Raymond James Quarterly Global Energy Report for 3Q18

Global Research Published by Raymond James & Associates

Energy October 5, 2018 Industry Brief Pavel Molchanov, RJA, (713) 278-5270, [email protected] J. Marshall Adkins, RJA, (713) 789-3551, [email protected] Andrew Bradford, CFA, RJL, 403.509.0503, [email protected] Jean-Pierre Dmirdjian, Res. Analyst, RJEE, +33 (1) 45 64 05 46, [email protected]

Energy: Energy Quarterly ______

This quarterly report aggregates energy research highlights from Raymond James & Associates as well as our international teams: Raymond James Ltd. (Canada) and Raymond James Europe.

Quarterly Highlights

Crude Oil After the 2Q “blowout” in the spread between Brent and WTI prices, the spread narrowed slightly in 3Q – with both benchmarks averaging at their highest levels since 2014. WTI’s $69.61/Bbl average rose 2% q/q, and Brent at $75.26 edged up 1%; the spread was $5.66, splitting the difference between $6.58 in 2Q and $4.08 in 1Q, though it widened back out towards the end of the quarter. We continue to see a supportive fundamental backdrop for the global oil market: the larger U.S. producers are exhibiting restraint in capital allocation; OPEC+Russia’s gradual unwinding of production cuts is being offset by declines in Venezuela and sanctions- related pressure on Iranian exports; there are still supply declines in several non-OPEC geographies; and the picture for global demand growth is broadly upbeat. See page four for details on our oil price assumptions, most recently updated in September to reflect a somewhat narrower Brent-WTI spread for 2019.

Natural Gas In 3Q, Henry Hub bid week prices averaged $2.90/Mcf, up 5% q/q. There continues to be a tug of war between mostly positive demand trends but persistently high supply, especially from Permian associated gas. Industrial demand and pipeline gas exports to Mexico are bullish demand drivers, and LNG exports will become more needle-moving as four U.S. LNG export projects are due to start up between now and year-end 2019. On the other hand, the structural ramp-up in wind and solar is steadily restraining gas’s market share gains in the power sector – even without the longer-term threat that batteries will present to gas peakers. See page four for details on our gas price assumptions.

Stocks The broader market was very strong in 3Q, setting a series of records towards the end of the quarter, as the relentless U.S.-China trade war headlines were more than offset by the tailwinds of strong corporate earnings and a predictable Fed policy. Following a 1Q decline of 1.4% and 2Q gain of 3.1%, the S&P 500 ended 3Q up 7.2%. Despite a solid end to the quarter, energy underperformed; the two broadest U.S. energy subsector indices, E&P and oil service, were up 0.6% and down 3.5%, respectively. That said, energy (on the whole) is on track to outperform the S&P for only the second year out of the past eight, the other exception being 2016. Energy’s market cap weighting within the S&P, currently 6.0%, is still near the lowest level since 2004. See page three for details on the performance of various energy indices.

Please read domestic and foreign disclosure/risk information beginning on page 2 and Analyst Certification on page 2.

Stats of the Week ...... 5

Global Research Highlights ...... 6

Exploration and Production ...... 7

Oilfield Services ...... 16

Independent Refiners ...... 18

Renewable Energy and Clean Technology ...... 21

Canadian Oil and Gas ...... 29

European Oil and Gas...... 32

Energy Indices vs. Broader Market - Trailing 12 Months and Quarterly Index Performance 40% TTM Performance Quarterly Performance 30%

20%

10%

-10%

-20% E&P Index S&P 500 Coal Index Clean Tech Index Oilservice Index Midstream Index

Source: FactSet, Raymond James research

Market Cap Weightings in S&P 500: Energy vs. Tech vs. Healthcare 30 Energy Information Technology Healthcare

% of S&P % S&P of 500 10

Current: 6.0%

Jan-96 Jan-17 Jan-95 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-18 Source: S&P, Bloomberg, Raymond James research

Oil and Gas Price Trends Front-Month Crude Oil and Natural Gas Futures Contracts 12-Month Crude Oil and Natural Gas Futures Strips January 2012 - September 2018 January 2012 - September 2018 $6.00 $110 $6.00 $110

$5.50 $100 $5.50 $100

$5.00 $90 $5.00 $90

$4.50 $80 $4.50 $80

$4.00 $70 $4.00 $70

$/Mcf

$/Bbl $/Bbl

$/Mcf $3.50 $60 $3.50 $60

$3.00 $50 $3.00 $50

$2.50 $40 $2.50 $40 Natural Gas (Henry Hub) Natural Gas (Henry Hub) $2.00 $30 $2.00 $30 Crude Oil (WTI) Crude Oil (WTI) $1.50 $20 $1.50 $20

Source: Bloomberg, Raymond James research Source: Bloomberg, Raymond James research

RJ&A Oil Price Forecast 2018 Q1 18A Q2 18A Q3 18A Q4 18E 2018E RJ WTI $62.89 $67.97 $69.61 $70.00 $68.00 RJ Brent $66.97 $74.55 $75.26 $85.00 $75.00 2019 Q1 19E Q2 19E Q3 19E Q4 19E 2019E RJ WTI $70.00 $67.50 $67.50 $65.00 $67.50 RJ Brent $85.00 $80.00 $80.00 $75.00 $80.00 2020 Q1 20E Q2 20E Q3 20E Q4 20E 2020E RJ WTI $75.00 $75.00 $75.00 $75.00 $75.00 RJ Brent $80.00 $80.00 $80.00 $80.00 $80.00 2021 (+) Long-Term Forecast 2021E+ RJ WTI $70.00 RJ Brent $75.00 Source: Bloomberg, FactSet, Raymond James research

RJ&A Henry Hub Natural Gas Price Forecast 2017 Q1 17A Q2 17A Q3 17A Q4 17A 2017A Actual Gas $3.13 $3.04 $2.93 $2.91 $3.00

2018 Q1 18A Q2 18A Q3 18A Q4 18E 2018E Bloomberg Consensus $3.03 $2.76 $2.90 $3.03 $2.95 NYMEX Futures $3.03 $2.76 $2.90 $3.13 $2.95 RJ Gas $3.03 $2.76 $2.90 $2.75 $2.85

2019 Q1 19E Q2 19E Q3 19E Q4 19E 2019E Bloomberg Consensus $3.12 $2.94 $2.96 $3.10 $3.05 NYMEX Futures $3.12 $2.65 $2.69 $2.76 $2.80 RJ Gas $2.40 $2.20 $2.10 $2.30 $2.25

2020 (+) Long-Term Forecast Bloomberg Consensus $3.01 NYMEX Futures $2.67 RJ Gas $2.50 Source: Bloomberg, FactSet, Raymond James research

In Case You Missed It… Here Is a Recap of All the Energy Stats of the Week from 3Q18

July 2: As U.S. Coal-Fired Power Falls, the Grid Can Adapt, and European Case Studies Show How

July 9: U.S. Rig Count Set to Move Sharply Up Despite Potential Permian Oil Price Problems

July 16: As Libya's Factions Fight It Out, This Is Yet Another Oil Supply Outage to Keep Us Busy

July 23: IMO 2020 - How Bullish Is it for Refining and Will it Drive Crude Prices Much Higher?

July 30: Raising Oil Price Forecasts for 2020 and Beyond - Higher Prices are Here to Stay

August 6: Will Global Oil Demand Growth Stall in Response to Higher Oil Prices?

August 13: Should Energy Investors Be Concerned About Fossil Fuel Divestments?

August 20: What Are the Big Themes Energy Investors Need to Know for the Next Five Years?

August 27: Three Years After Paris Agreement, Tech Drives Decarbonization, Regardless of Politics

September 4: OPEC's African Production Has Declined 25% in Six Years, Why Doesn't the Market Care?

September 10: U.S. Sanctions Working - Reducing Iranian Supply Forecast - Oil Model Now More Bullish

September 17: CapEx Trend Shows That Russia Is Having to Work Harder For Its Oil Production Growth

September 24: Permian Oil Diffs to Ease in 2019 As New Pipes, Debottlenecking Efforts Emerge

In Case You Missed It… The List Below Highlights One Featured 3Q18 Report from Each RJ Energy Analyst

Marshall Adkins: NOV: Strong 2Q Points Towards Sustainable Growth; Raising 2019 Estimates

Andrew Bradford: BDI.T: Downgrading to Market Perform: LNG-Related Contracts Conditionally Awarded - We Expect More

Chris Cox: ECA.T: 2Q18 Results A Solid Beat As Market Diversification On Display; Strong Momentum Into 2H18

Jean-Pierre Dmirdjian: GTT.PA: Initiating at Strong Buy: Underappreciated Play on LNG and IMO

John Freeman: FANG: Model Update Following EGN Acquisition; Boosting Target to $187

Justin Jenkins: Refining Monthly Crack Check, August 2018: Time to Buy Refiners Ahead of Fall Turnaround Season?

Jeremy McCrea: ARX.T: Upgrading to Strong Buy: Reading Between the Lines - More Growth and Liquids Upside

Pavel Molchanov: XYL: Initiating With Outperform: The Supermarket of Water Tech Is Not Cheap, but Well Worth It

Kurt Molnar: VET.T: Initiating with Outperform: A Castle Is Only As Good As Its Moat

Praveen Narra: HAL: Transitory Issues Cause Near-term Softness: Valuation Suggests Fears Overblown

J.R. Weston: AMGP/AM: Antero Franchise the Next Midstream GP/LP Roll-up Candidate? Detailed Merger Math

Stock Performance in 3Q18 and TTM

3Q18 Stock Price Performance Trailing 12-Month Stock Price Performance

VNOM (1) CRC (3) SM (2) WLL (1) EGN (2) VNOM (1) KOS (2) SM (2) MRO (1) WRD (1) WPX (1) CLR (1) COP (3) WPX (1) CXO (1) MRO (1) MTDR (2) EGN (2) OAS (1) OAS (1) S&P 500 COP (3) HES (2) HES (2) CRC (3) CRZO (1) NFG (3) Group Avg. CLR (1) FANG (2) FANG (2) APC (3) EOG (2) QEP (1) APA (2) EOG (2) RRC (4) OXY (2) WLL (1) MUR (3) Group Avg. MTDR (2) S&P Energy PXD (1) MUR (3) KOS (2) OXY (2) CXO (1) PE (1) S&P 500 SWN (4) PE (1) NFX (1) S&P Energy COG (4) NBL (3) WRD (1) DVN (3) QEP (1) CHK (4) PXD (1) APA (2) APC (3) CNX (4) XEC (3) NFG (3) DVN (3) NFX (1) CRZO (1) SRCI (1) NBL (3) AR (2) CHK (4) RRC (4) LPI (2) COG (4) AR (2) SWN (4) SRCI (1) XEC (3) CNX (4) LPI (2)

(20)% (10)% 0% 10% 20% 30% 40% (40)% 0% 40% 80% 120% 160% 200% 240% 280% 320% 360%

Source: FactSet, Raymond James research. RJ Ratings: 1 = Strong Buy, 2 = Outperform, 3 = Market Perform, 4 = Underperform, S = Suspended

This analysis does not include transaction costs and tax considerations. If included these costs would reduce an investor’s return. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. A complete record of our Exploration & Production stock recommendations for the trailing 12 months is available upon request.

Topical E&P themes for the remainder of 2018 include the transition by larger operators to a highly efficient “manufacturing mode” for drilling and completion horizontal wells, an emphasis on capital restraint by U.S. producers, and the M&A outlook in a higher crude price environment. As discussed in a prior Stat of the Week, In light of recent Permian takeaway issues, operators have begun building up an above average well inventory backlog to facilitate larger scale batch completions, the key ingredient in the switch to “manufacturing mode” once pricing recovers. Notwithstanding the differential, crude prices remain materially above the $50-$60 crude initially budgeted by most E&Ps, meaning planned projects are still attractive and should allow operators to meet their 2018 cash flow targets. While growth in drilling activity has the potential to continue placing pressure on the Brent-WTI differential, we believe that increasing takeaway capacity due to the Sunrise/Cactus II pipelines and rail options should stop the differential doomsday from occurring in the foreseeable future. Looking out longer term, as Permian production continues to grow, will more operators shift rigs to less crowded plays such as the Gulf of Mexico or Eagle Ford to access higher crude prices? Additionally, a hallmark of the year has been the capital restraint shown by E&P operators even with the strengthening price of oil. A preponderance of the companies in our coverage have emphasized returns on capital by pursuing FCFs and ROE/ROIC/ROCE metrics that incentivize capital discipline. Is this merely PTSD from the days of 2015 when crude prices finished below $40/Bbl or does it represent a long-term shift to the “manufacturing” style model, delineated here? We anticipate the latter, as the nascent instability in oil prices tilts the scales toward a capital discipline approach that makes E&Ps less vulnerable to transient disruptions in prices. Concluding the year, will ongoing bullish oil prices cause companies to forget the vagaries of recent years and abandon capital restraint? While only a handful of large-scale corporate M&A deals came during the first three quarters of this year, a strong case can be made that economies of scale are an important dynamic with production ramping up. (CXO’s $9 billion acquisition of RSPP and FANG’s $9B acquisition of EGN were both predicated on substantial synergies surrounding G&A and batch completions). Will a proliferation of corporate M&A be observed going into next year as operators look to increase synergies, to reduce G&A and lower operating costs, while at the same time gain pricing power over highly demanded oil service providers? Naturally, we will keep our ears to the ground for any fluctuations in these undercurrents in the E&P space. Overall, however, we expect E&Ps to post outsized gains during the last quarter of the year that should surpass the uplift in oil prices given the themes highlighted above. Our top picks in the E&P space include the following. Among large-caps: Concho (CXO), Continental (CLR), Marathon oil (MRO), and Pioneer (PXD). Among small/mid-caps: Oasis (OAS), Parsley (PE), SRC Energy (SRCI), and WildHorse (WRD).

Our ratings distribution is now 35% Strong Buy, 30% Outperform, 22% Market Perform, and 14% Underperform. As you can see in the chart below, we have maintained our bullish ratings across the E&P coverage universe since our last update in July. Given our conviction that prices will average ~$70/Bbl for the year in 2018, we have positioned our ratings accordingly, with approximately two-thirds of the E&P coverage rated at Strong Buy or Outperform.

