RBC Global Equity Team Click here for contributing analysts' contact information
September 3, 2020 Energy Insights Back-to-School Virtual Energy Seminar Finale RBC Capital Markets hosted the finale of its Back-to-School Energy Seminar yesterday. The event consisted of a number of panel discussions and fireside chats. Discussions were lively and touched on a broad array of topics, the highlights of which are summarized below, with more detail included within this report. The summary from Day 1 can be found here. EQUITY RESEARCH EQUITY Thematic Highlights Framing the Global Oil Landscape. Renewables would be the clear winner if Joe Biden is elected in November, though natural gas could receive significant under-the-radar support, as its development assists key climate and foreign policy objectives. Perhaps most consequential for near-term balances if Biden is elected would be an American re-entry into the 2015 JCPOA nuclear deal that could bring 1 mb/d+ of Iranian exports back onto the market by 2H 2021. Gulf producers contend that they are well positioned for the looming energy transition, as they have the lowest-cost and greenest barrels.
LNG Insights and Perspective. We hosted a conversation with Shell’s Director of Integrated Gas & New Energies, Maarten Wetselaar, which ran through some key takeaways on the current status of the LNG market and longer-term dynamics. We found Shell more bullish on LNG than in our recent conversations, particularly around medium-term gas pricing (2023+).
Renewable and Alternative Energy Panel. Algonquin and NextEra emphasized the increasing role of ESG in conversations, from investor dialogue to financing discussions. Given the increased focus on ESG and climate change, panelists expect to see an increased amount of investment into renewables from international oil and gas companies as they work toward sustainability and carbon-intensity targets.
Royalty Panel. Panelists expect their capital structure to remain unchanged on the other side of the downturn and are not opposed to the opportunistic use of debt in delivering or accelerating value. PrairieSky and Freehold plan to stick to their current dividend payout strategies, while Brigham still plans to begin holding back some cash in Q3/20 for M&A and to trend to a payout ratio of 75–80% over time.
Sustainable Investing Gaining Momentum. There is no longer any doubt that ESG is becoming a core tenet of investing globally and being incorporated into more and more investment processes. Our conversation with OMERS Capital Markets framed how the organization integrates sustainable investing principles into its analysis to understand future risks and opportunities, led by a fulsome ESG assessment.
Global Upstream Capital Allocation Decisions. Conoco’s plan remains to return at least 30% of cash to shareholders by prioritizing maintenance production, dividend sustainability, and a strong balance sheet. Management believes the E&P business model is fundamentally maturing and it may investigate variable dividends as a way to effectively return cash to shareholders while managing through volatile commodity cycles. As for evaluating investment, Conoco uses supply cost as its primary determinant of capital allocation and believes its geographic diversification and strong business fundamentals position it ahead of the pack.
Priced as of prior trading day's market close, EST (unless otherwise noted). Disseminated: Sep 3, 2020 02:13ET; Produced: Sep 3, 2020 02:13ET All values in CAD unless otherwise noted. For Required Non-U.S. Analyst and Conflicts Disclosures, see page 11.
Energy Insights
Framing the Global Oil Landscape Participant: Helima Croft – Head of Global Commodity Strategy and MENA Research Moderator: Nick Sellmer – Institutional Equity Energy Sales
Renewables would be the clear winner if Joe Biden is elected in November, though natural gas could receive significant under-the-radar support, as its development assists key climate and foreign policy objectives. While oil would be out of favor, it would not face a full frontal assault under a Biden presidency. For example, the former Vice President was very explicit in his campaign speech in Pittsburgh this week that he would not ban fracking. President Trump, on the other hand, will continue to be a cheerleader for the US oil and gas industry if re-elected and American energy dominance would be an important aspect of his second-term foreign policy program. Perhaps most consequential for near-term balances if Biden is elected would be an American re-entry into the 2015 JCPOA nuclear deal that could bring 1 mb/d+ of Iranian exports back onto the market by 2H 2021. Such a scenario could cause significant friction at OPEC, as Iran would undoubtedly insist on being able to bring those barrels back and regain the market share that it was forced to cede to regional rivals Saudi Arabia and UAE. If Trump wins, expect a continuation of the maximum pressure policy. Gulf producers contend that they are well positioned for the looming energy transition, as they have the lowest-cost and greenest barrels. This in turn could lead to a greater concentration of production in the Middle East, which would enable those petro states to retain their geopolitical influence. Higher-cost sovereign producers such as Nigeria, Angola, and Venezuela could be the biggest losers in the peak demand scenario. For now, the OPEC+ union appears to be on solid footing. Saudi Arabia was able to establish a credible threat of returning to market share in March and none of the other producers seem to want to risk another major move lower in oil prices. Hence the improved compliance performance since the April agreement was inked. That said, we continue to believe that a combination of rising prices, rising US production, and additional US sanctions could again weaken Russian resolve and embolden the powerful critics of the production agreement, principally Rosneft’s CEO, Igor Sechin.
