continues to see first LNG by 2018
with FEEDs looking at an initial two-
train 10mtpa development.

29
Fig. 67: ENI financial summary, 2011-16E


Brent ($/bbl) 111.3 111.8 105.0 100.0 95.0 95.0
Rotterdam refining margin ($/bbl) 3.63 6.54 4.50 4.50 5.00 5.00
/$ average 1.38 1.29 1.25 1.25 1.25 1.25
Gas and Power 1,946 478 -188 33 913 913
Refining & Marketing -507 -442 -392 -372 -276 -276
Petrochemicals -276 -428 -365 -275 -181 -83
Oilfield Services & Engineering 1,443 1,573 1,780 1,900 2,000 2,100
Corporate Item & other Activities -492 1 -500 -500 -500 -500
Unrealised Profit in Inventory -189 -32 0 0 0 0
Interest expense -1,127 -1,167 -586 -502 -467 -386
Net income from investments 2,129 1,065 874 870 864 864
Profit Before Taxes 19,004 19,246 18,409 18,224 18,282 18,177
Tax charge -11,074 -11,407 -11,376 -11,132 -10,870 -10,736
Profit After Taxes 7,930 7,839 7,033 7,091 7,412 7,442

No. of shares (avg) 3,622 3,622 3,609 3,596 3,596 3,596
Rep EPS () 1.90 3.08 1.77 1.78 1.86 1.86
Adj EPS () 1.93 1.95 1.77 1.78 1.86 1.86
Adj EPS $/ADS 5.30 5.02 4.42 4.45 4.65 4.65
DPS () 1.04 1.08 1.10 1.12 1.16 1.20

Clean Cash Flow, m 2011 2012E 2013E 2014E 2015E 2016E
Reported income 7,834 11,976 7,033 7,091 7,412 7,442
DD&A 8,297 9,497 10,277 11,071 11,946 12,623
Working capital -2,214 -2,368 0 0 0 0
Other 477 -5,079 0 0 0 0
Cash Flow From Operations 14,394 14,026 17,310 18,162 19,358 20,064
Disposals 194 4,316 3,047 0 0 0
Other 2,783 126 0 0 0 0
Capex -13,438 -12,702 -12,810 -13,710 -13,110 -13,110
Acquisitions -245 -335 0 0 0 0
Dividends -4,252 -4,260 -3,948 -3,992 -4,100 -4,244
Share purchases 16 -23 -500 0 0 0
Other -603 -298 0 0 0 0
Cash surplus / (deficit) -1,151 850 3,098 460 2,148 2,711
FX / other 0 -8 0 0 0 0
Decrease/(Increase) in Net Debt -1,151 842 3,098 460 2,148 2,711
Balance Sheet, m 2011 2012E 2013E 2014E 2015E 2016E
Net Debt 27,958 16,253 13,154 12,694 10,546 7,835
Equity 60,450 62,352 64,937 68,036 71,348 74,546
Net Debt / Equity 46.2% 26.1% 20.3% 18.7% 14.8% 10.5%
ROACE 10.5% 10.1% 9.5% 9.4% 9.5% 9.4%

30
Fig. 68: ENI SOTP


$95 LT
WI 2P O&G
Reserves (mmboe)
Base Case NAV
@ FC (USD m)
Base Case NAV
@ FC (EURm)
NPV $/boe
(base)
Remarks
Upstream
Kazakhstan 3,012 15,938 12,549 5.3 - Risked at 90%
Italy 830 13,027 10,258 15.7
Mozambique 4,224 10,560 8,315 2.5
- Area 4 mid-point of 47-52 Tcf in place & Shell/Cove implied
valuation
Angola 1,191 8,794 6,925 7.4
Egypt 1,339 7,747 6,100 5.8
Libya 1,019 7,367 5,801 7.2
US GoM 507 6,316 4,974 12.5
Algeria 393 5,460 4,299 13.9
Norway 702 5,399 4,251 7.7
Congo 494 5,169 4,070 10.5
Nigeria 1,034 3,821 3,009 3.7 - Risked at 75%
UK 376 3,532 2,781 9.4
Others 5,667 6,078 4,786 1.1
Upstream EV 20,786 99,210 78,118 4.8
Nigeria LNG 4,681 3,686 - Risked at 75%
Angola LNG 1,559 1,228
Other LNG 965 760
Liquefaction EV 7,206 5,674
G&P
Comments
SRG, net 2,770 2,181 Remaining 15% stake; MV as debt now deconsolidated
Marketing & PowerGen -3,355 -2,642 Target 5.0x 2013e EV/EBITDA
Intn. Transportation 7,518 5,920 Target 8.0x 2013e EV/EBITDA
G&P EV 6,933 5,459
R&M, Saipem, PetChems, assocs
R&M 42 33 Target 4x 2013e EV/EBITDA multiple
E&C, net 8,349 6,574 43.4% of market implied EV
Petchems -983 -774 Target 4x 2013e EV/EBITDA multiple
Galp, net 3,005 2,366 24.3% of MV (not EV, as Galp associate a/c and so not incl. in Gro
Other associates 3,078 2,424 Target 8x 2010e (ex NLNG & Galp)
EV other businesses 13,491 10,623
Group EV 126,840 99,874
Corporate (492) (388) 8% 2010e perpetuity
Net debt (19,041) (14,993) End 4Q12e, adj for tranche 3 of Snamand 4% Galp sale
Adj. for consol. of 100% SPM debt (1,369) (1,078) Strip out consolidated SPM debt that not liable for
Core net debt (17,672) (13,915)
Minorities (466) (367) Insignificant since EV incl. net SPM
Equity value 108,210 85,205
No shares m 3,623
Equity value per Share 23.5