Raymond James E&P Ratings Distribution 14 12 10 8 6

4 NumberofCompanies 2 0 MU-4 MP-3 MO-2 SB-1

2Q18 Earnings Preview Current Source: Raymond James Research

Large Caps: EV/EBITDA Multiples vs. Reserve Life 14.0x 20

12.0x

10.0x

8.0x Years 10 6.0x

4.0x

2.0x

0.0x 0

CLR

APA

APC

NBL

PXD

HES

OXY COP

CXO

EOG

DVN

COG MRO EV / 2018E EBITDA Reserve Life

Source: FactSet, Raymond James research. As of October 2, 2018

Small and Mid-Caps: EV/EBITDA Multiples vs. Reserve Life

16.0x 45

14.0x 40

12.0x 35 30 10.0x

25 Years 8.0x 20 6.0x 15 4.0x 10 2.0x 5

0.0x 0

LPI

NFX

XEC

QEP

RRC

CRC

NFG

WLL

CNX

CHK

OAS

EGN

KOS

MUR

WPX

SWN

WRD

SRCI

FANG

CRZO MTDR EV / 2018E EBITDA Reserve Life

Source: FactSet, Raymond James research. As of October 2, 2018

Large Caps: Enterprise Value/Proved Reserves vs. Reserve Life $40.00 16 $35.00 14 $30.00 12 $25.00 10 $20.00 8

$15.00 6 Years $10.00 4 $5.00 2

$0.00 0

CLR

APA

APC

NBL

PXD

HES

COP OXY

CXO

EOG

DVN

COG MRO Enterprise Value/Boe Reserve Life (Years)

Source: FactSet,Source: Raymond Company James Reports research. , FactSet and RJ&A Estimates. As of October 2, 2018

Small and Mid-Caps: Enterprise Value/Proved Reserves vs. Reserve Life

$80.00 45 $70.00 40 $60.00 35 30 $50.00 25 $40.00 20 $30.00 Years 15 $20.00 10 $10.00 5

$0.00 0

LPI

NFX

XEC

QEP

RRC

CRC

NFG

WLL

CNX

CHK

OAS

EGN

KOS

MUR

WPX

SWN

WRD

SRCI

FANG

CRZO MTDR Enterprise Value/Boe Reserve Life (Years)

Source: Company Reports , FactSet and RJ&A Estimates. Source: FactSet, Raymond James research. As of October 2, 2018

Large Caps: % of Proved NAV/Share 70%

60%

50%

40%

30%

20%

10%

CLR

APA

PXD

HES

OXY COP

CXO

EOG

DVN

COG MRO

Source: FactSet, Raymond James research. As of October 2, 2018

Small and Mid-Caps: % of Proved NAV/Share

110% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10%

LPI

NFX

XEC

QEP

RRC

CRC

NFG

OAS EGN

KOS

MUR

WPX

WRD

SRCI

FANG CRZO MTDR Source: FactSet, Raymond James research. As of October 2, 2018

The following chart ranks our coverage universe on production growth per debt-adjusted share for the period 2017-2019. Investors can use this tool to screen for potentially top-performing stocks, in addition to other relevant factors, including: 1) absolute and relative valuations; 2) leverage to changes in commodity prices; and 3) company-specific financial and operational risk profiles.

According to our analysis, the companies with the highest projected production growth per debt-adjusted share over the period are Parsley Energy (PE), WPX Energy (WPX), WildHorse Resource Development (WRD), and SRC Energy (SRCI).

Debt Adjusted Cash Flow Growth 2017 - 2019

88%

74% 71% 64% 58% 53% 50% 49% 47% 47% 46% 43% 43% 41% 39% 33% 33% 32% 31% 31% 29% 28% 27% 26% 24% 24% 23% 21% 21% 21% 20% 18%

5% 1%

-5% -7%

LPI

CLR

XEC

HES

CRC

NBL

RRC

NFX

APC

KOS

QEP

CHK

PXD

COP

CNX

APA

OXY

WLL

NFG

OAS

CXO

EGN

EOG

SRCI

DVN

WPX

SWN

MUR

WRD

MRO

CRZO

FANG MTDR Source: Raymond James Research

Raymond James E&P Research Universe – Market Valuation Database

Raymond James E&P Research Universe Market Valuation Database Raymond James E&P Comps Sheet - Large Caps Priced Market Enterprise EV / EBITDA (RJ) EV / EBITDA (Consensus) Y/Y Production Growth Debt Adj. Production Commodity Mix Value per Name Ticker Analyst Rating 10/2/2018 Cap ($mm) Value ($mm) 2018 2019 2018 2019 2018 2019 Growth 2017 - 2019 Oil Gas NGLs Flowing Barrel Large Caps Anadarko Petroleum Corp. APC JF MP-3 $68.00 37,207 48,201 5.9x 4.9x 6.2x 5.3x 0% 12% 11.7% 58% 28% 15% $75,629 Apache Corporation APA JF MO-2 $48.55 18,692 25,657 4.8x 4.5x 5.2x 5.0x 3% 10% 6.0% 53% 33% 13% $55,282 Cabot Oil & Gas COG JF MU-4 $22.85 10,354 10,831 10.1x 10.2x 9.2x 7.0x 12% 31% 25.0% 0% 100% 0% $34,303 Concho Resources CXO JF SB-1 $153.75 31,204 34,772 10.6x 8.6x 12.6x 8.9x 36% 43% 19.6% 68% 32% 0% $99,589 ConocoPhillips COP PM MP-3 $78.28 92,462 104,201 5.9x 5.5x 6.9x 6.6x -8% 3% 2.1% 63% 37% 0% $83,427 Continental Resources CLR JF SB-1 $70.43 26,376 32,413 8.0x 6.3x 8.6x 7.4x 23% 24% 28.1% 55% 45% 0% $114,107 Devon Energy DVN JF MP-3 $39.86 20,767 26,425 7.1x 5.5x 7.2x 6.7x 0% 8% 21.5% 45% 35% 20% $48,755 EOG Resources EOG JF MO-2 $130.00 75,294 79,458 9.7x 7.6x 9.8x 8.2x 18% 21% 21.3% 55% 29% 16% $113,162 Hess Corp. HES PM MO-2 $73.36 21,825 25,356 9.7x 8.8x 10.0x 8.5x -11% 12% 0.9% 65% 35% 0% $95,621 Marathon Oil MRO PM SB-1 $23.51 20,101 23,931 5.3x 4.8x 6.2x 5.5x 12% 6% 15.9% 64% 36% 0% $57,206 Noble Energy NBL JF MP-3 $31.32 15,222 21,901 7.3x 6.3x 7.2x 6.2x -8% 10% -1.7% 37% 44% 19% $63,327 Occidental Petroleum OXY PM MO-2 $82.87 63,594 72,544 7.4x 7.0x 7.5x 6.6x 8% 10% 11.2% 78% 22% 0% $113,528 Pioneer Natural Resources PXD JF SB-1 $178.19 30,423 31,810 8.9x 6.2x 9.5x 7.1x 18% 18% 19.3% 59% 21% 20% $104,299 Median 31,810 7.4x 6.3x 7.5x 6.7x 8% 12% 15.9% 58% 35% 0% $83,427 Mean 41,346 7.8x 6.6x 8.2x 6.9x 8% 16% 13.9% 54% 38% 8% $81,403 SB1= Strong Buy; MO2 = Outperform; MP3 = Market Perform; MU4 = Underperform; S = Suspended. Source: FactSet and Raymond James Research. Pricing as of 10/02/2018

Raymond James E&P Comps Sheet - SMID Caps Priced Market Enterprise EV / EBITDA (RJ) EV / EBITDA (Consensus) Y/Y Production Growth Debt Adj. Production Commodity Mix Value per Name Ticker Analyst Rating 10/2/2018 Cap ($mm) Value ($mm) 2018 2019 2018 2019 2018 2019 Growth 2017 - 2019 Oil Gas NGLs Flowing Barrel SMID Caps Antero Resources AR JF MO-2 $17.90 5,646 10,887 5.4x 4.6x 5.5x 4.2x 18% 24% 16.3% 2% 73% 25% $25,925 California Resources CRC PM MP-3 $48.62 2,343 7,376 8.5x 6.8x 7.3x 5.6x 3% 5% 2.5% 74% 26% 0% $55,048 Carrizo Oil & Gas CRZO JF SB-1 $24.51 2,024 3,634 5.4x 3.6x 5.1x 3.6x 12% 34% 17.4% 67% 17% 16% $70,907 Chesapeake Energy CHK JF MU-4 $4.52 4,138 15,044 6.6x 8.4x 6.4x 6.2x -8% -13% -4.3% 17% 73% 10% $28,377 Cimarex Energy XEC JF MP-3 $96.23 9,177 10,263 7.2x 6.8x 6.9x 5.9x 14% 16% 14.8% 9% 0% 91% $17,575 CNX Resources Corp. CNX JF MU-4 $14.03 3,072 5,636 5.8x 6.3x 6.0x 5.9x 24% 16% 10.2% 0% 93% 7% $25,218 Diamondback Energy FANG JF MO-2 $137.05 22,533 24,386 11.8x 6.6x 15.2x 6.5x 48% 138% 43.3% 73% 12% 15% $216,592 Energen Corporation EGN JF MO-2 $87.36 8,568 9,396 8.9x 6.4x 9.0x 6.7x 34% 34% 31.8% 58% 21% 21% $96,488 Enerplus Corporation ERF KM MO-2 $12.45 3,102 3,435 6.1x 5.5x 5.9x 4.9x 5% 4% 8.1% 42% 54% 4% $38,506 Kosmos Energy KOS PM MO-2 $9.55 3,790 4,841 9.8x 6.0x 6.8x 3.9x 64% 36% 33.4% 100% 0% 0% $114,561 Laredo Petroleum LPI JF MO-2 $7.37 1,708 2,574 4.0x 3.4x 4.3x 3.7x 18% 15% 13.1% 41% 30% 29% $38,293 Matador Resources MTDR JF MO-2 $33.11 3,864 4,301 8.6x 7.7x 8.0x 6.5x 32% 18% 11.6% 56% 44% 0% $81,153 Murphy Oil MUR PM MP-3 $33.71 5,865 7,871 4.2x 3.6x 4.8x 4.3x 4% 5% 6.4% 59% 41% 0% $46,029 National Fuel Gas NFG JF MP-3 $56.48 4,886 6,408 8.8x 8.8x 8.6x 8.3x 2% 28% 11.4% 8% 92% 0% $78,488 Newfield Exploration NFX JF SB-1 $28.56 5,741 7,979 5.6x 4.7x 5.1x 4.4x 21% 14% 15.6% 42% 38% 20% $45,197 Oasis Petroleum OAS JF SB-1 $14.13 4,460 7,201 7.1x 5.4x 7.0x 5.2x 26% 22% 8.4% 76% 24% 0% $90,653 Parsley Energy PE JF SB-1 $30.13 8,440 10,422 7.1x 5.3x 7.5x 5.7x 63% 35% 48.7% 63% 16% 21% $96,663 QEP Resources QEP JF SB-1 $11.51 2,728 5,410 5.3x 4.5x 5.6x 5.3x -1% 11% 2.4% 47% 45% 8% $34,904 Range Resources RRC JF MU-4 $17.29 4,251 8,099 6.4x 6.9x 6.4x 5.9x 11% 10% 9.3% 4% 68% 29% $24,991 SM Energy SM JF MO-2 $32.41 3,687 5,645 6.8x 5.5x 6.2x 4.9x 0% 19% 7.3% 40% 38% 22% $46,728 Southwestern SWN JF MU-4 $5.16 3,035 6,568 3.5x 5.4x 4.9x 5.9x 7% -22% -0.1% 2% 86% 12% $15,291 SRC Energy SRCI JF SB-1 $8.76 2,130 2,335 4.8x 3.1x 4.8x 3.4x 49% 35% 46.4% 46% 33% 20% $57,836 Whiting Petroleum WLL JF SB-1 $53.14 4,834 7,596 5.3x 3.9x 5.7x 4.9x 10% 13% 9.1% 67% 16% 16% $60,196 WildHorse Resource Development WRD JF SB-1 $23.23 2,353 3,269 5.9x 4.5x 4.8x 3.9x 60% 21% 34.3% 72% 16% 13% $69,998 WPX Energy WPX JF SB-1 $20.08 8,436 10,487 8.8x 5.5x 9.2x 6.1x 16% 34% 23.4% 65% 20% 15% $83,916 Median 7,201 6.4x 5.5x 6.2x 5.3x 16% 18% 11.6% 47% 33% 15% $55,048 Mean 7,642 6.7x 5.6x 6.7x 5.3x 21% 22% 16.8% 45% 39% 16% $62,381 SB1= Strong Buy; MO2 = Outperform; MP3 = Market Perform; MU4 = Underperform; S = Suspended. ERF is covered by RJ Ltd. Source: FactSet and Raymond James Research. Pricing as of 10/02/2018

Raymond James E&P Debt Comps - Large Caps Priced Market Net Debt Net Debt / TTM EBITDA Interest Net Debt / Boe Net Debt / Name Ticker Analyst Rating 10/2/2018 Cap ($MM)) ($MM) Most Recent 2018 2019 Coverage Proved Developed PV-10 Anadarko Petroleum Corp. APC JF MP $68.00 37,207 10,994 1.9x 1.5x 1.1x N/A $6.38 N/A N/A Apache Corporation APA JF MO $48.55 18,692 6,965 1.6x 1.3x 1.1x 10.9x $5.93 $6.80 0.6x Cabot Oil & Gas COG JF MU $22.85 10,354 478 0.5x 0.5x 0.6x 11.8x $0.29 $0.46 0.1x Concho Resources CXO JF SB $153.75 31,204 3,568 1.1x 1.4x 0.8x 13.3x $2.96 $4.23 0.4x ConocoPhillips COP PM MP $78.28 92,462 11,739 0.8x 0.6x 0.6x 17.0x $2.33 $3.05 0.3x Continental Resources CLR JF SB $70.43 26,376 6,037 1.9x 1.3x 0.8x 10.5x $4.74 $10.49 0.5x Devon Energy DVN JF MP $39.86 20,767 5,658 1.9x 1.3x 1.3x 4.2x $2.63 $3.25 1.3x EOG Resources EOG JF MO $130.00 75,294 4,164 0.8x 0.5x 0.3x 18.1x $1.94 $3.81 0.4x Hess Corp. HES PM MO $73.36 21,825 3,531 1.5x 1.4x 1.4x 6.6x $3.06 $4.87 0.3x Marathon Oil MRO PM SB $23.51 20,101 3,830 1.0x 0.7x 0.4x 17.4x $2.64 $4.24 0.3x Noble Energy NBL JF MP $31.32 15,222 6,679 2.3x 2.3x 2.0x 9.1x $4.65 $7.03 0.8x Occidental Petroleum OXY PM MO $82.87 63,594 8,950 1.2x 0.7x 0.7x 19.5x $3.44 $4.44 0.5x Pioneer Natural Resources PXD JF SB $178.19 30,423 1,387 0.6x 0.4x 0.1x 15.3x $1.41 $1.52 0.3x Median 26,376 5,658 1.2x 1.3x 0.8x 12.5x $2.96 $4.23 0.4x Mean 35,655 5,691 1.3x 1.1x 0.9x 12.8x $3.26 $4.52 0.5x SB1= Strong Buy; MO2 = Outperform; MP3 = Market Perform; MU4 = Underperform; S = Suspended. Source: FactSet and Raymond James Research. Pricing as of 10/02/2018

Raymond James E&P Debt Comps - SMID Caps Priced Market Net Debt Net Debt / TTM EBITDA Interest Net Debt / Boe Net Debt / Name Ticker Analyst Rating 10/2/2018 Cap ($MM)) ($MM) Most Recent 2018 2019 Coverage Proved Developed PV-10

