INVESTORS' SOAPBOX PM
Valuation Gush for Integrated Oil
Banc of America Securities
9 West 57th St.
New York, N.Y. 10019
(Tel) (212) 583-8000
WE ARE RAISING OUR 2006 OIL-PRICE FORECAST to $65 per barrel from $58 to reflect unexpected strength. Oil prices are supported above the $50-to-$60 per-barrel range on the recognition that near-term geopolitical pressures can sustain petroleum product pricing.
We are lifting the 2007 oil-price forecast to $55 per barrel from $45 as a gradually improving supply/demand balance eases — but does not collapse — prices from this year's peak.
Valuations for the integrated oil sector have not tracked the rise in crude and refining margins, providing a buying opportunity even as the commodity peaks. As oil prices pull back it should offer a catch-up period in performance.
We are increasing our earnings estimates by 6% in 2006 and by 20% in 2007, resulting in sustainable earnings growth through next year. Our higher commodity outlook and year-end reserve valuation result in a 10% lift to price targets in dollar terms.
Despite year-to-date performance, valuations remain compelling even with short-term risk of a pullback in oil prices. We see the best value among the Majors and U.S. integrated oil companies with average upside potential of 10% to 12%, compared to 5% downside potential for the European oil sector based on $45-per-barrel midcycle oil prices. Exxon Mobil is still top pick.
The 9% increase in oil prices over the fourth quarter partially offsets significantly weaker U.S. natural-gas prices and global-refining margins. Accordingly, earnings are expected to be flat from the 2005 fourth quarter but still up 36% year over year. Mostly now unhedged Amerada Hess should see earnings increase 28% quarter over quarter and more than double from last year. Exxon Mobil, BG Group and Eni look poised to beat consensus estimates by more than 5%, while Royal Dutch Shell and Total may modestly disappoint.
We are downgrading Statoil to Neutral from Buy despite the associated price-target increase driven by our higher commodity deck. Year-to-date, Statoil is up 44% versus a 5% rise in the S&P 500, outperforming the 14% increase for the major oil companies and 22% increase for the U.S. integrated oil companies.
— Daniel L. Barcelo, CFA
The opinions contained in Investors' Soapbox in no way represent those of Barron's Online or Dow Jones & Company, Inc. The opinions expressed are those of the newsletter's writer(s).
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Royal Dutch Shell conspired directly with Hitler, financed the Nazi Party, was anti-Semitic and sold out its own Dutch Jewish employees to the Nazis. Shell had a close relationship with the Nazis during and after the reign of Sir Henri Deterding, an ardent Nazi, and the founder and decades long leader of the Royal Dutch Shell Group. His burial ceremony, which had all the trappings of a state funeral, was held at his private estate in Mecklenburg, Germany. The spectacle (photographs below) included a funeral procession led by a horse drawn funeral hearse with senior Nazis officials and senior Royal Dutch Shell directors in attendance, Nazi salutes at the graveside, swastika banners on display and wreaths and personal tributes from Adolf Hitler and Reichsmarschall, Hermann Goring. Deterding was an honored associate and supporter of Hitler and a personal friend of Goring.
Deterding was the guest of Hitler during a four day summit meeting at Berchtesgaden. Sir Henri and Hitler both had ambitions on Russian oil fields. Only an honored personal guest would be rewarded with a private four day meeting at Hitler’s mountain top retreat.
IN JULY 2007, MR BILL CAMPBELL (ABOVE, A RETIRED GROUP AUDITOR OF SHELL INTERNATIONAL SENT AN EMAIL TO EVERY UK MP AND MEMBER OF THE HOUSE OF LORDS: 
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A head-cut image of Alfred Donovan (now deceased) appears courtesy of The Wall Street Journal.