September 3, 2020 2
Energy Insights
LNG Insights and Perspective Participant: Maarten Wetselaar – Integrated Gas & New Energies Director, Shell Moderator: Biraj Borkhataria – Co-Head European Energy Research
We hosted a conversation with Shell’s Director of Integrated Gas & New Energies, Maarten Wetselaar, which ran through some key takeaways on the current status of the LNG market and longer-term dynamics. We found Shell more bullish on LNG than in our recent conversations, particularly around medium-term gas pricing (2023+).
A challenging market, although with some green shoots. Seeing spot LNG prices below $2/mmbtu in recent months was clearly challenging for many players in the market; however, most recently we’ve seen a rally in gas prices from the lows. Shell believes this is partly driven by higher demand from China, the country that will be the most significant growth driver of LNG in the next five years, if not longer. Elsewhere, Japan and South Korea have seen demand disappoint this year, partly due to higher output from nuclear facilities. Shell suggested that gas prices are likely to strengthen further going forward, although this is subject to whether we get another warm winter or more “normal” temperatures. Maintaining longer-term positive view. Despite the many challenges of COVID19 and its impact on gas demand, Shell still expects the LNG market to grow on a volumetric basis in 2020, and it continues to see the market tightening over the medium term. Many projects have been deferred, including some potentially large-capacity additions in Mozambique, Papua New Guinea, and the US. While gas demand over time does face some competition from other sources, Shell does not expect these to be material out to 2040, and it sees the most pressing opportunity as faster coal-to-gas switching, particularly in Asia. Update on LNG Canada. COVID19 has clearly had an impact on the project and measures taken resulted in a worksite being only 40% occupied. At the same time, yards in China were closed for a period of time and Shell therefore lost a bit of contingency on its schedule for the project. That said, Chinese yards were back open in April, and in general progress has been satisfactory since then. Shell does not expect to actively market the gas; rather, it is sold into the company’s overall >70mtpa trading portfolio, although Shell did note that Asian buyers were specifically requesting to purchase Canadian LNG cargoes given the strength of inter-government relations. Looking elsewhere at the project funnel. Shell recently exited the Lake Charles project in the US Gulf Coast; this was a project obtained through its BG acquisition. Shell described it as a “good brownfield project” but views US Gulf Coast LNG as commoditized and therefore didn’t see much differentiation from developing the project. Elsewhere, LNG Canada could be expanded from two trains to four, while Shell also has some additional options (Tanzania and Oman were mentioned). Finally, Shell seemed more bullish on a potential entry in the Qatar LNG expansion. This is clearly a source of extremely low-cost gas, but we think the question is whether the entry cost limits international firms from generating decent returns. Hydrogen’s role as competition for oil and gas over time. Shell believes Hydrogen will play a major role by 2050, and investments are ramping up in this area. In the near term, supply is expected to serve heavy transport, particularly trucking, and this is the most obvious way in which heavy trucking can be de-carbonized. Over time, hydrogen is also a solution for carbon-intensive industries to de-carbonize (think steel, cement, etc.), and this is clearly going to be a competing fuel for both oil & gas and coal. Shell does not expect green hydrogen to be sufficient in supply in the medium term and therefore sees blue hydrogen (from gas, with CCS) as also playing a key role over time. Carbon neutral LNG, want some? In recent months, Shell has sold five LNG cargoes that are carbon neutral on a Scope 3 basis, from production to end use. This is done via voluntary offsets, which Shell either generates from its own growing carbon offsets business or buys in the market. These costs are then largely passed on to the end September 3, 2020 3
Energy Insights
consumer, as the energy is marketed accordingly, for a premium. Shell expects this to be a growing theme going forward and to ramp up its own carbon offsets business over time.