31
Statoil (Reduce, TP NOK 145, 8% potential TSR)
Nearer-term growth barrels at Statoil are set to be relatively oily through projects such
as Skarv, PSVM and US LRS, while concerns around reinvestment risk may abate to a
degree following the recent acquisition of further US onshore acreage in the central
Marcellus. This years E&A campaign, centred in 1H on the ramp-up of activity in the
Barents Sea and East Africa, appears the most likely source of relative upside. However,
while the longer-term portfolio is well positioned, there appears limited operational
momentum this year (with production guided to decline y-o-y and growth more mid-
decade), the likelihood of a further capex increase in February and ongoing European
gas uncertainty. In this context, valuation does not screen as especially compelling at
2013E P/E of 9.3x (sector average 8.9x). We would therefore advocate seeking a more
attractive entry point before increasing weightings and retain a Reduce rating.
Exploration 1H centred on the Barents Sea and East Africa: A nine-well campaign
in the Barents Sea/Hoop area appears the focal point of Statoils E&A programme for
2013. It aims to build on the Skrugard, Havis discoveries and, if successful, could further
open up the Barents as an oil province. In East Africa, we expect: 1) appraisal drilling on
Zafarani (after Lavani-2 completed in December) and the drilling of fresh exploration
prospects in Block 2 Tanzania and; 2) the first wells in the potentially more liquids prone
Areas 2 and 5 in Mozambique (after TLW farmed into the blocks in August).
Unitisation in Tanzania? Statoil is likely to provide an update on the upside potential of
Block 2 (STL 65% and operator) after further evaluation of Lavani-2. After the recent
Heads of Agreement between ENI and Anadarko in Mozambique, the next step in
Tanzania could be unitisation between Statoil/XOM in Block 2 & BG in Blocks 1, 3 & 4.
Johan Sverdrup resource update: A revised estimate is due early this year. Appraisal
work is ongoing, with STL indicating another 1-3 wells are planned in PL 265 this year.
European gas: The company continues to highlight a value-over-volume policy on
domestic gas production, while European gas contract renegotiations are likely to
continue through this year with the emphasis on increased volume flexibility.
Pre-salt Angola: STLs exposure (five blocks, three as operator) is significant. Seismic
analysis is well advanced, though drilling is not expected until late 2013 and into 2014.
Restructuring: Further sales of smaller more peripheral NCS assets (similar to the
Centrica and Wintershall deals of the last 12-18 months) would probably be taken well.
FY results, 2012 dividend and a CMD update: FY results and the CMD are on 7
February, with presentations in London. The FY 2012 dividend should be announced
with results, we forecast NOK 6.50/sh (yield 4.6%), which is unchanged on last year.

Fig. 69: Statoil: Key valuation metrics

Fig. 70: Statoil three-year rel. performance vs. EU Oils (USD)


Metric 2012E 2013E 2014E 2015E
PE ($) 8.8x 9.3x 9.5x 9.3x
EV/DACF ($) 6.0x 4.8x 5.0x 5.0x
FCF Yield 8.0% 0.6% 0.1% 0.6%
Div. Yield 4.6% 4.7% 4.8% 5.0%
Adj. EPS 16.76 16.31 15.97 16.26
Production
(kboe/d)
1,793 1,776 1,828 1,911
-20%
-10%
0%
10%
20%
Other International E&A activity is
set to include: Canada, US GoM
and Brazil though follow-up drilling
on Pao de Acucar (STL 35%) is not
expected before 4Q 2013.

32
Fig. 71: Statoil financial summary, 2011-16E


Brent ($/bbl) 111.4 111.6 105.0 100.0 95.0 95.0
Norwegian gas price (NKr/sm) 2.06 2.29 2.33 2.22 2.30 2.26
Rotterdam refining margin($/bbl) 3.63 6.98 4.50 4.50 5.00 5.00
$/N Kr average 5.79 5.82 6.00 6.00 6.00 6.00
Entitlement production (kboe/d) 1,650 1,793 1,776 1,828 1,911 1,966
Equity production (kboe/d) 1,851 1,996 1,964 2,022 2,131 2,193
Clean Income Statement, Nkr m 2011 2012E 2013E 2014E 2015E 2016E
D&P Norway 150,400 158,631 146,474 139,333 140,684 140,206
D&P International 16,700 22,248 33,407 33,696 35,031 34,949
Marketing, Processing & Renewables 11,200 16,368 13,031 13,040 13,753 13,874
Fuel & Retail 1,700 600 0 0 0 0
Other & Eliminations -100 -350 -1,000 -1,000 -1,000 -1,000
Net Financial Items -3,799 -1,081 -2,788 -3,163 -3,744 -4,344
Profit before Tax 176,101 196,416 189,124 181,906 184,724 183,685
Taxation -125,658 -142,309 -136,470 -130,323 -132,211 -131,535
Minority Interest 345 -711 -700 -700 -700 -700
Post-tax non-operating items 28,000 16,629 0 0 0 0
Reported Net Income 78,788 70,025 51,954 50,883 51,813 51,449
No. of shares (avg) 3,186 3,186 3,186 3,186 3,186 3,186
Rep EPS (N Kr) 24.75 22.00 16.31 15.97 16.26 16.15
Adj EPS (N Kr) 15.94 16.76 16.31 15.97 16.26 16.15
DPS (N Kr) 6.50 6.50 6.63 6.83 7.03 7.24
Clean Cash Flow, Nkr m 2011 2012E 2013E 2014E 2015E 2016E
Reported profit before tax 213,841 212,668 189,124 181,906 184,724 183,685
Taxation -112,584 -114,195 -136,470 -130,323 -132,211 -131,535
DD&A 51,350 58,193 61,123 61,756 63,501 66,108
Exploration expense 1,531 2,980 1,000 1,000 1,000 1,000
Working capital -19,121 -23,080 0 0 0 0
Other -23,554 -23,769 2,729 2,606 2,644 2,631
Disposals 29,843 29,383 8,100 0 0 0
Capex -91,518 -99,805 -114,985 -116,604 -116,930 -119,995
Acquisitions -25,722 -3,357 0 0 0 0
Dividends -19,891 -20,683 -20,709 -21,123 -21,757 -22,410
Financial Investments & Other 6,271 -14,569 0 0 0 0
Share purchases -408 -363 0 0 0 0
Cash surplus / (deficit) 10,038 3,402 -10,088 -20,782 -19,029 -20,516
FX / other 221 -1,718 0 0 0 0
Decrease/(Increase) in Net Debt 10,259 1,684 -10,088 -20,782 -19,029 -20,516
Balance Sheet, Nkr m 2011 2012E 2013E 2014E 2015E 2016E
Net Debt 117,846 94,080 104,168 124,950 143,978 164,494
Equity 285,155 323,223 355,168 385,628 416,384 446,124
Net Debt / Equity 41.3% 29.1% 29.3% 32.4% 34.6% 36.9%
ROACE 14.7% 14.4% 13.6% 11.9% 10.9% 9.9%

