Goldman Saches has extended their “Top 280 projects to change the world" to “Top 330 projects to change the world" with a detailed 268pg report. The Top 330 Projects now represent 565 bnboe of oil and gas reserves and almost half the total planned capex for the Majors over the next four years. The “Winners? of the last seven editions of this report have outperformed peers by 6% on an annualized basis. In this edition we identify five investment themes and 25 global companies among the NOCs, Majors, E&Ps and Services to generate alpha with Top 330.
This edition’s winners: BG, Shell, Tullow, Chesapeake, EOG, Petrobras, OGX, and Novatek.
GS have based their selection of winners on a combination of 3 factors:
1. Materiality. GS require that the NPV of a company’s portfolio as a % of its EV is above 40%.
2. Cash flow uplift, which measures how the Top 330 portfolio is likely to transform the company’s cash generation: we select companies where the short-term uplift (two years) is above 13% and the medium-term (five years) is above 40%.
3. Production uplift, we select companies where the short-term uplift to production is above 13% and the medium-term is above 30%.
The “Winners" therefore own material new projects, which represent a large component of their market value and which we estimate will materially lift their future cash flows and production in both the short and medium term.
We also include a profitability threshold of a minimum 1.3x P/I at a discount rate of 10% for the new projects; this aims to ensure that our analysis captures companies reinvesting their money in attractive projects.
Five investment themes:
1. Gas price upside in the BRICs: as LNG becomes increasingly expensive, we think that domestic gas prices in LNG importing (China, India, Brazil) and exporting (Russia) countries are likely to increase.
2. Success in frontier exploration: Success in frontier exploration is redefining the oil cost curves and companies’ profitability. Increased activity will benefit the seismic companies.
3. Increasing technical complexity: The renewed focus on frontier developments benefits oil services companies, particularly those which have a competitive advantage in high growth areas where barriers to entry are high.
4. M&A in technological frontiers: We see an increased focus from NOCs on buying minority stakes in assets which offer them access to new technological applications, i.e., deepwater, unconventional resources, heavy oil, and LNG.
5. Unconventional liquids M&A: The past three years have seen over US$80 bn of acquisitions in unconventional gas from Majors and NOCs.
Unconventional liquids are likely to see a similar M&A wave, in our view.