September 3, 2020 4
Energy Insights
Renewable and Alternative Energy Panel Participants: Jeff Norman – Chief Development Officer, Algonquin Power & Utilities Paul Cutler – Treasurer, NextEra Energy Moderators: Shelby Tucker – U.S. Utility Analyst Nelson Ng – Energy Infrastructure Analyst
ESG continues to dominate conversations. Both panelists emphasized the increasing role of ESG in conversations, from investor dialogue to financing discussions. At NEE, ESG has historically been a major consideration given the company’s early adoption of renewables. NEE’s initial involvement in renewables was driven by financial considerations, while companies today are taking more of an interest given investor sentiment toward environmental/social considerations. Similarly, AQN was drawn to renewables because of the stable and predictable earnings, and while the “E” of ESG has historically drawn the majority of attention, “S” and “G” discussions are becoming more important. Increased interest in renewables from large international oil and gas companies. Given the increased focus on ESG and climate change, both panelists agreed that they expect to see an increased amount of investment into renewables from international oil and gas companies as they work toward sustainability and carbon-intensity targets. They view the increased interest from these companies as a source of new competition in the space, while also providing opportunities for joint venture partnerships and new offtaker agreements. Hydrogen outlook promising. Hydrogen continues to gain prominence in discussions about a clean energy future. NEE noted that while the technology for hydrogen is already feasible, the main concern is how to make hydrogen cost-effective. NEE plans to pursue hydrogen with its traditional “toe-in-the-water” approach, investing in small pilot projects with potential for increased expansion/implementation as it gains expertise. Winding down of PTCs should not have material impact on overall space. While the U.S. production tax credits (PTCs) are currently slated to begin winding down, both panelists seem comfortable with the return profile of projects without PTCs. NEE noted that the major shift is likely to coming from a financing perspective, as the PTCs essentially drive companies toward the tax equity market. Because the tax equity market is not as broad or as deep as the traditional debt/equity markets, it requires strong relationships with key players. Going forward, both companies agree that the cost of capital will decrease over time as the financing shifts away from tax equity. Attractive returns for developers who get involved early. Much of our discussion focused on the outlook for renewable returns going forward. AQN indicated that U.S. returns have been relatively stable over the last few years despite the lower development risk. This sentiment was echoed by NEE, which noted that greenfield developers are often able to generate higher returns by extracting value throughout the entire process (site identification, project construction, and asset operation). Opportunities to green existing gas and water utilities. AQN noted that water distribution assets are energy-intensive, which provides opportunity to green the energy requirement using renewables. AQN also noted that there are opportunities to increase sustainability by improving the conservation of water, through the treatment of waste water and recharging of aquifers. On natural gas distribution, hydrogen and renewable gas could be used as a substitute for or as an additive to natural gas to reduce carbon intensity. Both AQN and NEE agreed that the technology is in the very early stages, but they are optimistic on the opportunities that it provides.
September 3, 2020 5
Energy Insights
Royalty Panel Participants: Andrew Phillips – President and CEO, PrairieSky Royalty Ltd. Blake Williams – CFO, Brigham Minerals Inc. Tom Mullane – President and CEO, Freehold Royalties Ltd. Moderators: Luke Davis – Canadian E&P and Royalty Analyst TJ Schultz – US Energy Infrastructure and Royalty Analyst
M&A remains in focus despite a tough commodity price environment. Both Brigham and Freehold highlighted their interest in pursuing M&A in the current environment, specifically with counterparties possessing high-quality assets and strong balance sheets. Both companies noted the need for any acquisitions to include payors with the financial wherewithal to develop the property and maintain a reasonable drilling cadence. PrairieSky continues to evaluate all opportunities but believes that the current share price does not reflect the fundamental value of the underlying business, making buybacks more enticing near-term. Royalty contracts structured to mitigate counterparty risk. Every member of the panel emphasized that their royalty contracts are structured to reduce and avoid counterparty risk. PrairieSky and Brigham both hold meaningful fee title land, whereby they