Antero Resources AR JF MO $17.90 5,646 5,241 3.7x 2.6x 2.3x 5.2x $1.82 $3.71 1.4x California Resources CRC PM MP $48.62 2,343 5,033 8.9x 5.9x 4.7x 1.6x $8.15 $11.45 1.1x Carrizo Oil & Gas CRZO JF SB $24.51 2,024 1,610 2.8x 2.1x 1.3x 7.5x $6.15 $14.78 0.6x Chesapeake Energy CHK JF MU $4.52 4,138 10,906 4.5x 4.0x 5.3x 5.1x $5.70 $9.77 1.5x Cimarex Energy XEC JF MP $96.23 9,177 1,086 1.0x 1.0x 0.9x 17.7x $2.26 $2.84 0.5x CNX Resources Corp. CNX JF MU $14.03 3,072 2,565 3.1x 2.5x 3.1x 5.2x $2.03 $3.49 0.3x Diamondback Energy FANG JF MO $137.05 22,533 1,853 1.4x 2.3x 0.7x 25.3x $5.53 $9.53 1.1x Energen Corporation EGN JF MO $87.36 8,568 828 1.0x 0.9x 0.7x 20.2x $1.86 $3.26 0.2x Enerplus Corporation ERF KM MO $12.45 3,102 332 0.7x 0.4x 0.2x 12.6x $1.47 $2.18 0.2x Kosmos Energy KOS PM MO $9.55 3,790 1,051 2.6x 3.2x 1.8x 4.8x $9.44 $12.29 0.7x Laredo Petroleum LPI JF MO $7.37 1,708 866 1.5x 1.3x 1.1x 7.8x $4.01 $4.53 0.5x Matador Resources MTDR JF MO $33.11 3,864 437 1.0x 1.6x 1.6x 13.4x $2.86 $6.36 0.3x Murphy Oil MUR PM MP $33.71 5,865 2,006 1.4x 1.0x 0.8x 8.0x $2.87 $5.79 0.4x National Fuel Gas NFG JF MP $56.48 4,886 1,522 2.1x 2.2x 2.5x 6.5x $4.24 $5.92 0.9x Newfield Exploration NFX JF SB $28.56 5,741 2,238 2.1x 1.9x 1.6x 12.2x $5.36 $7.13 0.0x Oasis Petroleum OAS JF SB $14.13 4,460 2,740 3.1x 2.6x 2.0x 6.0x $8.98 $14.38 1.0x Parsley Energy PE JF SB $30.13 8,440 1,981 2.4x 1.5x 1.1x 6.9x $4.76 $9.46 0.6x QEP Resources QEP JF SB $11.51 2,728 2,682 3.1x 2.5x 2.2x 6.0x $3.92 $10.59 0.7x Range Resources RRC JF MU $17.29 4,251 3,848 3.7x 3.2x 3.4x -5.6x $1.91 $3.41 0.9x SM Energy SM JF MO $32.41 3,687 1,958 2.5x 2.8x 2.3x 4.5x $4.18 $9.12 0.6x Southwestern SWN JF MU $5.16 3,035 3,533 2.7x 1.3x 2.2x 8.0x $1.43 $2.68 0.6x SRC Energy SRCI JF SB $8.76 2,130 205 1.0x 1.0x 0.5x N/A $2.19 $10.31 0.4x Whiting Petroleum WLL JF SB $53.14 4,834 2,762 2.5x 1.9x 1.2x 5.7x $4.47 $8.23 1.0x WildHorse Resource Development WRD JF SB $23.23 2,353 916 2.9x 1.4x 1.0x 9.8x $2.02 $8.00 0.3x WPX Energy WPX JF SB $20.08 8,436 2,051 2.2x 1.9x 1.1x -5.2x $4.70 $9.21 0.6x Median 4,138 1,981 2.5x 1.9x 1.6x 6.7x $4.01 $8.00 0.6x Mean 5,232 2,410 2.6x 2.1x 1.8x 7.9x $4.09 $7.54 0.7x SB1= Strong Buy; MO2 = Outperform; MP3 = Market Perform; MU4 = Underperform; S = Suspended. ERF is covered by RJ Ltd. Source: FactSet and Raymond James Research. Pricing as of 10/02/2018

For integrated oil and gas companies, whose day-to-day trading dynamics typically resemble large-cap E&Ps, the following valuation table provides more detail on individual company multiples as well as our ratings.

Raymond James - Integrated Oil and Gas Research Universe Market Valuation Database

Current Equity RJ Valuation Ratios Consensus Valuation Ratios Price 3-Month Value EV / EBITDA Price / EPS EV / EBITDA Price / EPS Company Ticker Rating 10/3/2018 Volume ($ MM) 2018 2019 2018 2019 2018 2019 2018 2019

BP plc * BP MP3 $46.99 6,072,547 156,980 4.9x 4.5x 14.1x 12.5x Cenovus Energy * CVE MP3 $10.44 3,198,400 12,829 10.7x 6.1x NM 13.7x Chevron Corp. CVX MO2 $125.31 5,270,181 240,463 6.1x 5.6x 14.3x 14.0x 6.5x 5.7x 16.1x 13.6x China Petroleum & Chemical SNP NC $97.65 140,036 118,226 2.9x 2.9x 10.0x 9.6x CNOOC Ltd. CEO NC $196.58 107,399 87,783 4.2x 4.0x 10.5x 9.6x Ecopetrol S.A. EC MU4 $27.58 1,004,430 56,700 5.7x 5.1x 12.5x 11.8x 6.3x 6.2x 13.4x 12.6x Eni SpA * E MO2 $37.77 158,560 68,008 3.4x 3.1x 13.5x 11.4x Equinor ASA EQNR NC $28.22 998,555 93,973 3.7x 3.3x 14.2x 12.6x Exxon Mobil Corp. XOM MP3 $86.15 10,212,523 367,947 7.8x 6.9x 18.4x 15.9x 8.2x 7.1x 18.5x 15.3x Imperial Oil * IMO MO2 $34.02 242,349 27,856 9.1x 8.3x 18.4x 14.9x PetroChina Co. PTR NC $82.07 96,073 150,205 3.3x 3.2x 17.8x 15.1x Petróleo Brasileiro PBR MP3 $13.55 20,709,054 88,376 4.0x 2.7x 8.0x 5.8x 5.0x 4.5x 9.7x 7.8x Royal Dutch Shell plc * RDS.A-US MO2 $69.48 2,533,390 288,785 5.6x 5.1x 12.6x 10.5x Suncor Energy * SU MO2 $39.72 2,833,705 65,181 6.7x 6.0x 16.2x 12.9x Total S.A. * TOT MO2 $64.89 2,143,234 170,300 5.1x 4.6x 11.9x 10.4x YPF S.A. YPF SB1 $15.66 1,322,386 6,142 3.2x 2.6x 30.3x 10.6x 3.8x 3.1x 11.9x 7.8x Median $91,175 5.7x 5.1x 14.3x 11.8x 5.1x 4.5x 13.5x 12.5x Mean $124,985 5.3x 4.6x 16.7x 11.6x 5.6x 4.9x 13.9x 11.9x

SB1 = Strong Buy; M O2 = Outperform; M P3 = M arket Perform; M U4 = Underperform; NC = Not Covered Source: FactSet, Raymond James research * CVE, IM O, and SU are covered by RJ Ltd. E, RDS, and TOT are covered by RJ Europe. BP is co-covered with RJ Europe.

Stock Performance in 3Q18 and TTM

RJ Oilservice Universe- 12 Month Trailing Stock Performance RJ Oilservice Universe- 3Q18 Stock Performance 3-TUSK 2-HLX 2-TTI 3-RDC 3-NE 3-ESV 3-RDC 1-SPN 2-DWSN 1-RES 2-NCSM 3-ESV 3-NE WTI 1-PUMP 2-HLX 1-UNT 3-DO 4-RIG 4-RIG 2-OIS 2-OIS 2-NOV 1-UNT 1-NBR 1-PUMP WTI 2-NOV 2-CCLP 3-PES 1-PTEN 3-HCLP OSX 3-FTI 2-USAC OSX 1-NINE 3-DO 2-CCLP 3-FTI 1-NR 1-NR 1-SPN 2-TTI 2-USAC 3-SLB 1-HAL 3-HCLP 3-SLB 1-HAL 1-PTEN 2-WFT 1-NBR 3-TUSK 1-RES 2-DWSN 2-NCSM 3-PES

-40% -20% 0% 20% 40% 60% 80% -50% -40% -30% -20% -10% 0% 10% 20% 30% Source: Raymond James research, Factset Source: Raymond James research, Factset Source: FactSet, Raymond James research.

3Q18 saw oil service stocks continue positive momentum. Service stocks were mostly up in the quarter as positive sentiment surrounded the offshore/international arena and as the market rewarded oilservice resilience amidst industry bottlenecks. Leading our coverage universe were the offshore-levered names, spurred by Brent moving to the $75-85/Bbl range. Helix (HLX) in particular stole the show (+24%) as it benefitted from operators being more inclined to allocate capital towards less intensive investment into offshore production enhancement and intervention work. Not far behind Helix, Rowan (RDC) and Ensco (ESV) performed well in the quarter (up 23% and 22%, respectively) driven by positive sentiment surrounding Brent prices. However, although offshore tender activity has picked up, the sheer quantity of rigs in the market has kept dayrates depressed, which we believe should continue to drive weak fundamentals in the near term. That said, international activity is starting to show signs of life, which could lead to stronger overall performance from the group. Last, but not least, we turn our attention to the second best performing group: the pressure pumpers. Despite conversations surrounding overcapacity of horsepower in the market, we saw names such as Propetro (PUMP) and Superior (SPN) get rewarded by the investment community (+15% and +19%, respectively) for top-notch service execution and stable frac calendars that have led to firm customer commitment in otherwise uncertain times for “growth at all costs” competitors. Conversely, a few names in our group saw underperformance in the quarter, namely PES (-44%), DWSN (-16%), TUSK (-14%), and WFT (-12%).

Which are the most attractive oil service stocks? With the recovery in full swing and our group indicating a range-bound oil price level at the current $70-75/Bbl range, we think investors need to be overweight oil service stocks and maintain strong exposure to the space. Our group’s call is for oil prices to continue chugging along at healthy and sustainable levels, which should support higher service stock prices. Our favorite oilfield service names are U.S. land-levered pressure pumping names with proven dedicated customer models, namely ProPetro (PUMP), Halliburton (HAL), and Superior (SPN); (2) companies in specific niche growth markets, namely Newpark Resources (NR); (3) emerging completions technologies, namely NINE Energy Service (NINE) and NCS Multistage (NCSM); (4) growth-oriented onshore names with significant financial and operational leverage to commodity price movements, such as Unit Corp. (UNT); and (5) companies with leverage to the offshore recovery via capital-light production enhancement such as Helix (HLX) and robust manufacturing backlogs such as National Oilwell Varco (NOV). Once the market signals an acceptance of higher oil prices for longer, those names with longer-term fundamentals or international leverage may become relatively more attractive.