33
BG Group (Buy, TP 1,600p, 57% potential TSR)
The price fall on 31 October and the subsequent reaction to a disappointing update on
production will likely be remembered by all who followed European Oils last year. In late
December, the key question on who would replace Frank Chapman as CEO was
answered with the appointment of Chris Finlayson, a 30-year Shell veteran, who joined
BG in 2010. Why stay Buyers? Admittedly, our path to GBP 20/share thesis has fallen
away somewhat, and there is a possibility that the new man uses a February update with
the FY results to kitchen sink expectations further. However, our fundamental views are
unchanged, the LNG business is a growth engine that is difficult to replicate cheaply, the
base portfolio can be fixed, Brazil is a world-class asset and the worst is behind us in
terms of Australia, while concerns around financing are increasingly being addressed.
Putting all this together, we believe BG is among a handful of names where there is a
meaningful difference between todays share price and the bottom up fundamental
value.our value pre and post volume downgrade has only changed by some GBP
1.9/share, compared to a share price fall of nearly GBP 3/share. We think it will take time
and BG may stay in the penalty box a little longer than we originally hoped. Still, we are
convinced under a partnership of Gould (as Chairman) and a management team led
Chris Finlayson, BG has the opportunity to reshape the portfolio over the next couple of
years, monetising upstream positions and refocusing on the drill-bit and LNG chain. If it
does not and the shares continue to languish, we believe there remain enough industry
participants who may take a more aggressive approach.
A light touch on strategy in February: Less than two months in, we expect the new
CEO to say relatively little on strategy and wait for an opportunity during the summer. We
could see further guidance on volumes and would like greater colour on the assumptions
made for the UK in particular where we see continued downside risks. We also expect
guidance on LNG (see below) and updates on key projects, particularly in Brazil and
Australia. Capex guidance is likely to be updated post disposals (in particular the farm-
down of QC LNG to CNOOC). 12 months ago guidance was c. USD 22bn for 2012 and
2013. We assume USD 11.4bn and USD 11.7bn for 2013 and 2014, respectively, and
expect lower capex for Australia, but more dollars to be put into the base portfolio.
Production: Revised 2012 production guidance in October was for 3% growth, which
implies 660kboe/d. For 2013, management has indicated volumes being broadly in line
2012. In our November note, Taking the eye of the base, we highlighted that the key to
understanding volume misses has been more in the performance of the base portfolio
than the growth hubs. Looking at our own assumptions, the key moving parts or risks to
the downside on flat volumes are the recovery of volumes in the UK with Elgin Franklin
and uncertainty in Egypt. We expect more colour on the underlying decline rate on the
base, which was raised to 4.4% (previously 3.9%) with the recent production downgrade.
More medium term, we expect BG to move away from its 1mb/d target in 2015 (partly
owing to the sale of QC LNG, but also more conservative views on gas) and de-
emphasise 2020 ambitions.
LNG guidance: BG should meet or exceed guidance for 2012 EBIT (which previously
moved to the upper end of a USD 2.6bn-2.8bn range). For 2013, management indicated
for some time that the portfolio moves from being substantially hedged to being
substantially unhedged. In previous research, we have indicated the cost of the hedges
to BG could be in the order of USD 800m. Taking into account the impact of Chile (lower
number of cargoes and the pricing of volumes sold into country moves from an oil price
derivative to Henry Hub) and also lower throughput from the LNG plant in Egypt
(30kboe/d reduction in volumes translates into 1.5mtpa), our revised estimate is c.
USD 3.3bn.
Australia: There seems a tangible sense of confidence on this project after some of the
difficulties in the last 18 months and a capex increase for the project to USD 20.4bn.
With over 90% of the costs contracted, management appears comfortable with the
revised estimate. Recent drilling success and a deeper relationship with the Chinese
suggests that a 3rd train may be more likely than previously. Improved well deliverability
suggests that the critical path centres around completion of the plant/central processing
Brazil pre-salt Santos basin: The
2nd FPSO for Sapinhoa arrived in
Brazil a few weeks early and
production from the Guara-1 well
began in early J anuary. The detailed
FPSO plans now assume a 2-3
month tie-in period per well, versus
BGs prior assumption of one month.
We assume production of c. 40kboe/d
for 2013 vs. 32kboe/d in 2012.
Petrobras indicated that the first oil
from the 3rd FPSO on Tupi should be
in May.

34
facilities and the pipeline. The transaction with CNOOC is expected to close in the
middle of 2013, back-dated to J anuary 2012.
Tanzania: The BG/Ophir partnership has found c. 10tcf gas to date. In the near term, the
market will look for an appraisal result and flow test on J odari in Block 1, albeit we think
this is unlikely to move market valuations. The more substantial prize is testing the
outboard and basin floor fans (most likely with the rig dependent Kusini prospect. On the
development side, it appears increasingly likely the first phase will be a joint
development with the Statoil/XOM J V in Block 2, which has made discoveries
aggregating c. 9tcf.
Increased disclosure: We hope (and expect) that BG will initiate greater quarterly
disclosure on regional production data. Elsewhere, with the majority of T&D assets sold,
BG is likely to simplify reporting lines with E&P and liquefaction known as upstream, and
LNG Shipping & Marketing business more clearly defined. We also expect in the next 12
months that BG will also provide more clarity on where the profitability sits for QC LNG
between the upstream and downstream.
Balance sheet: The priority remains maintaining long-term credit ratings equivalent to
mid-single A from the major rating agencies. More recently, Moody and S&P have put
the company on negative outlook and Fitch placed BG on negative watch. Further
progress was made last month with a USD 1.8bn loan secured from the Export-Import
Bank of the US, in addition to a similar loan being secured from the Brazilian
Development Bank. BG also confirmed with the 3Q results that the recent portfolio
rationalisation programme has released some USD 7.6bn of capital. We expect ongoing
disposals through 2013. BG may look to further monetise a further stake in QC LNG or at
least some of the mid-stream position as it continues to strengthen the balance sheet.
Exploration: BG bid successfully last year on three offshore blocks (8, 9 and 13) in
Uruguay, with a commitment to a seismic programme of some 13,000 sq km as part of a
three-year exploration phase. We expect similar moves to add further to the E&A
portfolio. Outside the Tanzania outboard play (see above), activity is relatively quiet. The
next new play to be tested is offshore Kenya on Blocks L10A and 10B (45% and 40%
interests respectively) with drilling more likely in 2014 than this year.

Fig. 72: BG: Key valuation metrics

Fig. 73: BG three-year rel. performance vs. EU Oils (USD)


Metric 2012E 2013E 2014E 2015E
PE ($) 12.4x 12.2x 10.6x 8.6x
EV/DACF ($) 9.8x 9.9x 9.4x 8.2x
FCF Yield -4.9% -6.1% -5.0% -1.0%
Div. Yield 1.5% 1.5% 1.6% 1.6%
Adj. EPS ($) 1.35 1.37 1.57 1.93
Production
(kboe/d)
660 658 711 850
-5%
5%
15%
25%
35%
45%
Tanzania: We understand BG has
not exercised its option to extend the
Deep Sea Metro I rig beyond 8 J une.