perpetually own the mineral rights and therefore are not exposed to subordinate claims in bankruptcy proceedings (i.e., a bankruptcy will result in the lease reverting back to the mineral owner, who is then entitled to re-lease to another counterparty). Freehold noted that it will take production in kind to avoid any reduction in revenue if a payor appears to be headed toward a CCAA filing. Variable dividend policy unlikely to gain traction in Canada near-term. Both PrairieSky and Freehold did not indicate that they are interested in pursuing a variable dividend. PrairieSky believes its shareholders prefer the stability of a constant dividend while Freehold will stick to its target dividend payout ratio of 60–80%. We expect that both will increase their dividend payments over time, dictated by free cash generation. Brigham employs a variable dividend and has been mapping to a 100% payout ratio within a quiet M&A market. Brigham still plans to begin holding back some cash in Q320 for M&A and to trend to a payout ratio of 75–80% over time. Capital structures unlikely to change on the other side. All participants are happy with their current capital structures and don’t feel that the current environment warrants any significant adjustments (i.e., ranging from limited leverage to no debt on a long-term basis). The panelists noted that they are not opposed to the use of debt to assist in delivering or accelerating value, but they would use it thoughtfully and in the same manner that they have historically. Free cash flow priorities vary among panel members. Currently, both Brigham and Freehold hold their dividend as the highest priority, followed by acquisitions. PrairieSky highlighted its counter-cyclical strategy as the company focuses on buybacks, in stark contrast to its E&P peers that have largely cut share repurchases as a usage of free cash flow. ESG increasingly a focus. All companies highlighted limited or no exposure to decommissioning liabilities and limited emissions intensity inherent in the royalty model. This results in a favorable comparison relative to E&Ps. All panel members also noted their goal to align with high-quality operators that generally employ more fulsome ESG strategies. Notably, PrairieSky has strict environmental standards written into its contracts and has actually removed an operator from its lands for related violations. PrairieSky also identified its interest in the Leduc reefs in Alberta, where it is working with a number of operators to implement a C02 sequestration scheme.
September 3, 2020 6
Energy Insights
ESG Institutional Investor Perspective Participant: Adelaide Chiu – Global Equities Portfolio Manager, OMERS Moderators: Lindsay Patrick – Managing Director & Head, Sustainable Finance Nick Sellmer – Institutional Equity Energy Sales
Sustainable investing gaining in momentum. There is no longer any doubt that ESG is becoming a core tenet of investing globally and being incorporated into more and more investment processes. Our conversation with OMERS Capital Markets framed how the organization integrates sustainable investing principles into its analysis to understand future risks and opportunities, led by a fulsome ESG assessment. More specifically, OMERS views ESG risk factors within its overall investing strategy and examines these in a financial context, including impacts on terminal value, growth rates, or potential litigation risk. Numerous factors relevant to the energy sector. OMERS has internal processes and guidelines in place for ESG and also uses input from external organizations, such as SASB. Each component is just as important, even though Environmental factors appear to garner more attention. Social factors have been heightened by the COVID pandemic and are increasingly being evaluated. The energy sector has an opportunity in front of it and several companies are showing leadership and making headway with carbon emission reductions, net zero pathways, and transition plans. At the more granular level, there is encouraging progress on a number of fronts that have cumulative impacts, such as water/waste water management, methane capture, enhanced HSE standards & training, increased board diversity and compensation structures, and improving community and stakeholder relations. Momentum, engagement, and progress vs. divesting. OMERS sees a beneficial path toward collaboratively engaging with companies on how to improve their ESG assessment with more disclosure, including carbon emissions. Likewise, the organization views momentum in ESG as a potential driver of performance. Positively, OMERS prefers to work with companies proactively rather than exclude them because of their current ranking or status on any one factor. Companies seen as assisting a transition to a lower carbon energy future are likely to be viewed favourably by investors, such as OMERS, and may have increasing opportunities to earn ROI as green technologies improve.
