The Goldman Sachs gang remains generally negative on U.S. E&P companies, seeing $55/bbl WTI needed for the group to drive U.S. growth and help repair balance sheets with $45 oil as a threshold where balance sheets weaken.
E&P stocks are at $0.80 per dollar invested, after adjusting for changes in long-term corporate returns, while the group bottomed at ~$0.70 in the last two cycles, the firm says.
Even so, Goldman thinks $45-$55 oil and a shift in shale will benefit a few E&P companies, including "productivity winners" EOG Resources (EOG +0.9%), Pioneer Natural Resources (PXD +0.2%) and Cabot Oil & Gas (COG +0.9%), as well as Diamondback Energy (FANG +0.7%) and RSP Permian (RSPP -0.7%) for productivity plus consolidation.
Among higher beta E&Ps, Continental Resources (CLR +1.8%), Encana (ECA +0.1%) and WPX Energy (WPX +0.1%) are oversold, "with a favorable combination of growth/deleveraging/valuation."
The firm is avoiding Whiting Petroleum (WLL -1%), Oasis Petroleum (OAS +0.1%) and California Resources (CRC +2%) because of questions around their growth, returns and balance sheets.
The proposed deal, which still must be confirmed when OPEC meets in Vienna on May 25, would extend the cuts beyond the original June 2017 expiration and goes beyond the possible six-month extension originally contemplated.
U.S. crude oil +3% at $49.27/bbl, while Brent +2.9% at $52.34/bbl.