RAYMOND JAMES ENERGY RESEARCH - OIL SERVICE COMPARISON TABLES - VALUATION RATIOS Market Valuation ($MM) Consensus Consensus Valuation Raymond James Consensus Valuation Raymond James As of: 10/3/2018 RJ Market Total Enterprise P/Sales P/E Ratio P/E Ratio EV/EBITDA EV/EBITDA Rating Cap Debt Value 2018E 2014 2018E 2019E 2018E 2019E 2014 2018E 2019E 2018E 2019E COMPLETION & FRAC CJ C&J ENERGY SERVICES NR $1,475 $0 $1,365 14.5x 19.8x 26.3x 5.4x 4.6x 4.4x HAL HALLIBURTON SB1 $36,700 $10,871 $45,099 1.5x 10.4x 20.6x 16.7x 21.3x 13.4x 6.3x 10.2x 9.0x 10.4x 8.0x FRAC KEANE GROUP INC NR $1,421 $351 $1,662 0.7x 15.4x 20.1x 4.2x 4.5x FTSI FTS International NR $1,329 $629 $1,831 0.8x 4.2x 5.2x 4.0x 4.9x LBRT LIBERTY OILFIELD SERVICES NR $1,581 $107 $1,605 0.7x 9.6x 12.1x 4.0x 4.2x TUSK MAMMOTH ENERGY MP3 $1,339 $6 $1,334 0.7x 6.7x 7.6x 6.9x 8.9x 2.7x 3.3x 2.9x 3.7x PTEN PATTERSON UTI SB1 $3,892 $1,119 $4,769 1.2x 12.2x NM NM NM NM 4.8x 6.1x 5.5x 6.0x 4.8x PUMP PROPETRO SB1 $1,473 $0 $1,446 0.9x 7.9x 8.8x 9.3x 7.0x 4.3x 4.3x 26.6x 25.1x RES RPC SB1 $3,487 $0 $3,392 1.9x 14.2x 17.0x 18.8x 17.4x 14.1x 5.3x 8.0x 8.1x 8.2x 6.7x SPN SUPERIOR ENERGY SB1 $1,615 $1,281 $2,777 0.8x 5.8x NM NM NM NM 2.3x 7.4x 6.5x 7.2x 5.5x Completion Average 1.0x 11.4x 12.6x 14.4x 13.7x 10.9x 4.8x 5.6x 5.5x 10.2x 9.0x DIVERSIFIEDS BHGE BAKER HUGHES NR $13,276 $7,386 $15,783 0.6x 7.6x 44.6x 21.8x 8.0x 13.2x 10.1x 17.8x HAL HALLIBURTON SB1 $36,700 $10,871 $45,119 1.5x 10.4x 20.6x 16.7x 21.3x 13.4x 6.3x 10.2x 9.0x 10.4x 8.0x SLB SCHLUMBERGER MP3 $85,663 $17,601 $100,215 2.5x 11.1x 34.9x 25.0x 32.7x 24.8x 7.4x 14.3x 12.1x 14.2x 11.6x WFT WEATHERFORD MO2 $2,802 $7,929 $10,316 0.5x 2.9x NM NM NM NM 3.5x 13.6x 9.4x 13.1x 8.1x Diversifieds Average 1.3x 8.0x 33.4x 21.1x 27.0x 19.1x 6.3x 12.8x 10.2x 13.9x 9.2x MANUFACTURERS DRQ DRIL QUIP NR $1,935 $0 $1,442 5.3x 10.1x NM NM 4.7x NM 38.0x FTI FMC TECHNOLOGIES MP3 $14,099 $3,990 $12,389 1.1x 10.0x 23.0x 20.4x 20.6x 20.9x 9.5x 7.9x 8.0x 17.0x 16.6x FET FORUM NR $1,155 $467 $1,583 1.1x 5.7x NM 35.6x 4.6x 15.0x 10.7x GDI GARDNER DENVER NR $5,591 $1,911 $7,165 2.0x 15.2x 14.3x 10.4x 9.8x NOV NATIONAL OILWELL VARCO MO2 $16,988 $2,715 $18,566 2.0x 7.3x NM 43.9x NM 32.8x 4.1x 20.4x 14.5x 20.3x 12.7x NCSM NCS MUTLISTAGE NR $752 $25 $758 2.7x 31.2x 17.3x 25.7x 15.2x 13.3x 8.5x 13.2x 8.2x OII OCEANEERING NR $2,658 $782 $3,070 1.4x 6.7x NM NM 3.6x 19.9x 15.0x OIS OIL STATES MO2 $2,010 $350 $2,331 1.8x 9.1x NM 49.1x NM 37.2x 4.9x 15.4x 12.0x 14.9x 10.6x TWIN TWIN DISC NR $296 $5 $286 1.2x NM 27.6x 13.7x 14.2x 13.4x 7.1x WHD CACTUS WELLHEADS NR $2,859 $16 $2,846 5.2x 21.0x 17.7x 13.3x 11.6x Manufacturers Average 2.4x 8.2x 23.6x 26.5x 23.2x 26.5x 6.5x 14.3x 13.5x 16.4x 12.0x LAND DRILLERS HP HELMERICH & PAYNE NR $7,625 $494 $7,762 3.1x 11.3x NM NM 5.0x 13.0x 10.0x NBR NABORS DRILLING SB1 $2,311 $3,819 $5,493 0.7x 4.9x NM NM NM NM 3.3x 7.3x 5.5x 7.3x 5.5x PKD PARKER DRILLING NR $28 $579 $493 0.1x 0.6x NM NM 1.9x 7.8x 4.6x PTEN PATTERSON UTI SB1 $3,892 $1,119 $4,769 1.2x 12.2x NM NM NM NM 4.8x 6.1x 5.5x 6.0x 4.8x PES PIONEER ENERGY SERVICES MP3 $224 $463 $623 0.4x 9.2x NM NM NM NM 2.4x 7.7x 5.8x 7.7x 5.7x PDS PRECISION DRILLING NR $1,002 $1,320 $2,249 0.8x 5.4x NM NM 3.3x 7.8x 6.1x UNT UNIT CORPORATION SB1 $1,454 $657 $2,006 1.7x 6.2x 32.0x 22.8x 28.0x 20.9x 2.9x 6.3x 5.5x 5.9x 5.4x Onshore Drillers Average 1.1x 7.1x 32.0x 22.8x 28.0x 20.9x 3.4x 8.0x 6.1x 6.7x 5.3x OFFSHORE DRILLERS DO DIAMOND OFFSHORE MP3 $2,765 $1,973 $4,319 2.5x 6.4x NM NM NM NM 3.8x 16.7x 16.3x 16.8x 15.4x ESV ENSCO MP3 $3,676 $4,995 $7,929 2.2x 1.4x NM NM NM NM 3.3x 27.4x 23.4x 28.8x 36.1x NE NOBLE MP3 $1,727 $3,843 $5,159 1.7x 2.4x NM NM NM NM 2.8x 17.4x 17.2x 17.9x 18.5x RDC ROWAN COMPANIES MP3 $2,391 $2,511 $3,769 3.0x 8.8x NM NM NM NM 5.3x NM NM NM NM SDRL SEADRILL NR $2,551 N/A $20,460 2.0x 9.8x NM NM 7.8x NM NM RIG TRANSOCEAN MU4 $6,457 $9,630 $13,091 2.2x 2.8x NM NM NM NM 3.4x 12.4x 11.6x 12.3x 13.3x Offshore Drillers Average 2.2x 5.3x 4.4x 18.5x 17.1x 19.0x 20.8x OFFSHORE CONSTRUCTION GIFI GULF ISLAND FABRICATION NR $151 $0 $111 0.7x 9.6x NM 33.4x 2.2x NM 6.8x HLX HELIX ENERGY SOLUTIONS MO2 $1,469 $459 $1,640 2.0x 5.4x NM 27.8x 40.6x 22.2x 4.4x 10.2x 8.2x 9.8x 8.0x MDR MCDERMOTT NR $3,138 $3,460 $5,460 0.4x NM 12.0x 8.6x NM 7.5x 5.4x PROPPANTS & SAND CRR CARBO CERAMICS NR $201 $88 $238 0.8x 3.0x NM NM 1.5x NM 7.3x EMES EMERGE ENERGY NR $128 $203 $330 0.3x 1.1x 4.9x 3.8x 2.5x 3.8x 3.6x FMSA FAIRMOUNT SANTROL NR $1,171 $1,636 $2,670 0.5x 1.7x 5.6x 7.8x 6.8x 4.2x 5.2x HCLP HI-CRUSH PARTNERS MP3 $1,034 $195 $1,203 1.1x 3.8x 4.6x 5.0x 8.3x 4.0x 3.9x 41.5x 35.2x SND SMART SAND NR $182 $45 $226 0.8x 4.9x 4.3x 3.4x 3.0x SOI SOLARIS OILFIELD MP3 $859 $0 $853 4.2x 10.2x 6.9x 10.1x 6.6x 6.8x 4.5x 6.8x 4.3x SLCA U.S. SILICA NR $1,504 $1,267 $2,449 0.8x 7.9x 7.9x 8.9x 10.2x 5.2x 5.0x Proppants Average 1.2x 3.5x 6.3x 6.1x 10.1x 6.6x 5.9x 4.6x 4.6x 24.1x 19.7x MISCELLANEOUS CLB CORE LABORATORIES NR $5,258 $242 $5,486 7.4x 20.3x 48.8x 38.4x 14.6x 33.2x 27.4x DWSN DAWSON GEOPHYSICAL MO2 $143 $7 $106 0.9x NM NM NM NM 7.9x 5.6x 7.9x 5.6x FTK FLOTEK INDUSTRIES NR $137 $49 $183 0.5x 2.5x NM NM 2.0x NM NM NCSM NCS MUTLISTAGE NR $752 $25 $744 2.7x 31.2x 17.3x 25.7x 15.2x 13.3x 8.5x 13.2x 8.2x NR NEWPARK RESOURCES SB1 $949 $197 $1,066 1.0x 12.5x 24.3x 14.8x 23.9x 13.9x 6.2x 9.0x 6.9x 9.1x 6.8x RNET RIGNET NR $393 $58 $433 1.7x 23.3x NM NM 6.1x 15.5x 13.2x NESR NATIONAL ENERGY SERVICES REUNITEDNR $984 $306 $1,253 1.8x 13.1x 10.1x 7.4x 6.3x TTI TETRA TECHNOLOGIES MO2 $549 $856 $1,331 0.6x 16.2x NM 19.6x 40.4x 17.6x 8.2x 8.2x 6.6x 8.2x 6.5x WTTR SELECT ENERGY SERVICES NR $958 $81 $1,029 0.6x 12.0x 10.1x 5.3x 4.4x CEU-TSE CES ENERGY SOLUTIONS SB1 $835 $320 $1,155 0.9x 12.9x 19.8x 14.4x 18.7x 12.3x 8.4x 8.6x 7.0x 8.1x 6.6x Miscellaneous Average 1.8x 14.6x 24.9x 17.8x 27.2x 14.8x 7.6x 12.1x 9.5x 9.3x 6.7x COMPRESSION AROC ARCHROCK INC NR $1,576 $1,459 $3,029 1.7x 17.7x 43.9x 24.2x 4.6x 9.2x 7.9x CCLP COMPRESSCO PARTNERS MO2 $225 $685 $854 0.6x 11.3x NM NM NM NM 11.2x 8.7x 7.4x 8.6x 6.8x NGS NATURAL GAS SERVICES NR $268 $0 $206 3.9x 18.5x NM 49.3x 4.6x 8.5x 6.8x USAC USA COMPRESSION MO2 $1,502 $1,658 $3,623 2.6x 27.8x NM NM NM NM 32.8x 11.6x 9.3x 12.3x 8.9x Compression Average 2.2x 18.8x 43.9x 36.8x 13.3x 9.5x 7.9x 10.5x 7.9x Sources: Raymond James Research, Factset

Stock Performance in 3Q18 and TTM RJ Refiners Universe Quarterly Stock Price Performance TTM Stock Price Performance

RJ Refiners Universe - RJ Refiners Universe - Quarterly Stock Price Performance TTM Stock Price Performance

MO2 - PBF MP3 - HFC MP3 - ANDV MO2 - PBF

SB1 - MPC SB1 - DK

S&P 500 MP3 - ANDV

MO2 - VLO MO2 - VLO

MP3 - HFC SB1 - MPC

MO2 - PSX MO2 - PSX

SB1 - DK S&P 500

-20% -10% 0% 10% 20% 30% 0% 20% 40% 60% 80% 100% Source: FactSet, Raymond James research Source: FactSet, Raymond James research Source: FactSet, Raymond James research. This analysis does not include transaction costs and tax considerations. If included these costs would reduce an investor’s return. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. A complete record of our stock recommendations for the trailing 12 months is available upon request. Outlook on the Refining Industry Over the past several years, the U.S. refining industry has been among the primary beneficiaries of several changes to the global oil (and gas) market. First, in the wake of the domestic shale revolution, refiners saw earnings driven higher by wide crude price differentials between the U.S. and international markets (particularly benefitting inland-weighted refiners) on the back of rapidly growing domestic supply. Further, as the price of oil collapsed starting in late-2014, oil demand growth has re-emerged at much faster rates, supporting overall refining margins (though offset in 2016 and early 2017 by increased refined product supply). More recently, with robust U.S. production growth reemerging across several basins (largely in the Permian), the competitive advantage afforded by discounted U.S. crude (and natural gas) has once again arisen as a strong tailwind for the group. Indeed, in the summer of 2017, the disruptions from Hurricane Harvey contributed to a resurgence in the Brent-WTI spread that has remained elevated despite persistently high U.S. crude exports as well as recent draws at Cushing. Looking ahead, we fully expect that the WTI-Brent spread will continue to experience some volatility, but in the long term, we envision WTI trading at a continued discount to seaborne international crudes.

Global cracks priced off seaborne crudes sat well in line U.S. - NYMEX WTI 3-2-1 Crack Spread with last year’s level for the majority of the quarter, $45 $40 though into quarter end rising product inventories led $35 crack spreads slightly lower (while 2017 levels saw a $30 substantial bump from Hurricane Harvey). Looking $25 $20 forward, we expect fall maintenance season and Bbl $ / continued strength from product exports to support $15 $10 cracks. Overall, with global economic activity $5 encouraging, we believe a continuation of strong $0

demand trends for the remainder of 2018 could work 2-Jul

2-Oct 2-Apr

2-Jan 2-Jun

2-Feb 2-Mar

2-Sep 2-Aug 2-Nov 2-Dec 2-May down inventories to more attractive levels. Indeed, 5-Yr. Range 2016 2017 2018 both gasoline and diesel demand have exceeded our Source: Bloomberg expectations (particularly diesel), and we continue to believe strong global economic trends and an uptick in U.S. drilling-related demand may further boost the outlook. Overall, with the meaningful improvements to the fundamental refining backdrop during the start of 2018 seemingly poised to

extend through year end, coupled with the upside from IMO 2020, we believe the outlook for the independent refining group remains quite attractive for 2018 and beyond, despite valuations that are above historical “norms.”

When product demand is robust, refineries can run at average utilization rates in excess of 90%. When demand is weak, and product inventories are high as a result, refiners cut back on throughput (as seen by economic run cuts by several refineries in February 2017). As shown in the following graphic, U.S. refinery utilization was on a generally downward trend from 2005 to 2010 but trended towards higher average rates since. Regional trends can vary considerably, particularly between the Mid-Continent region and lower-margin East Coast. Recently, refiners have been running at fairly high utilization rates as attractive domestic crude prices have incentivized operators to run hard.

U.S. Refinery Utilization 100%

90%

80%

Hurricanes Harvey and Irma 70%

Capacity utilization(%) Hurricanes Katrina and Rita Hurricanes Gustav and Ike 60%

Source: EIA

Our benchmark crack spread assumptions are shown in the following table. We would caution that these crack spreads are based off Brent and do not represent the actual margin capture expected for any given refinery.

U.S. East Coast Brent-based 3-2-1 Crack Spread Estimates Q1 15A Q2 15A Q3 15A Q4 15A 2015A Current RJ est. $14.92 $18.01 $18.29 $13.44 $16.17 Gasoline $10.68 $18.32 $19.42 $13.97 $15.60 Diesel $23.41 $17.39 $16.03 $12.39 $17.31 Q1 16A Q2 16A Q3 16A Q4 16A 2016A Current RJ est. $11.76 $15.34 $13.50 $14.80 $13.85 Gasoline $12.37 $16.90 $13.81 $14.63 $14.43 Diesel $10.53 $12.22 $12.88 $15.14 $12.69 Q1 17A Q2 17A Q3 17A Q4 17A 2017E Current RJ est. $11.65 $13.96 $19.12 $14.51 $14.81 Gasoline $11.13 $14.47 $19.78 $12.86 $14.56 Diesel $12.68 $12.93 $17.80 $17.80 $15.30 Q1 18A Q2 18A Q3 18A Q4 18E 2018E Current RJ est. $12.55 $13.12 $13.31 $13.33 $13.08 Gasoline $10.79 $11.78 $11.92 $10.00 $11.12 Diesel $16.08 $15.79 $16.10 $20.00 $16.99 Q1 19E Q2 19E Q3 19E Q4 19E 2019E Current RJ est. $12.67 $14.17 $16.17 $16.33 $14.83 Gasoline $9.00 $12.50 $13.00 $12.00 $11.63 Diesel $20.00 $17.50 $22.50 $25.00 $21.25 Source: Bloomberg, Raymond James research Note: Actuals are calculated by averaging weekly closing prices

Outlook on Independent Refiners Looking back to 2017, as the initial post-election bump faded through the first half of the year, the improving fundamental picture began to emerge throughout the summer ahead of a substantial boost from Hurricane Harvey in August. As the storm passed, the refining margin and crude price differential outlook remained largely positive, while the group received another bump from the corporate tax reform. In 2018, with tight product markets and corporate tax reform setting the stage, continued strength – bolstered by wider domestic crude differentials (particularly in the Permian) – has thus far driven the group even higher. Recall, we had initially called for gains of 5-15% at the start of the year, but with differentials

remaining materially wider than we had initially forecasted (even as they’ve pulled back in the past month), combined with the impending benefit from IMO 2020 already creeping into the group, are initial estimates were likely conservative. Indeed, we still see the potential for even higher gains if margins materialize above our expectations, a RINs “fix” ends up materializing, or IMO drives the future crack strip higher than we had envisioned. Looking ahead, the aforementioned pending regulatory changes to the marine fuel (shipping) market, known in simple form as IMO 2020, likely represent a further catalyst for U.S. independent refiners. This is particularly true of those that can process heavier grades of crude oil (which is anticipated to be oversupplied) into distillate fuel (which is expected to see a demand and margin boost) in the wake of this regulatory change. We also expect continued growth in higher-value midstream businesses (both via dropdowns and organic capital) as a multi-year tailwind for cash flow generation and valuations. That said, several potential pitfalls remain – the group remains highly reliant on global petroleum demand, which in turn relies almost wholeheartedly on global trade and economic growth. Therefore, while we believe the global demand landscape remains encouraging, any shocks to the worldwide economy would likely spell trouble for refining. Bottom line, we believe there is an increasing number of structurally positive elements to the U.S. refining story over the next few years – and would recommend investors remain overweight the sector with regard to energy exposure.