September 3, 2020 7
Energy Insights
Global Upstream Capital Allocation Decisions Participant: Matt Fox – Executive Vice President and Chief Operating Officer, ConocoPhillips Moderator: Scott Hanold – Managing Director, US E&P Analyst
Commodity macro outlook. The four-sigma event that occurred this year was tough to predict and meaningfully impacted the short-term outlook. However, the fundamental outlook for the medium-to-long term may not be structurally different. While demand looks a bit lower, the impact on supply should be significantly lower. An example is the impact on unconventional production in the U.S., which was 8.2 MMb/d in late 2019 but could decline to 6.6 MMb/d by YE20 due to a 40% underlying decline rate and lower capital investment. At strip prices, if the industry reinvests 100% of cash flow, it may be difficult to maintain that 6.6 MMb/d of unconventional production. Prior to COVID and the oil price move, COP thought unconventional production would have reached 10.5– 11.0 MMb/d by 2022 but it now expects around 6.5 MMb/d. Changing E&P business model. Since 2016, COP has focused on a differentiated model to appeal to shareholders, which delivered more than 40% of cash back, and there is an expectation of doing that again this year and beyond. Management understands the fundamental relationship of oil price signals and impact on production growth, so it has been focused on running its business differently. The plan remains to return at least 30% of cash back to shareholders by prioritizing maintenance production, dividend sustainability, and a strong balance sheet first. COP wants to make sure that its base dividend is set at a level that can be sustained at a low oil price. At higher oil prices where excess FCF exists, there would be the ability to modestly invest in growth projects that have a low cost of supply and look at other cash returns to shareholders. Options for shareholder returns. The E&P business is maturing, so it is important to give cash back to shareholders in order to represent a relevant investment opportunity. Shareholder preference in the recent past was for stock buybacks and very little value has been placed on variable dividends. COP had bought back ~$3 billion per year through the cycles, but the four-sigma event this year demonstrated the shortcomings of that process. There appears to be interest in the variable dividend going forward and it seems to be an option for COP to evaluate. No particular focus on geography or commodity, but primary determinant of capital allocation decisions is cost of supply. Management does not budget around forecast oil prices because that is difficult to predict. The lowest cost of supply will attract its investment dollars. Management established that discipline 5–6 years ago and believes that business models with the lowest cost of supply will “win” in the end. The company has a continual and relentless process to push the supply cost lower. Examples of COP’s best projects include Alaska infill (~$20/bbl), Norway subsea tie-backs (low-$20’s/bbl), Malaysia (mid-teens $/bbl), Montney (low $30’s including acquisition), Eagleford phase 1 (high $20’s/bbl), and Delaware Permian (mid-$30’s/bbl). Two-thirds of COP’s 15 Bboe of resources have yet to be developed. Projects in that stack have a cost of supply below $40/bbl, with the average cost of supply being below $30/bbl. Has not said “never” to corporate acquisitions, but the bar is high. Management was very clear on decision criteria for resource additions by acquisition, corporate, or organic investment. Acquisitions must have a cost of supply below $40/bbl and (significantly) below $50/bbl when including acquisition costs. In recent years, the company was more focused on asset acquisitions that bolster core areas, such as the Alaska North Slope & Kuparuk and the Montney purchase. In particular, the Montney acquisition was a surprisingly low cost of supply opportunity that doubled its position and was located in the sweet spot. Thus far there have not been corporate opportunities that meet its criteria, but COP is always hopeful that something might turn up. At current market
September 3, 2020 8
Energy Insights
valuations, transactions can be accretive, but buyers and sellers need to be aligned with respect to the premium paid and management change-of-control bonuses. Environmental and regulatory concerns are integrated into the investment decision process. Investor conversations before COVID focused heavily on how to deal with climate change and regulatory risk to the business/industry. Over the last 5–6 years, COP’s GHG emissions were reduced by 40%, half of that organically. Management has not come to a conclusion to change the business model (i.e., invest in alternative energy), but there has been a change in business practices to improve the “E” in ESG. Based on longer-term oil & gas demand forecasts, at least $11 trillion of capital investment needs to occur over the next 20 years, so there will be a role for E&P companies that have low cost of supply, are environmentally responsible, and are shareholder-friendly. Oil & gas is an essential part of the energy transition, and the best companies should be able to deliver value for shareholders during the shift. Investment decisions have been influenced by environmental needs, as demonstrated by past capital allocation choices where COP declined a project due to the environmental impact. Positioning for regulatory risks. The company recognizes the risks of regulatory change and believes that it is well positioned through its diversified portfolio. Its discussion with the Biden campaign indicate that the impact will be more directed toward new federal leasing and there isn’t motivation to stop activity on existing onshore and offshore leases that are permitted. For COP, only 5% of its Alaska acreage is on federal land; the rest is on state lands. However, the Willow project is on federal land, though the company has the EIS approval and expects record of approval in the next month or so. Willow is also a conventional project that differs from the “targeted” unconventional hydraulic fracking. The Alaska ballot initiative was also discussed because the proposal would increase oil & gas production taxes. COP indicated that it is too early to gauge the outcome, but the implication would be $200–300 million of CF impact (on COP) at $50/bbl. The company thinks these decisions can come and go, so it will be patient with investment decisions if it makes sense. Industry is catching on to the returns-based model, but COP continues to differentiate from the pack. COP has long been ahead of the curve with its commitment to prioritizing shareholder returns and the balance sheet over incremental growth. Industry participants are beginning to catch up and are taking a similar approach to capital allocation that favors returns before production growth. The company still sees its model as differentiated because of its: (1) lower production decline rates; (2) track record of and commitment to at least 30% of CFO to shareholders; (3) diversification of geography, commodity, and unconventional/conventional mix; (4) upside to commodity prices (unhedged) and 70% internationally priced (Brent markets); and (5) exposure to good fiscal regimes.