35
Fig. 74: BG financial summary, 2011-16E


Brent ($/bbl) 111.5 111.8 105.0 100.0 95.0 95.0
US Henry Hub gas price ($/mmcf) 4.00 2.78 4.00 4.00 5.00 5.00
BG Realised UK gas price (p/th) 43.42 47.79 50.11 49.59 48.89 46.49
BG Realised International gas price (p/th) 23.81 24.53 23.46 23.65 24.36 24.50
/$ average 1.60 1.59 1.60 1.60 1.60 1.60
Production (kboe/d) 642 660 658 711 850 902
Liquefied Natural Gas 2,573 2,914 3,310 3,866 4,869 6,113
Transmission and Distribution 507 593 154 157 160 163
Other activities -20 -27 -40 -40 -40 -40
Interest expense -219 -209 -235 -308 -493 -834
Profit Before Taxes 7,990 8,469 7,963 9,137 11,258 12,640
Tax charge -3,273 -3,778 -3,345 -3,837 -4,728 -5,309
Profit After Taxes 4,717 4,691 4,619 5,299 6,530 7,331
Net Income - Business Performance 4,632 4,582 4,593 5,274 6,504 7,305
No. of shares (avg) 3,411 3,403 3,363 3,363 3,363 3,363
Rep EPS ($) 1.30 1.35 1.37 1.57 1.93 2.17
Adj EPS ($) 1.36 1.35 1.37 1.57 1.93 2.17
Rep EPS (p) 81.2 84.9 85.4 98.0 120.9 135.8
Adj EPS (p) 84.7 84.9 85.4 98.0 120.9 135.8
DPS (p, gross) 14.7 15.4 15.8 16.2 16.7 17.2
Net income 4,437 4,582 4,593 5,274 6,504 7,305
DD&A 2,291 2,599 2,678 2,922 3,355 3,618
Working capital -574 82 0 0 0 0
Other 204 217 491 491 561 706
Disposals 200 2,865 3,130 0 0 0
Capex -10,300 -10,535 -11,400 -11,700 -11,000 -11,000
Dividends -908 -893 -847 -872 -898 -925
Share purchases -23 -16 0 0 0 0
Cash surplus / (deficit) -4,493 -1,303 -1,129 -3,660 -1,252 -70
FX / other 128 1,655 -582 -483 -474 -705
Decrease/(Increase) in Net Debt -4,365 352 -1,711 -4,143 -1,726 -775
Balance sheet, US$ m 2011 2012E 2013E 2014E 2015E 2016E
Net Debt 11,536 11,184 12,895 17,038 18,764 19,539
Equity 29,384 32,724 36,483 40,897 46,515 52,908
Net Debt / Equity 38.9% 33.8% 35.0% 41.3% 40.0% 36.7%
ROACE 12.9% 11.2% 10.1% 10.1% 11.0% 11.3%

36
Fig. 75: BG SOTP


Risked
Reserves
(mmboe)
Base Case
NAV
($/boe)
Base Case
NAV
($m)
Base Case
NAV
(/share)
Remarks
Upstream
Core Business
2P reserves
Egypt 589 4.7 2,752 0.50
Kazakhstan 1,004 4.7 4,751 0.87
Thailand 84 13.7 1,147 0.21
Trinidad 286 7.6 2,170 0.40
Tunisia 98 18.5 1,822 0.33
UK 317 12.2 3,859 0.71
Other 550 5.0 2,751 0.50
Unbooked resources
Norway - J ordbaer 90 9.6 860 0.16
Other Unbooked Resources 845 5.0 4,225 0.77
Total Core Business 3,864 6.3 24,338 4.45 Implied Wood Mackenzie NPV/boe
Brazil
2P reserves
Lula (BM-S-11) 1,641 6.6 10,831 1.98 Based on our proprietary Brazil model, estimate 60% booked
Cernambi (BM-S-11) 321 8.7 2,793 0.51 Based on our proprietary Brazil model, estimate 60% booked
Unbooked reserves
Lula (BM-S-11) 1,094 6.6 7,220 1.32 Based on our proprietary Brazil model, estimate 40% unbooked
Cernambi (BM-S-11) 214 8.7 1,862 0.34 Based on our proprietary Brazil model, estimate 40% unbooked
Sapinhoa (BMS-9) 578 9.3 5,375 0.98
Carioca (BMS-9) 283 9.0 2,547 0.47
Iara (BMS-11) 1,406 5.7 8,014 1.47
Parati (BM-S-10) 30 5.6 167 0.03
Other resources
Contingent resources 750 5.0 3,750 0.69 Based on J une 2011 resource upgrade upside of 8bn boe
Prospective resources 189 3.0 568 0.10 Based on J une 2011 resource upgrade upside of 8bn boe
Total Brazil 6,506 6.629 43,127 7.89
Australia
QCLNG 2,598 2.7 7,104 1.30 Based on QCLNG model (Base Case 2 trains)
Upstream upside 1,135 1.0 1,135 0.21 Based on Wmac valuation
Total Australia 3,733 2.2 8,239 1.51
US Gas
2P reserves
EXCO Shale gas 580 1.5 878 0.16 Assume implied acquisition value per boe
Unbooked reserves
EXCO Shale gas 870 1.5 1,317 0.24 Assume implied acquisition value per boe
Total US 1,450 1.5 2,195 0.40
Other risked exploration 2,460 2.9 7,227 1.32
Of which:
Total 2P Reserves 7,186 5.3 38,443 7.03 2P Reserves based on 2011 actuals
Total Unbooked Resources 7,017 5.4 37,683 6.89 Unbooked resources based on BG strategy presentation
Risked exploration 3,784 2.4 8,930 1.63 Risked exploration based on BG strategy presentation
Total Upstream 18,013 4.7 85,127 15.57 Resource estimate based on 2010 data
LNG
EV EBITDA 8.7x Based on replacement cost of $750/tpa (Bear Case - $500/tpa)
Liquefaction 5,374 0.98
EV EBITDA 5.4x DCF based on volumes of 17.3mtpa (ex. QCLNG) by 2015, LT growth o
Shipping & Marketing 15,718 2.87
EV EBITDA 6.0x Based on 6x EV/EBITDA
Other (840) (0.15)
QCLNG (LNG part) 3,045 0.56 Assumed 30% of QCLNG project is LNG value
Total LNG 23,296 4.26
Transmission & distribution
T&D EV 6,171 1.13 EU Utility EV/EBITDA comps
BG Group
Group Enterprise Value 114,594
Less: Net Debt (3Q 2012) 8,245
Less: Minorities (3Q 2012) 334
Group Equity Value 106,015
Shares (m) (3Q 2012) 3,417m
NAV/share (/sh) 19.39
Base Case $95 LT