While it is tough to wrap a precise band around the forward P/E multiples of independent refiners, given the sharp volatility of crack spreads (and hence earnings), we believe a range of about 8x to 12x reflects average historical valuations, as shown in the chart that follows. In our view, more rational capacity growth, disciplined capital allocation, robust returns to shareholders, and growth in higher-value businesses supports above-historical valuations for the refining group – particularly with the earnings and cash flow boost from lower tax rates. Currently, refiners trade at a median 2019 EPS multiple of 11.4x (consensus estimates). Independent Refiners: Consensus Forward-Year P/E Multiples 24

P/E multipleP/E 8

0 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18

Valuation Range Median Source: FactSet Priced as of 9/28/2018

The following valuation table provides more detail on individual company multiples as well as our ratings. Raymond James - Independent Refiners Research Universe Market Valuation Database Market Valuation Raymond James Valuation Ratios Consensus Valuation Ratios Current ($ MM) Enterprise Value / Price / Ent. Value / Price / Price 3-Month Equity Ent. Bbl of Daily EBITDA EPS EBITDA EPS Company Ticker Rating 10/3/2018 Volume Value Value Capacity EDC 2018 2019 2018 2019 2018 2019 2018 2019

CVR Energy CVI NC $41.62 759,187 3,576 4,207 22,739 1,977 6.2x 4.9x 16.4x 12.1x Delek US Holdings DK SB1 $43.25 1,706,978 3,804 4,714 15,609 1,643 4.7x 3.1x 8.7x 4.6x 5.1x 3.9x 8.0x 5.3x HollyFrontier Corp. HFC MP3 $71.35 2,326,546 12,669 14,061 30,768 2,522 6.2x 5.4x 12.8x 8.4x 7.6x 6.8x 13.2x 9.3x Marathon Petroleum MPC SB1 $86.39 5,451,176 39,454 51,717 27,494 2,570 10.7x 5.7x 15.8x 8.5x 7.1x 4.9x 16.4x 11.5x PBF Energy PBF MO2 $53.45 1,791,632 6,196 7,933 8,975 736 5.7x 4.3x 15.8x 7.6x 7.0x 5.4x 19.2x 10.1x Phillips 66 PSX MO2 $118.47 2,491,264 55,658 65,138 30,784 2,799 9.0x 7.3x 14.3x 10.3x 9.0x 7.9x 14.8x 11.8x Valero Energy VLO MO2 $119.99 2,791,355 51,216 55,823 17,835 1,511 8.9x 5.9x 18.3x 9.5x 8.9x 6.7x 18.0x 11.4x Median $12,669 $14,061 22,739 1,977 7.6x 5.5x 15.0x 8.4x 7.1x 5.4x 16.4x 11.4x Mean $24,653 $29,085 22,029 1,965 7.5x 5.3x 14.3x 8.1x 7.3x 5.8x 15.1x 10.2x

SB1 = Strong Buy; M O2 = Outperform; M P3 = M arket Perform; M U4 = Underperform; NC = Not Covered EDC = Equivalent Distillation Capacity Source: FactSet, Oil & Gas Journal, Raymond James research Long-term debt on a GAAP basis includes non-recourse debt associated with respective M LPs

Stock Performance in 3Q18 and TTM

RJ Clean Tech Universe - RJ Clean Tech Universe - Quarterly Stock Price Performance TTM Stock Price Performance

MP3 - BE MP3 - ENPH MP3 - GTLS MP3 - BE MO2 - XYL MP3 - GTLS MO2 - WAAS MO2 - WAAS MO2 - EVA MO2 - TPIC SB1 - ITRI MO2 - XYL MP3 - NEP MP3 - NEP ECO Index MO2 - EVA MO2 - TPIC MP3 - FSLR MO2 - SPWR ECO Index MP3 - FSLR MU4 - CLNE MO2 - AEIS MO2 - SPWR SB1 - GPP SB1 - AQUA SB1 - AQUA SB1 - ITRI MP3 - ENPH SB1 - GPP MU4 - CLNE MO2 - AEIS -50% 0% 50% 100% 150% -50% 0% 50% 100% 150% 200% 250% Source: FactSet, Raymond James research Source: FactSet, Raymond James research This analysis does not include transaction costs and tax considerations. If included these costs would reduce an investor’s return. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. A complete record of our stock recommendations for the trailing 12 months is available upon request.

Outlook on Solar Power

The global photovoltaic (PV) industry is exhibiting secular growth in electricity market penetration, albeit with perennially volatile margins across the value chain. With the historically dominant European market having matured, installations are being led disproportionately by China, followed by India, the U.S., and other geographies. The supply-side picture (at least vis-à-vis modules) is heavily dominated by China, which has led to import tariffs and other trade barriers that are complicating supply/demand dynamics.

Policy support for PV demand is evolving. The European Union and over half of U.S. states have renewable portfolio standards, and some jurisdictions have “carve-out” mandates for PV. Tax credits or rebates, such as the federal Investment Tax Credit (ITC), provide more direct financial support. The most effective policy structure is the feed-in tariff, which originated in Europe but has materialized elsewhere. Widespread feed-in tariff reductions (most recently in China) have forced developers and manufacturers to adapt to the lower economics.

Global PV Demand Global PV Supply 150,000 150,000 Rest of World Rest of World China China Japan Japan U.S. U.S. 100,000 100,000

Europe Europe

Megawatts Megawatts 50,000 50,000

0 0 2012 2013 2014 2015 2016 2017 2018E 2019E 2020E 2012 2013 2014 2015 2016 2017 2018E 2019E 2020E Source: SolarPower Europe, Raymond James research Source: Earth Policy Institute, IEA, Raymond James research

Levelized costs of PV-produced electricity, in general, remain higher than that of conventional power sources. Economics are most attractive in markets with significantly above- average power prices (such as Japan, Australia, and Hawaii). 2019 2020 The concept of “grid parity” is never a straightforward ($/watt) c-Si CdTe c-Si CdTe calculation, but as a rule of thumb, we estimate that Module cost $0.21 $0.22 $0.19 $0.21 geographically widespread penetration in the U.S. would Benchmark ASP $0.23 $0.25 $0.21 $0.23 require a cost structure of $2.00-2.50 per watt (versus around $3.00/watt currently) for residential systems. With U.S. commercial systems BoS cost $1.50 $1.50 $1.45 $1.45 polysilicon about as cheap as it can get, future reductions All-in system cost $1.73 $1.75 $1.66 $1.68 will need to come mainly from a combination of: (1) increasing conversion efficiency; (2) decreasing processing U.S. residential systems costs; and, most importantly, (3) decreasing balance of BoS cost $2.62 NM $2.53 NM system costs. The latter includes installation, customer All-in system cost $2.85 NM $2.74 NM acquisition, and financing costs. Cheaper and more widely available grid storage solutions will also become important, Source: PVinsights, Raymond James research. since rising levels of PV (and wind) penetration can create challenges for the grid.

Of course, the flip side of the cost reduction curve is an ongoing decline in average selling prices (ASPs) of modules – down from $1.00/watt in 2012 to $0.50 in 2016 and ~$0.24 currently (benchmark crystalline pricing). While inherently beneficial for PV project economics, ASP declines have pressured profitability of commodity module manufacturers in the industry. Margins tend to be higher among inverter manufacturers, though these are also affected by the industrywide trend of commoditization.

Outlook on Wind Power

Though mainstream adoption of wind has a longer history than PV, making it a more mature industry, wind’s penetration within the overall power market remains relatively low, with the exception of several European countries (e.g., Spain and Denmark). China and the U.S. are currently the top markets for newbuilds, with earlier- stage expansion in countries such as Brazil, Mexico, and Turkey. While offshore wind remains a small component of the installed base, in part due to higher costs, its growth is well above average, led by the North Sea region.

Global Wind Power Installations 75,000 Offshore Onshore

50,000 Megawatts 25,000

0 2010 2011 2012 2013 2014 2015 2016 2017 2018E 2019E 2020E

Source: GWEC, Raymond James research

Key growth drivers include: (1) incremental improvement in wind turbine design, reducing costs and facilitating more scalable systems; (2) the fact that levelized costs are already competitive in many geographies; and (3) policy support, such as the Production Tax Credit (PTC) in the U.S. Limits on growth include: (1) grid interconnection bottlenecks; and (2) “not in my backyard” concerns in some areas. The all-in cost of wind installations currently averages $1.50-2.00 per watt (for onshore projects in the U.S.), though naturally there is variability from site to site. This is a maturing value chain, with limited room for OEMs to achieve further reductions in turbine costs, but trends such as blade outsourcing are helping.

Outlook on Biopower

Hydropower is closer to baseload generation than wind and solar, but it is not fully predictable either. Thus, utilities seeking to (1) maintain a high amount of baseload generation while at the same time (2) reducing environmental impact do not have many options, and biopower is perhaps the most obvious one. Biopower enables sizable reductions in all major categories of emissions. Furthermore, in the context of avoiding the shutdown of coal-fired power plants – and thus preventing associated job losses – biopower, and especially utility- grade wood pellets, can be a solution. In contrast to the older, more primitive forms of biopower, wood pellets are a relatively modern product. They are used as a substitute for coal in both converted and co-fired power plants. The U.K. is the world’s largest pellet market. Several other northern European countries are also major markets. The only significant markets outside Europe are Japan and South Korea.

Comparing the economics of utility-grade wood pellets versus coal is always a site-specific matter. Pellets by themselves are certainly more expensive than coal by itself. But from the standpoint of utilities, what matters is the cost structure on an all-in basis: that is to say, inclusive of all the added costs (sulfur credits, carbon credits, etc.) associated with burning coal. On this basis (or, put another way, looking at levelized costs), the comparison is much more favorable to pellets. While there is variability, all-in pellet economics are comparable to all-in coal economics in the European market. Near-term adoption in the U.S. is unlikely given the lack of carbon pricing (outside California and the Northeast), even though the U.S. is the world’s largest producer of pellets.

Global Demand for Utility-Grade Wood Pellets (thousands of metric tons) 2012 2013 2014 2015 2016 2017 2018E 2019E 2020E Europe 6,500 9,175 8,810 11,200 10,760 11,360 14,700 16,500 18,900 U.S. and Canada 0 0 40 100 100 100 100 100 100 Asia 160 690 2,100 1,730 2,200 3,320 5,300 6,850 8,600

World 6,660 9,865 10,950 13,030 13,060 14,780 20,100 23,450 27,600 % Change 48% 11% 19% 0% 13% 36% 17% 18% Source: Haw kins Wright, Raymond James research

Outlook on Natural Gas Fuels

The fundamental differences between the global oil market and North American natural gas market have sustained a wide ratio between oil and gas prices, with our forecasted price ratio at 36:1 for 2019 (Brent crude vs. Henry Hub gas). We expect the price disconnect to persist over the long run. European and Asian gas prices have traditionally been higher, but gas is cheaper than petroleum (on a BTU basis) just about everywhere.

Gas has long-term potential as a mainstream transportation fuel in North America. But it is emphatically not North America where the adoption curve has been moving forward the most rapidly. In fact, the countries where natural gas vehicles (NGVs) are already commonplace are nearly all in the emerging markets category. Most of them, but not all – China and India are notable exceptions – are gas-rich countries. China has more NGVs currently on the road than any other country. Several other countries have at least one million each: Iran, Pakistan, Argentina, India, and Brazil.

The lower cost of natural gas fuels – compressed natural gas (CNG) and liquefied natural gas (LNG) – as compared to gasoline and diesel can incentivize commercial and institutional fuel users (such as bus fleets and refuse truck operators) to switch to NGVs. Other advantages relative to petroleum are environmental benefits (including a lower carbon footprint) and higher octane. On the other hand, the North American adoption curve – especially vis- à-vis LNG for long-distance trucking – has been constrained by high engine costs, which technology improvements can gradually address. It also has not helped that fuel station development has tended to be disproportionately centered in gas-rich states with favorable policy support, though this is secondary to engine costs.

Est. North American Cost Comparison: Gasoline vs. CNG vs. Corn Ethanol $2.50 Processing $2.00 $0.20 Feedstock

$1.50

$/gal $0.50 $1.00 $1.90 $1.00 $0.50 $0.93 $0.28 $0.00 Gasoline CNG Corn Ethanol Source: Clean Energy Fuels, Raymond James research Note: Based on RJ's 2019 price forecasts

Outlook on Bioindustrials

Conventional ethanol – produced from corn in the U.S. and sugarcane in Brazil – has long been used as a mainstream fuel component for blending into gasoline. As an oxygenate, ethanol helps reduce pollution in high- density areas. As an octane enhancer – in fact, frequently the lowest-cost source of octane – ethanol is used to upgrade gasoline. While ethanol has lower energy content than gasoline, it is typically cheaper to produce. Standard blending levels are 10% in the U.S. (with 15% becoming more common) and 27% in Brazil. There is also a growing number of flex fuel vehicles, which can use any ethanol blend up to E85.

U.S. Ethanol Production vs. RFS Statutory Targets 20,000 Production RFS Target 15,000

10,000 Millionsofgallons 5,000

0 2010 2011 2012 2013 2014 2015 2016 2017 2018E 2019E 2020E Source: RFA, Raymond James research

Given the higher adoption rates of diesel engines in Europe vs. the U.S., biodiesel has historically been more commonplace in Europe. Biodiesel margins are a function of the crush spread between the price of biodiesel and the cost of feedstock. The bulk of U.S. biodiesel plants use soybean oil as their principal (or sole) feedstock, though some are able to utilize lower-cost feedstocks. Renewable diesel represents a “drop-in” alternative to biodiesel, with particular benefits for cold climates.

There is an obvious difficulty in managing the crush spread in conventional (crop-based) biofuels, bearing in mind the weather-related volatility of crop prices. In theory, cellulosic biofuels are well positioned to address this problem. Since they are produced from non-food feedstocks such as wood chips, switchgrass or municipal waste, the cost side of the economic equation is immune from volatility in the agricultural market. Despite this theoretical appeal, scale-up of cellulosic and other Gen2 biofuels is progressing very slowly, as scale-up difficulties with the underlying technologies have proven onerous. Mechanical and operational mishaps have materialized with both kinds of processes: bio-based (fermentation) as well as thermochemical/catalytic. Given the premium pricing for specialty materials as compared to transportation fuels, many Gen2 companies are focusing on bioindustrial opportunities in chemicals, plastics, flavors and fragrances, cosmetics, and even nutrition products.

The most important U.S. policy supporting biofuels is the Renewable Fuels Standard (RFS), which has had bipartisan support since its original enactment in 2005. The RFS provides a statutory demand floor for corn ethanol, biodiesel and Gen2 biofuels through 2022, although each year’s target is subject to reduction (depending on market conditions) by the EPA. In particular, given the much slower-than-expected pace of scale-up, the cellulosic mandate of the RFS has been sharply reduced in recent years, and this is set to continue. There are more than 30 other jurisdictions – ranging from major economies such as the EU and China to smaller markets such as Vietnam and Costa Rica – with a policy that is analogous to the RFS. In fact, U.S. ethanol producers are exporting growing quantities to international customers, albeit with periodic headwinds due to trade disputes.

Outlook on Electric Vehicles

Electric vehicles – which we define as both plug-in hybrids and all-electric vehicles – remain a low-single-digit percentage of auto sales nearly everywhere, but they are reaching critical mass on a global scale. In volume terms, this is predominantly a consumer market, though electric buses have already become mainstream in China and are gaining traction in North America. For passenger/light-duty EVs, we project an increase in global market share from 2% in 2018 to 4% in 2020 and 13% by 2025. Beyond 2030, “petroleum phase-out” policies in countries including India and the U.K. aim to end the production and sale of conventional vehicles, but consumer preferences will still need to change meaningfully before EV market share can durably reach double-digit levels, to say nothing of 100%.