September 3, 2020 9 Energy Insights
Contributing Authors
RBC Dominion Securities Inc. Greg Pardy (Co-Head Global Energy Research) (416) 842-7848 [email protected] Michael Harvey (Analyst) (403) 299-6998 [email protected] Robert Kwan (Analyst) (604) 257-7611 [email protected] Luke Davis (Analyst) (403) 299-5042 [email protected] Keith Mackey (Analyst) (403) 299-6958 [email protected] Nelson Ng (Analyst) (604) 257-7617 [email protected]
RBC Capital Markets, LLC Brad Heffern (Analyst) (512) 708-6311 [email protected] Scott Hanold (Analyst) (512) 708-6354 [email protected] Helima Croft (Head of Global Commodity Strategy and MENA(212) 618-7798 [email protected] Research) Shelby Tucker (Analyst) (212) 428-6462 [email protected]
RBC Europe Limited Biraj Borkhataria (Analyst) +442070297556 [email protected]
September 3, 2020 10 Energy Insights
Companies mentioned Algonquin Power & Utilities Corp. (NYSE: AQN US; $14.19; Outperform) Brigham Minerals, Inc. (NYSE: MNRL US; $10.93; Outperform) ConocoPhillips (NYSE: COP US; $36.38; Outperform) Freehold Royalties Ltd. (TSX: FRU CN; C$4.08; Outperform) NextEra Energy, Inc. (NYSE: NEE US; $288.26; Outperform) PrairieSky Royalty Ltd. (TSX: PSK CN; C$9.13; Sector Perform) Royal Dutch Shell PLC (LSE: RDSB LN; GBp1,031.00; Outperform) Required disclosures Non-U.S. analyst disclosure Greg Pardy, Michael Harvey, Robert Kwan, Luke Davis, Keith Mackey, Biraj Borkhataria and Nelson Ng (i) are not registered/qualified as research analysts with the NYSE and/or FINRA and (ii) may not be associated persons of the RBC Capital Markets, LLC and therefore may not be subject to FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Conflicts disclosures This product constitutes a compendium report (covers six or more subject companies). As such, RBC Capital Markets chooses to provide specific disclosures for the subject companies by reference. To access conflict of interest and other disclosures for the subject companies, clients should refer to https://www.rbccm.com/GLDisclosure/PublicWeb/DisclosureLookup.aspx?entityId=1. These disclosures are also available by sending a written request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7 or an email to [email protected].