37
Repsol (Neutral, TP EUR 15.5, 2% potential TSR)
Previous management commentary suggests an update on the prospective sale of the
LNG business is likely early this year and ideally before Repsol meets with credit
agencies, which we understand could occur in late J anuary. What became clearer during
2H 2012 was management believes successful execution creates scope to limit equity
dilution by converting the existing prefs into a non-dilutive instrument and using the
remaining 5% T-shares to fund an ongoing scrip dividend rather than being sold as a
block. Ultimately we think delivery of this plan would be well received and that this,
alongside proof of a revamped exploration programme, is key to the investment case.
However, the SOTP gap has narrowed to an 18% discount (below sector average) and
we would argue a lower level of equity dilution is largely priced in at current levels. We
thus see risks (both up and down) as more evenly balanced and retain a Neutral rating,
though macroeconomic perceptions of Iberia and the possibility of compensation from
Argentina for the expropriation of YPF represent potential wild cards.
Asset disposals: Near-term focus remains on the sale of the LNG business. The hook
in selling LNG is the removal of c. EUR 1bn of on-balance sheet debt and a further
EUR 2.6bn off-balance sheet (the latter mainly LNG tankers and North American
pipelines), with delivery helping to limit equity dilution as discussed above.
Conversion of pref shares now dependent on LNG sale: Previous plans to execute a
USD 2bn conversion of preference shares into mandatory convertibles now appear
dependent on the outcome of the LNG divestment, with conversion into a non-dilutive
straight bond the preferred option if the LNG sale is successfully delivered. This would
carry the benefit of limiting dilution while providing enhanced liquidity for retail investors.
Sale of 5% treasury shares: Again there is a dependency on the LNG disposal. If this is
executed, pressure to sell the T-shares as a block falls and the company are more likely
to retain them and use to fund an ongoing scrip dividend.
A credit update: An update on Repsol's credit rating and progress on maintaining its
investment grade (S&P: BBB-, Moodys: Baa3, Fitch: BBB-). An adj. FFO/debt ratio of
25-30% seems the key metric, with REP due to meet with the agencies in late J anuary.
Argentina: An update on the arbitration process following the YPF expropriation. Repsol
has formally filed its nationalisation claim with ICSID, while comments from the Spanish
government have suggested its hopeful of an agreement (Reuters, 18 November 2012).
Production growth: Guidance is for 10% growth this year (ex-YPF), underpinned by
Kinteroni (Peru), Margarita (Bolivia) and the Mississippi Lime (US). This is sector-
leading, though below previous expectations, which we understand were nearer 18%.
FY results: Will be published 28 February.

Fig. 76: Repsol: Key valuation metrics

Fig. 77: Repsol three-year rel. performance vs. EU Oils (USD)

Metric 2012E 2013E 2014E 2015E
PE ($) 10.8x 11.2x 10.2x 9.7x
EV/DACF ($) 6.6x 7.0x 6.5x 5.9x
FCF Yield 6.5% 1.8% 3.6% 5.4%
Div. Yield 4.8% 4.7% 4.7% 4.9%
Adj. EPS 1.55 1.54 1.68 1.77
Production
(kboe/d)
330 360 401 455
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
Exploration day - 25 January in
London and 29 January in New
York: An important event as the
company tries to demonstrate that the
exploration portfolio can offer
renewed momentum after a quieter
and less successful 2012.
Key regions to look for presently
include: Alaska and resumption the of
the program, Norway and the Barents
Sea (Bonna, Darwin prospects),
Brazil with further appraisal activity on
BM-C-33, Ireland on the North Dunkin
well and Canada.

38
Fig. 78: Repsol financial summary, 2011-16E


Brent ($/bbl) 111.4 111.8 105.0 100.0 95.0 95.0
Repsol Spanish indicator margin ($/bbl) 1.40 4.64 3.60 4.10 4.60 4.60
/$ average 1.39 1.29 1.25 1.25 1.25 1.25
Total Production (kboe/d) 794 330 360 401 455 494
Upstream 1,301 2,392 2,342 2,262 2,370 2,409
LNG 388 534 345 345 345 345
Downstream 792 842 1,175 1,465 1,591 1,607
YPF 1,352 0 0 0 0 1
Gas Natural 821 945 1,105 1,148 1,138 1,186
Corporate -311 -366 -300 -300 -300 -300
Net Financials -823 -932 -992 -799 -770 -728
Income Tax -1,289 -1,573 -1,590 -1,772 -1,837 -1,898
Equity associates 83 113 80 80 80 80
Profit after Tax 2,314 1,955 2,165 2,428 2,617 2,701
Non-Recurring Items (post-tax) 20 -4,285 0 0 0 0
Reported Net Income 1,943 -2,426 1,965 2,228 2,417 2,501
No. of shares (avg) 1,216 1,197 1,275 1,326 1,368 1,411
Adj EPS () 1.58 1.55 1.54 1.68 1.77 1.77
DPS () 1.16 0.80 0.80 0.80 0.84 0.84
Adj EPS $/ADS 2.20 2.00 1.93 2.10 2.21 2.22
Net Income 3,520 3,087 2,165 2,428 2,617 2,701
DD&A 3,519 2,555 2,475 2,744 3,084 3,404
Working capital -2,239 -337 0 0 0 0
Other -680 -438 0 0 0 0
Disposals 2,837 3,276 0 0 0 0
Capex -6,255 -3,907 -4,240 -4,340 -4,440 -4,840
Acquisitions -2,557 0 0 0 0 0
Dividends -1,686 -928 -504 -1,043 -1,078 -1,166
Decrease/(Increase) in Net Debt -3,541 3,465 -104 -211 184 99
Balance Sheet, m 2011 2012E 2013E 2014E 2015E 2016E
Net Debt 15,717 12,219 12,323 11,867 11,017 10,251
Equity 23,538 22,797 24,259 26,111 28,117 30,118
Net Debt / Equity 64.6% 51.7% 48.8% 43.4% 37.3% 32.3%
ROACE 7.2% 6.5% 7.4% 7.5% 7.7% 7.6%

39
Fig. 79: Repsol SOTP


Base Case
Upstream WI 2P
Reserves
(mboe)
NPV
$/boe
($95 LT)
NPV
EUR m
($95 LT)
NPV
EUR/sh
($95 LT)
Remarks
Spain 12 43.6 422
Total Europe 12 44 422
- Russia 0 0 240 Purchase price: Eurotek +MV of 3.5% equity: Alliance
Total Asia 0 0 240
- Libya 76 39.6 2,413
- Algeria 154 2.9 358
Total Africa 230 15.0 2,770
- Trinidad 648 4.1 2,112
Total Caribbean 648 4.1 2,112
- Peru 613 3.8 1,869
- Bolivia 201 4.6 743
- Venezuela 841 2.3 1,570
- Columbia 8 20.0 127
- Ecuador 12 31.1 300
Total Pacific 1,675 3.4 4,609
- US GOM 137 19.4 2,130
- SandRidge Energy 200 Initial cash payment of USD 250m
- Mexico 2 0.4 1
Total North America 140 20.9 2,331
Total Upstream 2,706 5.8 12,484 9.94
Total LNG 3,081 2.45 Based on 5.0x EV/EBITDA
Risked E&A Net risked
WI
mboe
NPV
$/boe
($95 LT)
NPV
EUR m
($95 LT)
Remarks
2012E - Brazil 14 5.0 54
2012E - International 55 3.6 158
Other 81 8.5 535
Total E&A 150 3.7 747 0.59
Brazil Net risked WI
mboe
NPV
$/boe
($95 LT)
NPV
EUR m
($95 LT)
Remarks
Sapinhoa (BM-S-9) 289 9.3 2,149
Based on our Brazil field model
Carioca (BM-S-9) 141 9.0 1,018
Albacora Leste 16 5.0 66
Piracuca 22 5.0 90
Other discoveries 251 3.0 602
Other resource 360 2.3 650
Brazil-Sinopec transaction 1,080 5.9 4,576 3.64
Sinopec acquisition values Repsol Brazil at $10.6bn - 60% share, cash is
accounted for in REP net debt
Resource upside post-Sinopec 613 3.0 1,470 1.17 Including Pao de Acucar and Gavea discoveries in BM-C-33
Total Brazil 1,693 3.6 6,046 4.81
5.0x Target downstreamEV / EBITDA
Downstream 9,874 7.86 2013e
Gas Natural 7,966 6.34 30.1% of MV of GN Fenosa +30.1% GN net debt (assume $15.3bn gross)
Corporate -2,196 10% perpetuity post tax
Associates - ex E&P affiliates 904
2012e earnings at 8x (Atlantic LNG, GN Fenosa, 10% stake in CLH, ENI,
Repsa, OCP)
Repsol EV, m 38,906 30.97
Net Debt -13,643 -10.86 End 1Q 2012E ex. YPF, prefs treated as debt
Minority Interest -782 8x 2011e (ex YPF, but includes GN's own mins proportionately a/c)
Group Equity Value, m 24,481
No. of Shares (m) 1,256 Incl. re-issuance of T-shares and assumed 2012 scrip option
Implied equity value / sh () 19.49