The cost of energy from petroleum is almost invariably higher than the cost of an equivalent amount of energy (on a BTU basis) from electricity. At the average U.S. retail electricity price (currently ~$0.13/kWh), a typical EV’s energy cost per mile is $0.02 to $0.03, approximately one-fourth the level for a compact conventional car at $2.75/gal gasoline. While perhaps not as intuitive, this economic advantage is also true of Europe and Japan, despite their higher power prices. EVs also benefit from lower maintenance costs (e.g., no oil changes). The environmental benefit is that EVs emit no pollutants – but their all-in carbon intensity depends in part on the carbon attributes of the electricity mix in any given geography.

EVs are pricier than their conventional counterparts. The lithium ion batteries on which EVs depend remain costly – but are coming down the cost curve – and, in a broader sense, EV manufacturing has thus far achieved only limited economies of scale. This is being offset by the U.S. federal tax credit of up to $7,500 and analogous policies elsewhere (e.g., rebates in the U.K. and Germany). In addition, an issue hindering consumer adoption is the limited number and geographic footprint of publicly accessible charging stations, in the context of cars that almost always have a shorter-than-average range (typically under 250 miles). However, since EV drivers typically charge at home, the infrastructure buildout does not need to reach the ubiquitous status of conventional fuel stations.

Passenger/Light-Duty Electric Vehicle Sales (000's)

2012 2013 2014 2015 2016 2017 2018E 2019E 2020E China NA 11 60 189 352 600 1,050 1,680 2,521 Europe 38 67 100 159 222 306 413 546 698 U.S. 53 97 119 114 157 194 267 358 473 All Other 33 36 39 23 44 123 203 305 427 World 124 211 318 485 774 1,224 1,934 2,889 4,119 % Change 71% 51% 53% 60% 58% 58% 49% 43%

Est. Cumulative Displacement of Global Oil Demand (Mbpd) 82 132 208 315 Source: EDTA, EV Sales, Raymond James research

Outlook on Fuel Cells

Against the backdrop of broad-based global growth in power demand, distributed generation – small- to mid-size systems located at the point of use – complements the existing power grid structure and offers both economic and environmental benefits. These benefits include (1) reduced transmission and distribution (T&D) losses; (2) greater reliability, resilience, and user control; and (3) wider access to electricity, especially in rural areas. In the commercial/industrial market, distributed generation is most common among end users that require very high reliability of power supply, such as data centers. Stationary fuel cells compete with both traditional options (combustion gas turbines) as well as newer options (solar PV and microturbines). Fuel cells have relatively high installed costs, but they offer above-average electrical efficiency. As compared to power from the grid, fuel cells generally have lower emissions of NOx and CO2, thereby playing a role in decarbonization. Key markets for stationary fuel cells include South Korea, Japan, California, and the U.S. Northeast – all of these being markets with above-average power prices.

Combustion Gas Microturbine Solar Power Fuel Cell Turbine (Photovoltaics) Electrical Efficiency (%) 25% to 45% 25% to 35% 15% to 25% 35% to 70% Overall Efficiency, incl. 80% to 90% 80% to 90% NM 80% to 90% Combined Heat+Power (%) Combustion-Based? Yes Yes No No Renewable? No No Yes Various Emissions (lbs/MWh) NOx 0.467 0.490 0 0.016 SOx 0 0 0 0

CO2 1,244 1,862 0 967 Source: Company reports, Raymond James research

Fuel cell vehicles are starting to be rolled out commercially but remain far behind EVs in the adoption curve. Only a small number of automakers currently have fuel cell vehicles available for sale. To the extent that fuel cells are gaining traction in transportation, they are mainly displacing lead-acid batteries in industrial material handling equipment (e.g., forklifts).

Outlook on Smart Grid

The traditional power grid has structural flaws – lack of storage, geographic constraints, and minimal monitoring and control – that diminish stability and increase the frequency of blackouts. The “smart grid” – an overarching framework that leverages modern communication architecture – makes the grid more efficient, stable, and economical. This value chain touches on the Internet of Things (IoT) and comprises a wide range of products and services: advanced metering infrastructure, networking equipment and software, monitoring and analytics, smart appliances and lighting systems, and demand response (DR).

Advanced metering infrastructure is what many people most closely associate with the term “smart grid,” and indeed AMI makes much of the rest possible. Traditional electric meters have no built-in remote-reading communication capability, so they require manual reading by a utility worker. Smart meters, by contrast, initiate and respond to two-way communications. In addition to reducing the number of scheduled truck rolls, which results in labor cost savings, smart meters can support various applications beyond monthly billings. For example, utilities gain the ability to charge customers based on time-of-day pricing, which can stimulate more efficient consumption patterns. Capabilities for line theft detection, cybersecurity protection, and managing distributed resources are also enhanced. Smart meter penetration is the highest in North America and Europe – both regions are set to reach an average of ~70% in 2020 – but growth is increasingly coming from India, Mexico, Southeast Asia, and other emerging markets. In all markets, a common challenge for smart meter providers is the complexity of sales cycles: field trials and regulatory approvals are often required before moving to a full-scale deployment.

Within a congested grid, DR helps align the interests of electricity providers (utilities and grid operators) and end users (enterprises, public sector institutions, and to a lesser extent, retail customers). The central idea is that power consumption can be temporarily curtailed in times of peak demand. DR is a more sophisticated version of the traditional approach of interruptible supply contracts. The role of DR service providers is to monitor power consumption and alert end users to reduce their usage during peak periods. This can take the form of simple demand reduction (e.g., by dimming lights or shutting down production lines); or the end user can self-generate electricity. The early adopters of DR were the Northeast and Mid-Atlantic regions of the U.S. But DR is making inroads in other parts of the country, as well as internationally (e.g., Japan, Germany, and Australia).

Outlook on Water Technology

Water is part of the broader resource scarcity paradigm – and, in contrast to the “Peak Oil” concept, water scarcity is currently visible, in many geographies. Less than 3% of the Earth’s total available water is fresh water, and this percentage is under pressure due to the draining of aquifers, pollution, and climate change. Meanwhile, the OECD projects that global water demand will grow slightly faster than global population growth through the middle of this century. It is intuitive that all of the growth in “blue water” demand is coming from emerging markets. What’s probably less intuitive is that a disproportionately large share of the demand growth – approximately half – is coming from manufacturing rather than irrigation. The World Bank has predicted that water scarcity will afflict large swaths of Africa, the Middle East, and Asia by 2050, with GDP impact of up to 6%.

Water usage can be optimized via improved planning and incentives – in some cases, including government- enforced mandatory caps. To state the obvious, though, politicians and regulators are reluctant to proactively curtail the use of such a basic commodity, leading to what is all too often a knee-jerk response after a genuine crisis emerges, such as the recent crisis in Cape Town, South Africa. Even something as simple as water metering – a prerequisite for monitoring usage – is far from universal. This, along with outdated drinking water infrastructure, helps explain why the amount of non-revenue water is as high as it is: estimated at more than 20% in North America, and up to 40% in emerging markets. Of the approximately one million miles of drinking water pipes across the U.S., many were laid in the early/mid-20th century, and water utilities’ pipe replacement rate averages only 0.5% per year.

Second, there are supply-side solutions: for example, wetlands preservation, wastewater recycling, and desalination. Wastewater recycling has its own trade-offs, including high energy intensity. Only 1% to 2% of the world’s population relies on desalinated water – but the percentage can be much higher in water-scarce regions. Desal’s high energy intensity (and thus carbon footprint) and other environmental sensitivities are hard to avoid, resulting in regulatory complications and occasionally lengthy construction timetables in places such as California. Even so, desal is gradually becoming a more mainstream source of clean water in coastal areas. Desal has traditionally been most prevalent in the Middle East – Saudi Arabia and the UAE currently top the capacity rankings – but adoption is on the rise elsewhere, including the western half of North America. Global desal capacity is currently ~100 million cubic meters per day, the bulk of which represents large utility-scale projects. Mid-scale desal is common in island economies, for example in the Caribbean, but it is also useful in onshore markets that are not large enough for megaprojects.

Raymond James - Renewable Energy and Clean Technology Research Universe Market Valuation Database

Current Equity Raymond James Valuation Ratios Consensus Valuation Ratios Price 3-Month Value EV / Revenue EV / EBITDA Price / EPS EV / Revenue EV / EBITDA Price / EPS Company Ticker Subsector(s) Rating 10/3/2018 Volume ($ MM) 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019

Mid & Large Cap (Market Cap > $1 Bln) Advanced Energy Industries AEIS Pow er Conversion MO2 $52.52 432,875 2,080 2.1x 1.9x 7.2x 6.6x 11.1x 9.8x 2.1x 1.9x 6.8x 6.0x 11.3x 10.3x Atlantica Yield * AY Solar Pow er MO2 $20.49 217,045 2,053 6.4x 6.0x 8.6x 7.9x 28.8x 22.2x Badger Meter BMI Water Technology NC $51.49 120,270 1,500 3.3x 3.1x 17.2x 15.6x 42.6x 30.7x Bloom Energy BE Fuel Cells MP3 $30.25 1,108,756 3,309 4.8x 4.1x NM NM NM 175.5x 4.8x 4.1x 51.2x 29.3x NM 907.5x Chart Industries GTLS LNG / Nat. Gas Fuels MP3 $75.84 309,071 2,433 2.1x 2.0x 21.1x 19.8x 38.7x 32.5x 2.1x 2.0x 16.4x 13.2x 38.1x 26.3x Clearw ay Energy CWEN Wind / Solar NC $19.53 514,287 2,480 7.1x 6.5x 8.2x 7.5x 19.5x 16.0x Cosan Ltd. CZZ Bioindustrials NC $7.25 983,948 1,842 0.4x 0.3x 3.1x 2.6x 10.0x 7.6x Evoqua Water Technologies AQUA Water Technology SB1 $17.85 655,982 2,125 1.9x 1.8x 14.1x 10.3x 25.5x 21.5x 1.9x 1.8x 11.2x 9.7x 25.4x 20.9x First Solar FSLR Solar Pow er MP3 $48.30 1,350,654 5,061 1.0x 0.8x 8.8x 4.4x 29.8x 17.6x 0.9x 0.8x 7.4x 3.8x 30.8x 15.6x Hannon Armstrong Capital HASI Solar / Wind / Efficiency NC $21.27 279,936 1,107 - - - - 16.2x 15.6x Itron, Inc. ITRI Smart Grid / Water SB1 $61.22 253,510 2,436 1.3x 1.3x 15.8x 8.7x 22.1x 14.2x 1.3x 1.3x 12.7x 8.9x 21.7x 14.4x NextEra Energy Partners, LP NEP Wind / Solar MP3 $48.42 209,624 7,534 12.3x 10.3x 13.9x 14.5x 11.3x 29.4x 10.0x 8.2x 10.7x 9.2x 16.3x 24.8x Pattern Energy Group * PEGI Wind Pow er MP3 $20.23 1,223,296 1,972 7.9x 7.0x 9.8x 9.2x 14.4x 37.3x Pentair plc PNR Water Technology NC $43.41 1,534,163 7,753 2.8x 2.7x 13.9x 13.1x 18.8x 17.3x Renew able Energy Group REGI Bioindustrials NC $28.71 746,641 1,208 0.4x 0.5x 8.4x 8.5x 4.2x 16.8x SolarEdge Technologies SEDG Solar Pow er NC $39.68 900,288 1,916 1.6x 1.5x 7.6x 7.6x 13.9x 12.6x SunPow er Corp. SPWR Solar Pow er MO2 $7.12 1,663,748 1,003 0.9x 0.8x NM 104.7x NM 20.5x 0.9x 0.8x 14.5x 8.3x NM NM Sunrun Inc. RUN Solar Pow er NC $12.85 2,015,220 1,504 4.4x 3.8x NM 132.2x 17.3x 12.5x TerraForm Pow er TERP Wind / Solar NC $11.77 711,987 1,902 9.4x 8.1x 13.1x 10.7x 32.2x 73.8x Tesla, Inc. TSLA EVs / Solar NC $294.80 10,450,984 50,115 3.1x 2.3x 43.3x 19.3x NM 104.0x Xylem Inc. XYL Water Technology MO2 $80.61 1,022,920 14,590 3.1x 2.9x 17.4x 15.3x 28.1x 23.7x 3.1x 2.9x 16.3x 14.5x 27.7x 23.7x Median $2,080 2.1x 1.9x 14.1x 12.4x 25.5x 21.5x 2.9x 2.5x 11.2x 9.2x 19.2x 19.1x Mean $5,520 3.3x 2.9x 14.1x 23.0x 23.8x 38.3x 3.7x 3.3x 14.8x 16.9x 21.6x 70.5x

Small Cap (Market Cap < $1 Bln) ADOMANI, Inc. ADOM Electric Vehicles NC $0.53 856,087 38 4.1x 2.2x NM NM NM NM Ameresco, Inc. AMRC Energy Efficiency NC $13.88 112,638 644 1.0x 0.9x 9.5x 8.5x 19.7x 18.4x American Superconductor AMSC Wind / Smart Grid NC $7.00 167,776 141 1.7x 1.3x NM NM NM NM Amtech Systems ASYS Solar Pow er NC $5.14 180,013 78 NM NM NM NM 6.6x NM Amyris, Inc. AMRS Bioindustrials NC $7.85 913,983 477 3.4x 2.2x 98.1x 12.6x NM 41.3x AquaVenture Holdings WAAS Water Technology MO2 $16.94 75,119 450 3.6x 3.4x 18.3x 16.0x NM NM 3.6x 3.4x 10.0x 9.4x NM NM Azure Pow er Global AZRE Solar Pow er NC $14.01 19,764 377 7.4x 5.5x 10.0x 6.9x NM 208.0x Ballard Pow er Systems BLDP Fuel Cells NC $4.25 958,912 760 6.1x 4.7x NM 84.6x NM NM Blink Charging BLNK EV Infrastructure NC $2.36 549,846 55 ------Broadw ind Energy BWEN Wind Pow er NC $2.20 20,210 34 0.3x 0.2x 4.4x 2.4x NM 7.3x Canadian Solar CSIQ Solar Pow er NC $14.62 658,374 866 0.6x 0.7x 7.5x 8.0x 9.5x 10.3x Clean Energy Fuels CLNE Natural Gas Fuels MU4 $2.61 1,385,436 532 1.3x 1.2x 10.2x 17.2x NM NM 1.4x 1.4x 8.8x 11.2x NM NM Consolidated Water CWCO Water Technology NC $13.48 39,443 204 2.4x 2.3x - - 23.2x 19.8x Enphase Energy ENPH Solar Pow er MP3 $4.93 3,288,402 540 1.7x 1.4x 39.8x 18.0x 50.3x 25.0x 1.7x 1.4x 34.3x 13.0x 51.4x 17.1x Enviva Partners, LP EVA Biopow er MO2 $32.33 32,438 890 2.2x 1.8x 14.7x 9.4x 63.5x 17.3x 2.2x 1.7x 12.0x 9.0x 47.0x 20.2x FuelCell Energy FCEL Fuel Cells NC $1.09 1,053,817 94 2.0x 1.3x NM NM NM NM Green Plains Inc. GPRE Bioindustrials NC $18.09 675,026 727 0.3x 0.3x 7.0x 4.3x NM 25.1x Green Plains Partners LP GPP Bioindustrials SB1 $14.74 49,024 469 5.8x 5.4x 9.1x 8.5x 8.7x 8.1x 5.5x 5.2x 8.5x 7.9x 8.5x 7.8x Hanw ha Q CELLS HQCL Solar Pow er NC $8.12 60,703 676 ------Infrastructure and Energy Alternatives IEA Wind / Solar NC $10.50 89,199 361 0.6x 0.5x 6.7x 4.7x 6.7x 3.9x JinkoSolar Holding JKS Solar Pow er NC $10.81 495,627 426 0.2x 0.2x 4.0x 4.5x 10.1x 17.7x Pacific Ethanol PEIX Bioindustrials NC $2.16 360,417 93 0.1x 0.1x 7.9x 3.1x NM 8.4x Plug Pow er PLUG Fuel Cells NC $1.90 2,534,590 407 3.0x 2.2x NM 58.9x NM NM REX American Resources REX Bioindustrials NC $78.51 28,801 508 0.6x 0.6x - - 15.7x 14.8x TPI Composites TPIC Wind Pow er / EVs MO2 $28.61 317,743 977 0.9x 0.7x 14.1x 6.7x 93.4x 16.0x 0.9x 0.7x 12.9x 6.2x 215.9x 15.3x Vivint Solar VSLR Solar Pow er NC $5.46 375,887 665 5.3x 4.5x 47.6x 19.4x NM NM Westport Fuel Systems WPRT Natural Gas Fuels NC $3.20 595,319 422 1.5x 1.4x 914.0x 19.5x NM 400.0x Workhorse Group WKHS Electric Vehicles NC $1.11 284,710 47 2.2x 0.3x NM NM NM NM Median $438 2.0x 1.6x 14.4x 12.7x 56.9x 16.7x 1.7x 1.4x 9.5x 8.5x 15.7x 17.4x Mean $427 2.6x 2.3x 17.7x 12.6x 54.0x 16.6x 2.3x 1.8x 70.8x 15.5x 37.7x 52.2x