The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including total revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated by investment banking activities of the member companies of RBC Capital Markets and its affiliates. Distribution of ratings For the purpose of ratings distributions, regulatory rules require member firms to assign ratings to one of three rating categories - Buy, Hold/Neutral, or Sell - regardless of a firm's own rating categories. Although RBC Capital Markets' ratings of Outperform (O), Sector Perform (SP), and Underperform (U) most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are not the same because our ratings are determined on a relative basis. Distribution of ratings RBC Capital Markets, Equity Research As of 30-Jun-2020 Investment Banking Serv./Past 12 Mos. Rating Count Percent Count Percent BUY [Outperform] 776 51.63 238 30.67 HOLD [Sector Perform] 635 42.25 130 20.47 SELL [Underperform] 92 6.12 12 13.04
Conflicts policy RBC Capital Markets Policy for Managing Conflicts of Interest in Relation to Investment Research is available from us on request. To access our current policy, clients should refer to https://www.rbccm.com/global/file-414164.pdf or send a request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7. We reserve the right to amend or supplement this policy at any time. September 3, 2020 11 Energy Insights
Dissemination of research and short-term trade ideas RBC Capital Markets endeavors to make all reasonable efforts to provide research simultaneously to all eligible clients, having regard to local time zones in overseas jurisdictions. RBC Capital Markets' equity research is posted to our proprietary website to ensure eligible clients receive coverage initiations and changes in ratings, targets and opinions in a timely manner. Additional distribution may be done by the sales personnel via email, fax, or other electronic means, or regular mail. Clients may also receive our research via third party vendors. RBC Capital Markets also provides eligible clients with access to SPARC on the Firms proprietary INSIGHT website, via email and via third-party vendors. SPARC contains market color and commentary regarding subject companies on which the Firm currently provides equity research coverage. Research Analysts may, from time to time, include short-term trade ideas in research reports and / or in SPARC. A short-term trade idea offers a short-term view on how a security may trade, based on market and trading events, and the resulting trading opportunity that may be available. A short-term trade idea may differ from the price targets and recommendations in our published research reports reflecting the research analyst's views of the longer-term (one year) prospects of the subject company, as a result of the differing time horizons, methodologies and/or other factors. Thus, it is possible that a subject company's common equity that is considered a long-term 'Sector Perform' or even an 'Underperform' might present a short-term buying opportunity as a result of temporary selling pressure in the market; conversely, a subject company's common equity rated a long-term 'Outperform' could be considered susceptible to a short-term downward price correction. Short-term trade ideas are not ratings, nor are they part of any ratings system, and the firm generally does not intend, nor undertakes any obligation, to maintain or update short-term trade ideas. Short-term trade ideas may not be suitable for all investors and have not been tailored to individual investor circumstances and objectives, and investors should make their own independent decisions regarding any securities or strategies discussed herein. Please contact your investment advisor or institutional salesperson for more information regarding RBC Capital Markets' research. For a list of all recommendations on the company that were disseminated during the prior 12-month period, please click on the following link: https://rbcnew.bluematrix.com/sellside/MAR.action The 12 month history of SPARCs can be viewed at https://www.rbcinsightresearch.com. Analyst certification All of the views expressed in this report accurately reflect the personal views of the responsible analyst(s) about any and all of the subject securities or issuers. No part of the compensation of the responsible analyst(s) named herein is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the responsible analyst(s) in this report. Third-party-disclaimers The Global Industry Classification Standard ("GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard & Poor's Financial Services LLC (“S&P”) and is licensed for use by RBC. Neither MSCI, S&P, nor any other party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
RBC Capital Markets disclaims all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any statements made to the media or via social media that are in turn quoted in this report, or otherwise reproduced graphically for informational purposes.
References herein to "LIBOR", "LIBO Rate", "L" or other LIBOR abbreviations means the London interbank offered rate as administered by ICE Benchmark Administration (or any other person that takes over the administration of such rate). Disclaimer
RBC Capital Markets is the business name used by certain branches and subsidiaries of the Royal Bank of Canada, including RBC Dominion Securities Inc., RBC Capital Markets, LLC, RBC Europe Limited, Royal Bank of Canada, Hong Kong Branch and Royal Bank of Canada, Sydney Branch. The information contained in this report has been compiled by RBC Capital Markets from sources believed to be reliable, but no representation or warranty, express or implied, is made by Royal Bank of Canada, RBC Capital Markets, its affiliates or any other person as to its accuracy, completeness or correctness. All opinions and estimates contained in this report constitute RBC Capital Markets' judgement as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. Nothing in this report constitutes legal, accounting or tax advice or individually tailored investment advice. This material is prepared for general circulation to clients and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The investments or services contained in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about the suitability of such investments or services. This report is not an offer to sell or a solicitation of an offer to buy any securities. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. RBC Capital Markets research analyst compensation is based in part on the overall profitability of RBC Capital Markets, which includes profits attributable to investment banking revenues. Every province in Canada, state in the U.S., and most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as the process for doing so. As a result, the securities discussed in this report may not be eligible for sale in some jurisdictions. RBC Capital September 3, 2020 12 Energy Insights
Markets may be restricted from publishing research reports, from time to time, due to regulatory restrictions and/ or internal compliance policies. If this is the case, the latest published research reports available to clients may not reflect recent material changes in the applicable industry and/or applicable subject companies. RBC Capital Markets research reports are current only as of the date set forth on the research reports. This report is not, and under no circumstances should be construed as, a solicitation to act as securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. To the full extent permitted by law neither RBC Capital Markets nor any of its affiliates, nor any other person, accepts any liability whatsoever for any direct, indirect or consequential loss arising from, or in connection with, any use of this report or the information contained herein. No matter contained in this document may be reproduced or copied by any means without the prior written consent of RBC Capital Markets in each instance. Additional information is available on request.