40
OMV (Neutral, TP EUR 27, -3% potential TSR)
After being one of the better performers of the group in 2012 (+16% in USD terms versus
the EU Oils -5%), catalysts appear more limited for 1H 2013, while 3Q results in
November saw CFO David Davies managing expectations to a degree on 2013 volumes.
We forecast little growth this year (we estimate 0.1%) and also expect capex guidance to
move modestly higher incorporating recent E&P asset deals in Norway and profitability at
Econgas to remain under pressure in the near term. E&A activity is ongoing at Bina Bawi
in Kurdistan and a rig secured to re-enter the Neptun block in the Black Sea in late 2013,
while there is scope for further restructuring in the downstream during the year. On a
relative basis, the shares appear fairly valued for the moment at a 2013E P/E of 6.7x.
Exploration Kurdistan and the Barents Sea: Appraisal drilling is ongoing at Bina
Bawi in Kurdistan and we expect a progress update with FY results in February. An EWT
is also set to start in 1Q 2013, while this year could see drilling on the Sarta and Rovi
blocks where Chevron has farmed in as operator. Elsewhere in terms of impact drilling,
we note OMVs 20% participation in ENIs Bonna-1 well, which is planned for 1H 2013.
R&M divestments: The Croatian marketing business and OMVs 45% stake in the
Bayernoil refinery remain potential sale candidates and are part of a EUR 1bn R&M
divestment programme by end-2014 (which includes associated working capital release).
Econgas profitability under pressure: A challenging situation is likely to persist at
Econgas this year, owing to an adverse spread between Russian oil-linked contract gas
and EU spot hub prices.
Romanian fiscal terms: The market likely to be sensitive to any preliminary discussions
with Romania over Petroms fiscal terms post 2014 (when the stability clause within the
2004 agreement expires). In the background, OMV continues to highlight the extent to
which Petrom reinvests profits back into the country (over 90% of EBITDA).
Abu Dhabi appraisal programme: A first well appraising the Shuwaihat sour gas and
condensate field is due this year (with Wintershall & ADNOC). First gas is seen in 2018.
Nabucco West (OMV 16.7%): A FID between the Nabucco West and TAP pipeline
proposals is expected by mid-2013. OMV has also indicated expected ph 1 capex (on
10bcm pa capacity) at c. EUR 3.5bn and the possibility its stake is diluted by some 50%
from todays 16.7% - reports (Bloomberg, 4 J uly) have suggested Shah Deniz II could
acquire a stake in the chosen project to give it greater influence over decision-making.
FY results and 2012 dividend: 4Q 2012 trading statement 1 February; FY results 21
February. Results will include a progress update on the Energise OMV efficiency
programme. We forecast an FY 2012 dividend of EUR 1.15/sh (3.9% yield), up from
EUR 1.10/sh last year.

Fig. 80: OMV: Key valuation metrics

Fig. 81: OMV three-year rel. performance vs. EU Oils (USD)


Metric 2012E 2013E 2014E 2015E
PE ($) 6.3x 6.7x 6.3x 6.3x
EV/DACF ($) 4.2x 4.6x 4.4x 4.3x
FCF Yield 12.2% 6.4% 7.2% 8.1%
Div. Yield 3.9% 3.8% 3.9% 4.0%
Adj. EPS 4.72 4.51 4.82 4.83
Production
(kboe/d)
305 306 316 324
-30%
-20%
-10%
0%
10%
Further progress in the Black Sea:
An extensive 3D seismic campaign is
underway in the Black Sea, following
the frontier Domino-1 discovery of 1H
2012. The OMV Petrom / Exxon J V
has secured a rig to re-enter the
Neptun block, but with this not until
late 2013 it is a more medium-term
source of potential upside.

41

Fig. 82: OMV financial summary, 2011-16E


Brent ($/bbl) 111.4 111.6 105.0 100.0 95.0 95.0
OMV Refining margin west ($/bbl) 1.83 3.78 2.70 2.95 3.88 3.88
/$ average 1.39 1.29 1.25 1.25 1.25 1.25
Group Production (kboe/d) 288 305 306 316 324 350
Petrom Production (kboe/d) 186 182 181 180 177 175
E&P OMV 866 1,545 1,700 1,684 1,623 2,030
E&P Petrom 1,281 1,315 1,324 1,215 1,072 1,046
R&M OMV 182 495 313 323 394 399
R&M Petrom 47 -6 4 71 117 121
Gas 203 89 167 275 279 283
Gas (Petrom) 36 70 60 60 60 60
Corporate -62 -67 -100 -100 -100 -100
Consolidation -48 -102 0 0 0 0
Financials -273 -198 -230 -162 -124 -100
Taxation -656 -1,117 -1,186 -1,231 -1,222 -1,446
Profit after Tax 1,576 2,026 2,052 2,135 2,099 2,292
Hybrid capital owners -22 -38 -38 -38 -38 -38
Post tax excepts and non-operating items -6 -105 0 0 0 0
Reported Net Income 1,061 1,437 1,477 1,577 1,582 1,784
No. of shares (avg) 312 327 327 327 327 327
Adj EPS () 3.41 4.72 4.51 4.82 4.83 5.45
Rep EPS () 3.42 4.40 4.51 4.82 4.83 5.45
DPS () 1.10 1.15 1.15 1.18 1.23 1.29
Reported Net income 1,570 1,911 2,014 2,097 2,061 2,254
DD&A 1,627 1,889 1,406 1,460 1,516 1,613
Working capital -532 121 0 0 0 0
Other -151 -287 0 0 0 0
Disposals 198 171 250 250 0 0
Capex -2,462 -2,335 -2,779 -2,844 -2,776 -3,174
Dividends -441 -625 -411 -411 -421 -437
Financial Investments -58 -9 0 0 0 0
Capital Increase and Hybrid Bond 1,473 0 0 0 0 0
Decrease/(Increase) in Net Debt 427 437 479 552 380 257
Balance sheet, m 2011 2012E 2013E 2014E 2015E 2016E
Cash and Cash Equivalents 359 2,072 2,072 2,072 2,072 2,072
Net Debt 4,486 4,041 3,562 3,010 2,630 2,373
Equity 13,480 14,692 16,295 17,980 19,620 21,438
Net Debt / Equity 33.3% 27.5% 21.9% 16.7% 13.4% 11.1%
ROACE 10.5% 12.2% 12.1% 11.7% 10.8% 10.9%