SB1 = Strong Buy; M O2 = Outperform; M P3 = M arket Perform; M U4 = Underperform; NC = Not Covered * AY and PEGI are covered by RJ Ltd. Source: FactSet, Raymond James research

On July 25, RJ Ltd. addressed investor concerns about oil service cost escalation. While we think this concern has some merits, much of it is related to enhanced frac designs. As a case study, Cardium oil development has been one of the main areas of focus among E&P operators in the Western Canadian basin. Since 2014, the average total frac placed in Cardium wells has risen by 75% to 783 tons/well, while the average completion cost per ton of proppant placed is unchanged since 2016. Not surprisingly, with bigger fracs came improved well productivity, taking the average first six-month Cardium well’s oil production from 95 bpd (2014) to 124 bpd (2018), up 30%. Although we don’t expect the production rate to keep increasing with larger frac placements indefinitely, it appears that most Cardium oil E&Ps have learned to be increasingly capital-efficient and disciplined while simultaneously increasing well productivity as the industry recovers out of a prolonged downturn.

On August 15, RJ Ltd. provided an update on heavy crude pricing. Heavy differentials have once again emerged as a front-of-mind topic for investors in the Canadian energy patch, driven by the recent widening of WCS differentials to US$30/Bbl. While volume growth continues to show a borderline disregard for the current pricing environment, the most recent differential blow-out appears to be primarily demand-driven; specifically, BP announcing maintenance plans for the Whiting refinery, lasting through late October. As the largest single consumer of Canadian heavy crude (2017 demand was ~275 Mbpd), downtime at the refinery has an outsized impact on the supply-demand fundamentals, even in a relatively fluid market; in an environment that is already short on egress capacity, and with pipelines downstream of Chicago also under apportionment, we believe the maintenance activity at Whiting will likely keep heavy crude prices under pressure, with volumes likely to back up into storage in Western Canada and/or forcing additional shut-ins from producers.

On August 23, RJ Ltd. provided an update on the gas price landscape. With AECO prices declining from $3.00/Mcf (4Q16) to $1.20/Mcf (2Q18), investor skepticism on gas-weighted names has been very apparent. That being said, in the last few quarters, management commentary has increasingly become more focused on highlighting the importance of physical marketing contracts, and 2Q results finally put some figures behind this diversification strategy (and what we believe was one of the more important themes this past reporting season). Gas price realizations have historically averaged ~115% of AECO. As concerns surrounding broader egress issues and supply- demand imbalances started to become more prominent, however, access to non-AECO markets became increasingly more critical. Subsequently, as management teams adapted, gas price realizations started to improve, with the average realization seen in 2Q at 160% of AECO. That said, market diversification comes with additional transportation costs.

On September 12, RJ Ltd. discussed the impact of political turbulence in South America – specifically, Argentina and Venezuela – on Canadian oil service companies. For example, Calfrac has 108,000 horsepower, 13 cementing units, and six coil tubing units in Argentina. Its Argentina business posted negative EBITDA of $3.1 million and represented 10% of total revenue in 2017. Calfrac’s outlook for Argentina had initially been improving in 2018, at least until the recent currency crisis. Ensign also has a meaningful presence in Argentina. It had three super spec rigs working for international oil companies in 2Q, and two legacy rigs working. Ensign does not provide detailed information on performance by country in its international segment, but the five active rigs in Argentina represent 31% of its international rig count.

Junior Producers Company Closing Stock Mkt Cap Net Debt EV Current CFPS P/CF Name Symbol Price Rating ($mln) ($mln) ($mln) Yield NAVPS 18E 19E 18E 19E Chinook CKE $0.27 UP 4 $59 $2 $61 0.0% NA $0.04 $0.03 7.5x 8.2x Delphi DEE $0.82 SB 1 $152 $163 $316 0.0% NA $0.29 $0.39 2.9x 2.1x Granite GXO $1.84 OP 2 $63 $47 $110 15.0% NA $0.38 $0.55 4.8x 3.4x Iron Bridge IBR $0.84 MP 3 $131 $15 $146 0.0% NA $0.05 $0.04 17.2x 19.0x Leucrotta LXE $1.87 OP 2 $374 ($9) $370 0.0% NA $0.10 $0.15 18.2x 12.2x Petrus PRQ $0.93 OP 2 $46 $142 $188 0.0% $2.35 $0.93 $1.24 1.0x 0.8x Storm Resources SRX $2.81 OP 2 $342 $96 $437 0.0% NA $0.74 $0.69 3.8x 4.1x Yangarra Resources YGR $4.94 SB 1 $412 $106 $518 0.0% $8.55 $1.20 $1.97 4.1x 2.5x Median 4.5x 3.7x

Intermediate Producers Company Closing Stock Mkt Cap Net Debt EV Current CFPS P/CF Name Symbol Price Rating ($mln) ($mln) ($mln) Yield NAVPS 18E 19E 18E 19E Advantage AAV $3.52 MP 3 $655 $240 $895 0.0% NA $0.84 $0.89 4.2x 4.0x ARC ARX $14.50 SB 1 $5,265 $742 $6,007 4.1% $22.40 $2.20 $2.18 6.6x 6.6x Athabasca ATH $1.69 MP 3 $862 $347 $1,210 0.0% $2.80 $0.27 $0.46 6.3x 3.6x Baytex BTE $3.92 MP 3 $954 $2,083 $3,037 0.0% $4.80 $1.75 $1.95 2.2x 2.0x Bellatrix BXE $1.51 UP 4 $84 $437 $520 0.0% $0.95 $0.90 $0.54 1.7x 2.8x Birchcliff BIR $5.09 OP 2 $1,353 $568 $1,921 2.0% NA $1.19 $1.15 4.3x 4.4x Bonavista BNP $1.47 UP 4 $371 $760 $1,131 2.7% $1.65 $1.07 $0.81 1.4x 1.8x Bonterra BNE $19.70 SB 1 $656 $281 $937 6.1% $22.65 $4.64 $5.23 4.2x 3.8x Cardinal CJ $5.39 MP 3 $607 $247 $853 7.8% $5.90 $1.05 $1.66 5.1x 3.3x Crescent Point CPG $8.53 MP 3 $4,683 $3,763 $8,446 4.2% $12.89 $3.50 $4.25 2.4x 2.0x Crew Energy CR $1.83 OP 2 $273 $334 $608 0.0% NA $0.59 $0.59 3.1x 3.1x Enerplus ERF $16.57 OP 2 $4,012 $269 $4,281 0.7% NA $2.93 $3.24 5.7x 5.1x Freehold Royalties FRU $11.48 MP 3 $1,363 $32 $1,394 5.3% $13.80 $1.27 $1.28 9.0x 8.9x Kelt KEL $8.24 SB 1 $1,700 $155 $1,854 0.0% $12.85 $1.08 $1.38 7.7x 6.0x NuVista NVA $7.71 SB 1 $1,342 $505 $1,847 0.0% NA $1.35 $1.55 5.7x 5.0x Obsidian OBE $1.22 OP 2 $617 $413 $1,030 0.0% $2.70 $0.28 $0.52 4.4x 2.4x Paramount POU $14.88 OP 2 $1,967 $817 $2,784 0.0% NA $2.86 $5.00 5.2x 3.0x Painted Pony PONY $2.91 MP 3 $468 $357 $826 0.0% $3.45 $1.04 $0.88 2.8x 3.3x Pengrowth PGF $1.21 UP 4 $669 $743 $1,412 0.0% $0.87 $0.18 $0.27 6.8x 4.5x Peyto PEY $11.97 OP 2 $1,974 $1,219 $3,193 6.0% NA $2.94 $2.84 4.1x 4.2x PrairieSky Royalty PSK $24.08 MP 3 $5,710 ($70) $5,641 3.2% $16.25 $1.07 $1.05 22.6x 22.9x Seven Generations VII $16.31 SB 1 $5,785 $1,944 $7,729 0.0% NA $4.77 $4.84 3.4x 3.4x Surge Energy SGY $2.61 OP 2 $603 $380 $983 4.8% $3.25 $0.69 $0.82 3.8x 3.2x Tamarack Valley TVE $5.17 OP 2 $1,181 $143 $1,325 0.0% $6.00 $1.18 $1.41 4.4x 3.7x TORC TOG $6.67 OP 2 $1,349 $346 $1,695 3.6% $9.85 $1.61 $1.67 4.1x 4.0x Tourmaline Oil TOU $23.52 OP 2 $6,317 $1,427 $7,744 1.7% NA $4.92 $5.76 4.8x 4.1x Vermilion VET $43.50 OP 2 $6,669 $1,550 $8,219 5.9% NA $6.42 $7.22 6.8x 6.0x Whitecap WCP $8.23 SB 1 $3,486 $1,158 $4,644 3.7% $13.55 $1.87 $2.41 4.4x 3.4x Median 4.4x 3.7x

Senior Producers

Company Closing Stock Mkt Cap Net Debt EV Current CFPS P/CF Name Symbol Price Rating ($mln) ($mln) ($mln) Yield NAVPS 18E 19E 18E 19E Canadian Natural CNQ $42.26 OP 2 $52,036 $18,626 $70,663 3.2% $64.72 $9.52 $10.05 4.4x 4.2x Cenovus Energy CVE $13.42 MP 3 $16,490 $8,984 $25,475 1.5% $16.00 $1.49 $3.11 9.0x 4.3x Encana ECA US$13.47 SB 1 $13,086 $3,561 $16,647 0.4% $17.59 $2.09 $3.03 6.4x 4.4x Husky Energy HSE $20.67 OP 2 $20,784 $2,143 $22,926 2.4% $25.65 $4.57 $4.97 4.5x 4.2x Imperial Oil IMO $43.70 UP 4 $36,227 $1,688 $37,915 1.7% $46.21 $5.46 $5.68 8.0x 7.7x Suncor SU $51.10 OP 2 $84,008 $10,432 $94,440 2.8% $65.42 $7.58 $9.03 6.7x 5.7x Median 6.6x 4.4x

Oil Sands

Company Closing Stock Mkt Cap Net Debt EV Current CFPS P/CF Name Symbol Price Rating ($mln) ($mln) ($mln) Yield NAVPS 18E 19E 18E 19E MEG Energy MEG $10.96 MP 3 $3,388 $3,434 $6,822 0.0% $12.30 $1.17 $3.08 9.4x 3.6x Source: Capital IQ, Raymond James Ltd. As of October 3, 2018

Company Closing Stock Mkt Cap Dividends EPS (fd) Name Symbol Price Rating ($mln) $/sh Yield 17A 18E 19E Contract Drillers Ensign ESI $6.40 MP 3 $1,003 $0.48 7.5% ($0.21) ($0.91) ($0.53) Precision PD $4.51 OP 2 $1,323 $0.00 0.0% ($0.40) ($0.34) ($0.02) Trinidad TDG $1.84 OP 2 $503 $0.00 0.0% ($0.22) ($0.29) ($0.01) Western WRG $0.83 OP 2 $77 $0.00 0.0% ($0.48) ($0.36) ($0.18) Pressure Pumpers Calfrac CFW $4.39 OP 2 $633 $0.00 0.0% ($0.20) $0.12 $0.34 STEP STEP $5.52 OP 2 $368 $0.00 0.0% $0.78 $0.53 $0.43 Trican2 TCW $2.30 OP 2 $751 $0.00 0.0% $0.01 ($0.06) ($0.04) Ancillary Wellsite Svcs Essential ESN $0.52 OP 2 $74 $0.00 0.0% ($0.02) $0.06 $0.07 Strad SDY $1.60 OP 2 $92 $0.00 0.0% ($0.12) $0.06 $0.16 Blended Production/Midstream/Wellsite Svcs CES CEU $4.06 SB 1 $1,087 $0.06 1.5% $0.16 $0.20 $0.29 Enerflex EFX $16.88 OP 2 $1,495 $0.38 2.3% $1.00 $1.03 $1.23 Mullen MTL $15.83 MP 3 $1,641 $0.60 3.8% $0.51 $0.68 $0.95 Secure SES $8.59 SB 1 $1,388 $0.27 3.1% ($0.02) $0.06 $0.20 Workforce Accommodations Black Diamond BDI $3.56 MP 3 $196 $0.00 0.0% ($1.59) $0.01 $0.14

Horizon North HNL $3.20 UP 4 $522 $0.08 2.5% ($0.08) ($0.03) $0.08 Source: Capital IQ, Raymond James Ltd. As of October 3, 2018

Power & Energy Infrastructure - Pipelines & Midstream Company Closing Stock Mkt Cap Dividends AFFO/sh AFFO Yield Name Symbol Price Rating ($mln) $/sh Yield 18E 19E 18E 19E AltaGas ALA $20.95 UP 4 $3,700 $2.19 10.5% $2.30 $2.36 11.0% 11.3% Gibson Energy GEI $21.53 MP 3 $3,138 $1.32 6.1% $1.58 $1.79 7.3% 8.3% Inter Pipeline IPL $22.78 UP 4 $8,729 $1.68 7.4% $2.38 $2.32 10.4% 10.2% Keyera KEY $35.28 OP 2 $7,242 $1.80 5.1% $3.01 $3.35 8.5% 9.5% Pembina Pipeline PPL $45.29 OP 2 $23,007 $2.28 5.0% $3.89 $4.34 8.6% 9.6%

Median 6.1% 8.6% 9.6% Source: Capital IQ, Raymond James Ltd. Source: Capital IQ, Raymond James Ltd. As of October 3, 2018

Integrated Oil & Gas

Quarterly Stock Price Performance in 3Q18 EU Integrated O&G Sector Dividend Yield 10.0% Brent, US$/bbl +6.7% Total +6.4% 9.0% Equinor +6.1% 8.0%

EU Integrated O&G +2.4% 7.0% Repsol +1.9% 6.0% Eni +1.8% 5.0% BP +0.7% 4.0% Stoxx 600 +0.3% OMV -0.9% 3.0% RD Shell A -1.2%

-5% 0% 5% 10% Euro Oil sector dividend yield Average

Note: Stock prices converted to US$ for comparison purposes. Source: FactSet, RJE research.