To U.S. Residents: This publication has been approved by RBC Capital Markets, LLC (member FINRA, NYSE, SIPC), which is a U.S. registered broker-dealer and which accepts responsibility for this report and its dissemination in the United States. Any U.S. recipient of this report that is not a registered broker-dealer or a bank acting in a broker or dealer capacity and that wishes further information regarding, or to effect any transaction in, any of the securities discussed in this report, should contact and place orders with RBC Capital Markets, LLC. To Canadian Residents: This publication has been approved by RBC Dominion Securities Inc.(member IIROC). Any Canadian recipient of this report that is not a Designated Institution in Ontario, an Accredited Investor in British Columbia or Alberta or a Sophisticated Purchaser in Quebec (or similar permitted purchaser in any other province) and that wishes further information regarding, or to effect any transaction in, any of the securities discussed in this report should contact and place orders with RBC Dominion Securities Inc., which, without in any way limiting the foregoing, accepts responsibility for this report and its dissemination in Canada. To U.K. Residents: This publication has been approved by RBC Europe Limited ('RBCEL') which is authorized by the Prudential Regulation Authority and regulated by the Financial Conduct Authority ('FCA') and the Prudential Regulation Authority, in connection with its distribution in the United Kingdom. This material is not for general distribution in the United Kingdom to retail clients, as defined under the rules of the FCA. RBCEL accepts responsibility for this report and its dissemination in the United Kingdom. To German Residents: This material is distributed in Germany by RBC Europe Limited, Frankfurt Branch which is regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). To Persons Receiving This Advice in Australia: This material has been distributed in Australia by Royal Bank of Canada, Sydney Branch (ABN 86 076 940 880, AFSL No. 246521). This material has been prepared for general circulation and does not take into account the objectives, financial situation or needs of any recipient. Accordingly, any recipient should, before acting on this material, consider the appropriateness of this material having regard to their objectives, financial situation and needs. If this material relates to the acquisition or possible acquisition of a particular financial product, a recipient in Australia should obtain any relevant disclosure document prepared in respect of that product and consider that document before making any decision about whether to acquire the product. This research report is not for retail investors as defined in section 761G of the Corporations Act. To Hong Kong Residents: This publication is distributed in Hong Kong by Royal Bank of Canada, Hong Kong Branch, which is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission (SFC) in Hong Kong, RBC Investment Services (Asia) Limited and RBC Global Asset Management (Asia) Limited, both entities are regulated by the SFC. This material is not for general distribution in Hong Kong to persons who are not professional investors (as defined in the Securities and Futures Ordinance of Hong Kong (Cap. 571) and any rules made thereunder. To Singapore Residents: This publication is distributed in Singapore by the Royal Bank of Canada, Singapore Branch, a registered entity licensed by the Monetary Authority of Singapore. This material has been prepared for general circulation and does not take into account the objectives, financial situation, or needs of any recipient. You are advised to seek independent advice from a financial adviser before purchasing any product. If you do not obtain independent advice, you should consider whether the product is suitable for you. Past performance is not indicative of future performance. If you have any questions related to this publication, please contact the Royal Bank of Canada, Singapore Branch. Royal Bank of Canada, Singapore Branch accepts responsibility for this report and its dissemination in Singapore. To Japanese Residents: Unless otherwise exempted by Japanese law, this publication is distributed in Japan by or through RBC Capital Markets (Japan) Ltd. which is a Financial Instruments Firm registered with the Kanto Local Financial Bureau (Registered number 203) and a member of the Japan Securities Dealers Association (JSDA) and the Financial Futures Association of Japan (FFAJ). .® Registered trademark of Royal Bank of Canada. RBC Capital Markets is a trademark of Royal Bank of Canada. Used under license. Copyright © RBC Capital Markets, LLC 2020 - Member SIPC Copyright © RBC Dominion Securities Inc. 2020 - Member Canadian Investor Protection Fund Copyright © RBC Europe Limited 2020 Copyright © Royal Bank of Canada 2020 All rights reserved
September 3, 2020 13