42
Galp (Buy, TP EUR 15, 26% potential upside)
While the acceleration of ENIs exit from Galp has weighed on the shares more recently,
longer-term benefits from that process remain in the shape of greater clarity on the future
shape of the shareholder structure, an enhanced free float and relatively supportive
average exit price c. EUR 14/sh incorporating the CB strike price. In the medium term,
we believe a reduced share overhang leaves investors better positioned to focus on the
fundamentals of an investment case offering a positive risk/reward that appears
inexpensively priced at an above-sector average 35% discount to a EUR 18.5/sh SOTP.
Financing is largely secure, the Brazil E&A programme potentially high impact (we
estimate it could unlock EUR 1.0-1.5/sh in value), while the upgrade at Sines is set to
contribute fully from 1Q 2013 which ought to make Galps nearer-term earnings stream
more defensive than some of the peers in the context of the recent decline in European
refining margins. On valuation, we also argue an estimated fair value excluding any
value for risked E&A and Iberian R&M of c. EUR 12/sh limits limited fundamental
downside and leaves a positive risk-reward. Maintain Buy.
A further update on Carcara (BM-S-8, Brazil) in 1H 2013: The recent update was
supportive of the resource potential of Carcara (Galp 9.8% net stake), pointing to a
significant oil column of at least 471m. We expect the consortium to come back to the
market with an estimated resource range later in 1H 2013, while an extension well
assessing reservoir productivity is now scheduled for 2H13.
Other exploration Brazil, Mozambique & Namibia: In Brazil, we would flag: 1) a
likely update on the J upiter NE appraisal well later in 1Q 2013, which is testing a
potential deeper OWC point and resource upside; 2) the possibility the high risk-reward
Ararauna well is drilled this year in the frontier Potiguar basin (pending environmental
licenses), and; 3) previously announced plans to drill on Caramba (BM-S-21) and in the
Pernambuco basin this year. In Mozambique, there are plans to test a more oil-prone
prospect to the south of Area 4 in mid-2013 (Galp 10%), while we expect a three well
campaign in Namibia (Galp farmed into offshore acreage with HRT in late November) to
begin later in 1Q 2013.
ENI lock-up expiry: ENIs latest 90-day lock-up period expires 27 February. The upside
case would be a strategic investor materialises for the majority of ENIs remaining 8%
over which Amorim does not have an option/right of first refusal. This, alongside a
clearer understanding of Amorims long-term objectives, would likely be supportive.
R&M confirmation the Sines upgrade is fully operational: After delays during 2012,
the upgraded platform at Sines is finally expected to make a full cash flow contribution
from 1Q 2013. Delivery of the USD 2.5-3.5/bbl margin uplift management has targeted
would help mitigate the effect of the recent step down in European refining margins.
FY results and a March CMD: A 4Q 2012 trading statement is due 21 J anuary, followed
by FY results on 11 February. A CMD update is then scheduled for 5 March in London.

Fig. 83: Galp: Key valuation metrics

Fig. 84: Galp three-year rel. performance vs. EU Oils (USD)

Metric 2012E 2013E 2014E 2015E
PE ($) 28.2x 21.1x 18.5x 14.8x
EV/DACF ($) 16.3x 12.2x 10.9x 9.0x
FCF Yield -1.1% -0.7% 0.8% 2.5%
Div. Yield 2.2% 2.6% 3.0% 3.3%
Adj. EPS 0.44 0.61 0.69 0.86
Production
(kboe/d)
18 22 37 58
-30%
-20%
-10%
0%
10%
20%
30%
40%
Redeployment of capital: Recent
exploration deals in Namibia and
Morocco point to management
beginning to gradually redeploy
capital in the upstream following the
Sinopec transaction in Brazil in late
2011.
More detail on the co-operative
agreement with ENH: In terms of the
extent to which it can offer
differentiated access to further
investment opportunities in
Mozambique.

43
Fig. 85: Galp financial summary, 2011-16E


Assumptions 2011 2012e 2013e 2014e 2015e 2016e
Brent ($/bbl) 111.0 111.6 105.0 100.0 95.0 95.0
Urals ($/bbl) 109.2 110.3 103.0 98.0 92.5 92.5
Rotterdam refining margin ($/bbl) 3.38 6.80 4.50 4.50 5.00 5.00
/$ average 1.39 1.29 1.25 1.25 1.25 1.25
Entitlement Production (kboe/d) 12 18 22 37 58 79
Clean Income Statement, m 2011 2012e 2013e 2014e 2015e 2016e
Exploration & Production 253 389 445 675 1,015 1,364
Refining & Marketing 218 305 516 517 568 575
Gas & Power 279 334 298 307 317 327
Other business & corporate 15 13 6 6 6 6
DD&A -371 -454 -477 -547 -644 -740
Adjusted Operating Profit 394 588 788 958 1,262 1,532
Net financial income -123 -45 -75 -92 -122 -126
Share of profit of associates 72 73 80 80 80 90
Adjusted Profit before Tax 344 617 793 947 1,220 1,497
Adjusted income tax expense -83 -199 -242 -303 -422 -563
Profit after Tax 261 418 551 643 798 934
Adjusted Net Income 251 367 504 576 709 814
Inventory gains and losses 205 63 0 0 0 0
Exceptional items -23 -8 0 0 0 0
Reported Net Income 433 422 504 576 709 814
Per share data 2011 2012e 2013e 2014e 2015e 2016e
No. of shares (avg) 829 829 829 829 829 829
Rep EPS () 0.52 0.51 0.61 0.69 0.86 0.98
Adj EPS () 0.30 0.44 0.61 0.69 0.86 0.98
DPS () 0.20 0.27 0.33 0.38 0.42 0.49
Clean Cash Flow, m 2011 2012e 2013e 2014e 2015e 2016e
Net income 433 420 504 576 709 814
DD&A 357 392 458 526 621 712
Working capital -395 -445 -13 36 63 53
Other -58 122 93 112 146 153
Cash Flow from Operations 346 537 1,090 1,318 1,627 1,853
Disposals 0 0 0 0 0 0
Shares issued 0 2,819 0 0 0 0
Total Sources of Funds 346 3,356 1,090 1,318 1,627 1,853
Capex -979 -1,094 -1,180 -1,200 -1,300 -1,300
Dividends -53 -234 -232 -290 -315 -381
Other -133 -60 -75 -92 -122 -126
Decrease/(Increase) in Net Debt -664 2,056 -397 -264 -110 46
Balance Sheet, m 2011 2012e 2013e 2014e 2015e 2016e
Cash and Cash Equivalents 298 2026 2026 2026 2026 2026
Net Debt 3,504 1,448 1,845 2,109 2,219 2,173
Equity 2,942 6,841 7,160 7,513 7,996 8,549
Net Debt / Equity 119.1% 21.2% 25.8% 28.1% 27.7% 25.4%
ROACE 5.9% 6.1% 6.9% 7.5% 8.8% 9.6%