After a strong performance in Q2 (+10.1% in U.S. dollar terms), the European Integrated Oil & Gas sector was up by a more modest +2.4% (in U.S. dollar terms) in Q3 2018. Again, the sector outperformed the Stoxx 600 index (which was flattish at +0.3% in the third quarter). More specifically, it was the fifth straight quarter that the European Integrated Oil & Gas sector outperformed the broader European stock market. Last quarter’s most notable corporate news flow was BP’s acquisition of BHP Billiton’s U.S. onshore assets (deal announced on 27 July). This was the largest oil and gas asset M&A deal year-to-date, and a textbook “package deal”. The acquired portfolio comprised 470,000 net acres across the Permian, Eagle Ford, and Haynesville, for a total cash consideration of US$10.5bn. Closing is expected by the end of October. The deal seems to make sense for BP, assuming it delivers the anticipated synergies and unlocks upside potential through capital efficiency and resource uplift. Separately, Total held its annual strategy presentation on September 25. While the market has been accustomed over the past few years to see incrementally improved objectives at every Total Strategy update, such as capex and opex reductions, or enhanced shareholder distribution, it looks like this narrative has somewhat stalled, as this year’s presentation included no incremental surprises, in the sense it was a reiteration of the strategy and the objectives previously disclosed, management reaffirming in particular that it would stand by capital discipline. The table below shows that our Big Oil coverage universe offers attractive dividend yields, ranging between 4.5% (for Total) and 5.5% (for Repsol), and that these levels are well covered by organic free cash flows.

European Integrated Oil & Gas – Valuation metrics Company Rating Share Mkt Cap P/E EV/EBITDA Div. yield FCF yield ROACE Price (US$bn) 18E 19E 20E 18E 19E 20E 18E 19E 20E 18E 19E 20E 18E 19E 20E BP Market Perform 3 597.9p 156.0 13.9x 11.9x 14.0x 5.0x 4.5x 4.7x 5.1% 5.4% 5.4% 5.6% 7.9% 7.5% 7.5% 8.4% 7.0% Eni Outperform 2 €16.38 68.7 12.5x 10.4x 13.0x 3.2x 2.8x 3.0x 5.1% 5.1% 5.1% 9.1% 10.3% 8.5% 7.2% 8.6% 6.7% Repsol Outperform 2 €17.16 31.6 9.8x 8.9x 10.5x 3.1x 3.0x 3.3x 5.5% 5.8% 5.8% 19.1% 8.3% 6.4% 6.8% 7.1% 6.0% RD Shell Outperform 2 €30.06 289.6 11.3x 10.3x 11.5x 4.8x 4.4x 4.6x 5.4% 5.4% 5.4% 10.2% 9.5% 9.2% 9.8% 10.3% 9.0% Total Strong Buy 1 €56.30 173.1 12.7x 11.5x 12.4x 5.2x 4.5x 4.8x 4.5% 4.7% 4.8% 2.0% 6.4% 6.3% 8.8% 9.0% 8.0% Weighted average 718.9 12.3x 10.9x 12.4x 4.7x 4.2x 4.5x 5.1% 5.2% 5.3% 7.5% 8.4% 7.9% 8.7% 9.3% 8.0%

Source: RJE estimates (priced as of October 3, 2018).

EU Integrated Oils ─ Cumulative CFFO (before ΔWCR) CFFO before Change in WCR by company 45 120

40 110 14

35 100 12

30 90 10 25 80

(US$bn) 8

20 70 (US$bn) (US$/bbl) 6 15 60 4 10 50 2 5 40 0

0 30

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Q1'18 Q2'18 BP (excl Macondo) Eni Repsol Shell (incl BG) Total CFFO before ΔWCR, lhs Brent oil price, rhs Source: Company reports, FactSet, RJE research.

Oilfield Services

Quarterly Stock Price Performance in 3Q18 European Oilfield Service EV/EBITDA Saipem +33.9% 10x GTT +23.7% 9x Wood Group +21.4% SBM Offshore +16.4% 8x Euro OFS Sector +13.0% CGG +12.7% 7x Petrofac +9.5% 6x Brent, US$/bbl +6.7% Aker Solutions +1.6% 5x Stoxx 600 +0.3% 4x Hunting -0.6% TechnipFMC -1.4% 3x PGS -4.1% Técnicas Reunidas -4.4% 2x Subsea 7 -7.6% Schoeller-Bleckmann -9.0% -20% -10% 0% 10% 20% 30% 40%

Note: Stock prices converted to US$ for comparison purposes. Source: FactSet, RJE research.

After a strong performance in the last quarter (+15.2% in U.S. dollar terms), the European oilfield service sector has continued to perform well in Q3 (+13.0%), meaningfully outperforming the broader European stock market. Within our coverage, the best performer was our Underperform-rated Saipem (+33.9%), on the back of positive revisions to consensus 2020E earnings, followed by Strong Buy-rated GTT (+23.7%), and Outperform-rated Wood Group (+21.4%), which we upgraded following a strong set of H1’18 results. On the other end of the spectrum, the worst performance was attributable to Outperform-rated Schoeller-Bleckmann (-9.0%), as investors fear the Permian pipeline bottlenecks may affect growth in the company’s U.S. Oilfield Equipment business over the next few quarters. On September 11, we initiated coverage on Gaztransport & Technigaz (GTT) at Strong Buy. We believe the Street hugely underestimates GTT’s sharp 2020E earnings growth, which is underpinned by this year’s strong uptick in new LNG carrier orders, but also overlooks its bright long-term outlook supported by the development of LNG as a marine fuel. GTT’s unrivalled leadership in containment systems for LNG carriers is sustainable to us, and the company looks ideally positioned to take advantage of an anticipated recovery in LNG project sanctions. GTT’s steady revenue growth combined with its outstanding operating margin, capital-light model and debt-free cash- rich balance sheet underpin the material rise we expect in the dividend. In our view, GTT’s attractive yield makes the stock a key name to buy for income funds seeking differentiated long-term quality oil service exposure. The sector’s 12 month forward EV/EBITDA currently stands at 7.3x vs. its 10-year historical average of 6.6x.

European Oilfield Service – Valuation metrics Rating Share Mkt Cap P/E EV/EBITDA EBIT margin ROE price (US$m) 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E GTT Strong Buy 1 €68.1 2,913 19.3x 20.6x 15.3x 15.2x 16.1x 11.8x 62.1% 60.4% 66.3% 85.6% 68.3% 76.3% Petrofac Market Perform 3 659p 2,963 5.9x 8.9x 8.0x 4.4x 5.3x 4.6x 8.7% 8.4% 8.3% 39.8% 22.8% 22.2% Saipem Underperform 4 €5.48 6,393 123.4x 64.6x 39.2x 6.1x 6.9x 6.5x 6.1% 4.6% 4.9% 0.8% 1.6% 2.6% Schoeller-Bleckmann Outperform 2 €97.5 1,800 31.2x 18.4x 15.8x 12.5x 10.0x 9.0x 17.7% 21.5% 22.7% 14.6% 21.4% 21.2% TechnipFMC Market Perform 3 €26.78 14,083 19.3x 18.7x 18.8x 8.0x 8.3x 8.0x 9.3% 8.3% 7.9% 5.1% 5.0% 4.8% Técnicas Reunidas Underperform 4 €27.06 1,745 39.5x 16.4x 15.3x 16.4x 8.8x 8.0x 1.6% 3.4% 4.2% 9.2% 22.6% 21.9% Wood Group Outperform 2 785p 6,915 13.0x 10.7x 9.7x 9.6x 8.1x 7.2x 3.5% 4.7% 5.4% 8.5% 10.4% 11.3% Source: RJE estimates (priced as of October 3, 2018).

Important Investor Disclosures Raymond James & Associates (RJA) is a FINRA member firm and is responsible for the preparation and distribution of research created in the United States. Raymond James & Associates is located at The Raymond James Financial Center, 880 Carillon Parkway, St. Petersburg, FL 33716, (727) 567-1000. Non-U.S. affiliates, which are not FINRA member firms, include the following entities that are responsible for the creation and distribution of research in their respective areas: in Canada, Raymond James Ltd. (RJL), Suite 2100, 925 West Georgia Street, Vancouver, BC V6C 3L2, (604) 659-8200; in Europe, Raymond James Euro Equities SAS (also trading as Raymond James International), 40, rue La Boetie, 75008, Paris, France, +33 1 45 64 0500, and Raymond James Financial International Ltd., Broadwalk House, 5 Appold Street, London, England EC2A 2AG, +44 203 798 5600.

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© 2018 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 35 Raymond James Global Research Ratings and Definitions Raymond James & Associates (U.S.) definitions Strong Buy (SB1) Expected to appreciate, produce a total return of at least 15%, and outperform the S&P 500 over the next six to 12 months. For higher yielding and more conservative equities, such as REITs and certain MLPs, a total return of at least 15% is expected to be realized over the next 12 months. Outperform (MO2) Expected to appreciate and outperform the S&P 500 over the next 12-18 months. For higher yielding and more conservative equities, such as REITs and certain MLPs, an Outperform rating is used for securities where we are comfortable with the relative safety of the dividend and expect a total return modestly exceeding the dividend yield over the next 12-18 months. Market Perform (MP3) Expected to perform generally in line with the S&P 500 over the next 12 months. Underperform (MU4) Expected to underperform the S&P 500 or its sector over the next six to 12 months and should be sold. Suspended (S) The rating and price target have been suspended temporarily. This action may be due to market events that made coverage impracticable, or to comply with applicable regulations or firm policies in certain circumstances, including when Raymond James may be providing investment banking services to the company. The previous rating and price target are no longer in effect for this security and should not be relied upon.

Raymond James Ltd. (Canada) definitions Strong Buy (SB1) The stock is expected to appreciate and produce a total return of at least 15% and outperform the S&P/TSX Composite Index over the next six months. Outperform (MO2) The stock is expected to appreciate and outperform the S&P/TSX Composite Index over the next twelve months. Market Perform (MP3) The stock is expected to perform generally in line with the S&P/TSX Composite Index over the next twelve months and is potentially a source of funds for more highly rated securities. Underperform (MU4) The stock is expected to underperform the S&P/TSX Composite Index or its sector over the next six to twelve months and should be sold.

Raymond James Europe (Raymond James Euro Equities SAS & Raymond James Financial International Limited) rating definitions Strong Buy (1) Expected to appreciate, produce a total return of at least 15%, and outperform the Stoxx 600 over the next 6 to 12 months. Outperform (2) Expected to appreciate and outperform the Stoxx 600 over the next 12 months. Market Perform (3) Expected to perform generally in line with the Stoxx 600 over the next 12 months. Underperform (4) Expected to underperform the Stoxx 600 or its sector over the next 6 to 12 months. Suspended (S) The rating and target price have been suspended temporarily. This action may be due to market events that made coverage impracticable, or to comply with applicable regulations or firm policies in certain circumstances, including when Raymond James may be providing investment banking services to the company. The previous rating and target price are no longer in effect for this security and should not be relied upon.

In transacting in any security, investors should be aware that other securities in the Raymond James research coverage universe might carry a higher or lower rating. Investors should feel free to contact their Financial Advisor to discuss the merits of other available investments.

Rating Distributions

Coverage Universe Rating Distribution* Investment Banking Distribution RJA RJL RJEE/RJFI RJA RJL RJEE/RJFI Strong Buy and Outperform (Buy) 57% 70% 53% 24% 34% 0% Market Perform (Hold) 39% 26% 33% 12% 9% 0% Underperform (Sell) 4% 4% 15% 5% 33% 0% * Columns may not add to 100% due to rounding.

Suitability Ratings (SR) Medium Risk/Income (M/INC) Lower to average risk equities of companies with sound financials, consistent earnings, and dividend yields above that of the S&P 500. Many securities in this category are structured with a focus on providing a consistent dividend or return of capital. Medium Risk/Growth (M/GRW) Lower to average risk equities of companies with sound financials, consistent earnings growth, the potential for long-term price appreciation, a potential dividend yield, and/or share repurchase program. High Risk/Income (H/INC) Medium to higher risk equities of companies that are structured with a focus on providing a meaningful dividend but may face less predictable earnings (or losses), more leveraged balance sheets, rapidly changing market dynamics, financial and competitive issues, higher price volatility (beta), and potential risk of principal. Securities of companies in this category may have a less predictable income stream from dividends or distributions of capital. High Risk/Growth (H/GRW) Medium to higher risk equities of companies in fast growing and competitive industries, with less predictable earnings (or losses), more leveraged balance sheets, rapidly changing market dynamics, financial or legal issues, higher price volatility (beta), and potential risk of principal.

High Risk/Speculation (H/SPEC) High risk equities of companies with a short or unprofitable operating history, limited or less predictable revenues, very high risk associated with success, significant financial or legal issues, or a substantial risk/loss of principal.

Raymond James Relationship Disclosures Raymond James expects to receive or intends to seek compensation for investment banking services from the subject companies in the next three months. Company Name Disclosure

Stock Charts, Target Prices, and Valuation Methodologies Valuation Methodology: The Raymond James methodology for assigning ratings and target prices includes a number of qualitative and quantitative factors including an assessment of industry size, structure, business trends and overall attractiveness; management effectiveness; competition; visibility; financial condition, and expected total return, among other factors. These factors are subject to change depending on overall economic conditions or industry- or company-specific occurrences.

Risk Factors General Risk Factors: Following are some general risk factors that pertain to the businesses of the subject companies and the projected target prices and recommendations included on Raymond James research: (1) Industry fundamentals with respect to customer demand or product / service pricing could change and adversely impact expected revenues and earnings; (2) Issues relating to major competitors or market shares or new product expectations could change investor attitudes toward the sector or this stock; (3) Unforeseen developments with respect to the management, financial condition or accounting policies or practices could alter the prospective valuation; or (4) External factors that affect the U.S. economy, interest rates, the U.S. dollar or major segments of the economy could alter investor confidence and investment prospects. International investments involve additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability.

Additional Risk and Disclosure information, as well as more information on the Raymond James rating system and suitability categories, is available at rjcapitalmarkets.com/Disclosures/index. Copies of research or Raymond James’ summary policies relating to research analyst independence can be obtained by contacting any Raymond James & Associates or Raymond James Financial Services office (please see raymondjames.com for office locations) or by calling 727-567-1000, toll free 800-237-5643 or sending a written request to the Equity Research Library, Raymond James & Associates, Inc., Tower 3, 6th Floor, 880 Carillon Parkway, St. Petersburg, FL 33716.

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