44
Fig. 86: Galp SOTP


UPSTREAM
Risk Factor
Net Risked
Reserves
(mmboe)
$/boe
(Base
$95/bbl)
Base NAV
($m)
Base NAV
(m) Comments
Brazil
BM-S-11 (Lula) 459 100% 459 5.9 2,729 2,183 2.6 Based on pre-salt field model, est. 60% booked
BM-S-11 (Cernambi) 90 100% 90 7.8 704 563 0.7 Based on pre-salt field model, est. 60% booked
2P Reserves 549 549 3,433 2,746 3.3
BM-S-11 (Lula) 306 100% 306 5.9 1,820 1,456 1.8 Based on pre-salt field model, est. 40% unbooked
BM-S-11 (Cernambi) 60 100% 60 7.8 469 375 0.5 Based on pre-salt field model, est. 40% unbooked
BM-S-11 (Iara) 394 100% 394 5.1 2,020 1,616 1.9 Based on pre-salt field model, est. 40% unbooked
BM-S-24 (J upiter) 700 33% 231 2.4 554 444 0.5
BM-S-21 (Caramba) 35 20% 7 3.6 25 20 0.0 Assume 40% discount to Lula valuation
BM-S-8 (Bem-Te-Vi) 25 100% 25 3.6 87 70 0.1 Assume 40% discount to Lula valuation
Other BM-S-11 169 100% 169 0.4 60 48 0.1
Unbooked Resource 1,689 1,192 5,035 4,028 4.9
Risked E&A upside (Santos basin) 282 20% 56 5.0 282 226 0.3
Total Brazil as at SNP transaction 2,520 1,797 8,750 7,000 8.4 Sinopec deal valued gross assets at $12.5bn. 70%
cash a/c for in core net debt
BM-S-8 upside (Carcara) 196 75% 147 5.0 735 588 0.71
J upiter NE appraisal upside 140 25% 35 2.4 84 67 0.08
De-risking potential on J upiter NE initial 5bn boe 700 25% 175 2.4 420 336 0.41
Other risked E&A upside (non-Santos basin) 846 20% 169 5.0 846 677 0.82
Total Brazil 4,402 2,324 10,835 8,668 10.5
Angola
Block 14 94 0% 94 1,099 879 1.1
Block 32 (Kaombo, Central NE) 53 90% 47 6.6 311 249 0.3
Block 33 13 50% 7 5.0 33 27 0.0
Total Angola 159 0 148 1,443 1,154 1.4
Mozambique
Unbooked Resource 754 100% 754 2.0 1,509 1,207 1.5
Risked E&A 91 50% 45 2.0 91 72 0.1
Total Mozambique 845 800 1,599 1,279 1.5
Risked E&A ex-Brazil 1,359 20% 272 5.0 1,359 1,087 1.3
TOTAL UPSTREAM 6,766 3,543 15,237 12,189 14.7
R&M
2013
EBITDA
(m)
Target
EV /
EBITDA EV (m)
Refining & Marketing 516 5.0x 2,578 3.1
G&P EV (m)
Gas Supply & Distribution
Regulated Asset Base 1,100 1.3
Gas Supply & Distribution 6.0x 476 0.6 Using EV/EBITDA multiple of gas peers
Power
Cogeneration 123 0.1 Valued on replacement cost basis
CCGT 280 0.3 Valued on replacement cost basis
Wind Power EV / Capacity (/MW)
Vale Grande 2.0x 12 0.0 Based on Portugal Wind Farm Economics
Upside 2.0x 196 0.2
TOTAL G&P 2,186 2.6
Group EV 16,953 20.5
Core net debt (2,234)
Associates 730 - Target 10x 2012 earnings
Minority Interest (100) - End 2011 (ex- Brazil effect, as proportionally reflected a
Equity Value 15,350 a/c above)
No. of Shares 829
Implied equity value (/sh) 18.5/sh
Net Unrisked
Reserves
(mmboe)
LT Brent Price $95/bbl
Base Case
NAV
(/share)

45


46
Appendix A-1
Analyst Certification
We, Theepan J othilingam and Matt Lofting, hereby certify (1) that the views expressed in this Research report accurately reflect
our personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of our
compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this
Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by
Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.

Issuer Specific Regulatory Disclosures

The term "Nomura Group" used herein refers to Nomura Holdings, Inc. or any of its affiliates or subsidiaries, and may refer to one or more
Nomura Group companies.
Materially mentioned issuers

Issuer Ticker Price Price date Stock rating Sector rating Previous rating Date of change
BG Group BG/ LN 1041p 10-J an-2013 Buy Neutral Not Rated 20-Oct-2011
BP BP/ LN 461p 10-J an-2013 Neutral Neutral Not Rated 20-Oct-2011
Eni ENI IM EUR 19.23 10-J an-2013 Buy Neutral Not Rated 20-Oct-2011
Total FP FP EUR 39.54 10-J an-2013 Neutral Neutral Reduce 31-J ul-2012
Galp Energia GALP PL EUR 12.14 10-J an-2013 Buy Neutral Neutral 03-Sep-2012
OMV OMV AV EUR 28.84 10-J an-2013 Neutral Neutral Buy 12-J ul-2012
Royal Dutch Shell RDSB LN 2203p 10-J an-2013 Buy Neutral Not Rated 20-Oct-2011
Repsol REP SM EUR 16.42 10-J an-2013 Neutral Neutral Buy 03-Sep-2012
Statoil STL NO NOK 141.80 10-J an-2013 Reduce Neutral Neutral 12-J ul-2012


47
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impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the
company's earnings differ from estimates.


48
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A Closer Look at Production and Cashflow

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European Oil

EUROPEAN INTEGRATED OIL

9 The key moving parts

10 Assessing risk metrics

12 Growth barrels offer a higher margin than base portfolio

12 but some of the decline barrels are high margin too

13 Company conclusions Shell, ENI, BG and Galp the winners

22 RD Shell (Buy, TP 2,500p, 19% potential TSR)

24 BP (Neutral, TP 455p, 6% potential TSR)

26 Total (Neutral, TP EUR 40, 8% potential TSR)

28 ENI (Buy, TP EUR 19, 7% potential TSR)

31 Statoil (Reduce, TP NOK 145, 8% potential TSR)

33 BG Group (Buy, TP 1,600p, 57% potential TSR)

37 Repsol (Neutral, TP EUR 15.5, 2% potential TSR)

40 OMV (Neutral, TP EUR 27, -3% potential TSR)

42 Galp (Buy, TP EUR 15, 26% potential upside)

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