9 November 2021

Equities
Global integrated oils Oil & Gas

Sector rally fades Global

 Sector runs out of steam as commodity momentum fades

 Despite strong fundamentals we think energy transition
concerns will continue to constrain valuation upside
 Update target prices. Raise RDSA/B from Hold to Buy
Raising estimates on higher crude prices: In a separate report (Oil market outlook:
Spare capacity diminishing; raising price forecasts, 9 November 2021) we raised our
Brent price forecasts from USD65/b to USD75/b flat real from 2022. As a result, we
raise our company cash flow estimates by an average of 8%. We see three important
lessons from the recent sector rally and the latest results:
1. The companies are all in an extremely strong financial position, with an increasing
focus on returning cash to shareholders. With average crude price breakevens in Gordon Gray*
the mid-USD50/b’s, we see the sector generating 2022e-24e average free cash Global Head of Oil and Gas Equity Research
yields of ~9%, leading to distribution yields (dividends + buybacks) of ~8%. HSBC Bank plc
gordon.gray@hsbcib.com
2. This was a commodity-driven rally, not a fundamental re-rating. The sector’s +44 20 7991 6787
6% correction in recent days despite excellent 3Q results and all the positive Kim Fustier*
news on cash distributions reinforces our view that the sharp September rally Analyst, Oil & Gas
HSBC Bank plc
was a short-term reaction to the surge in commodity prices, not the start of a kim.fustier@hsbc.com
fundamental reappraisal of long-term value by investors. +44 20 3359 2136

3. As good as results look set to remain, we’re not convinced this means the sector
will outperform much. On the one hand, valuation headwinds over the energy * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is
not registered/ qualified pursuant to FINRA regulations
transition simply aren’t going away for the foreseeable future. Also, despite
raising our crude price forecasts, we see downside in both crude and gas prices
relative to current spot levels, and expect this to weigh on sector performance.
Cautious on the sector... We adjust target prices by an average of +3%, reflecting
our continued caution on the sector’s rerating potential. After the recent correction in
share prices, we see 8% average upside. We reiterate our Buy rating on
TotalEnergies and Holds on BP, Chevron, Exxon, ENI, Equinor and Repsol.

…But raising Shell from Hold to Buy. Despite this caution, we raise Shell A & B
from Hold to Buy. Shell stands out to us because: 1) well above-average crude price HSBC Sterling Markets Seminar
leverage translates into the biggest CFPS increases in our coverage, 2) we forecast
the best free cash yield in the sector (12% avg. for 2022e-24e) and the biggest fall in 17 November 2021 | Virtual
share count in our coverage (16% by 2024e), and 3) we think Shell’s new target of a Click to Register
50% cut to scope 1-2 emissions by 2030 is a highly important signal of intent.

Integrated oils: Summary of ratings and valuations

Company / Ticker Currency Current Price New TP Old TP Rating Up/downside 22e Div yield 22e PE 22e EV/CF 22e P/CF 22e FC yield
BP (BP/ LN) GBp 334.9 365 360 Hold 9.0% 5.0% 6.6 6.2 3.4 11.6%
Chevron (CVX US) USD 113.0 124.0 117.0 Hold 9.7% 4.9% 12.7 7.7 6.2 9.8%
ExxonMobil (XOM US) USD 63.9 64.0 61.5 Hold 0.1% 5.6% 12.1 7.7 6.5 8.4%
Shell A (RDSA LN) GBp 1,629 1,890 1,795 Buy (vs Hold) 16.1% 4.5% 6.0 4.7 3.2 13.7%
Shell B (RDSB LN) GBp 1,629 1,890 1,810 Buy (vs Hold) 16.0% 4.5% 6.0 4.7 3.2 13.7%
Total (TTE FP) EUR 42.91 48.10 47.10 Buy 12.1% 6.3% 7.3 6.2 4.4 10.0%
ENI (ENI IM) EUR 12.38 13.90 12.70 Hold 12.3% 7.4% 8.6 4.9 3.4 11.4%
Repsol (REP SQ) EUR 10.72 11.80 11.90 Hold 10.1% 5.6% 6.0 4.6 2.8 9.7%
Equinor (EQNR NO) NOK 220.2 213.0 212.0 Hold (3.2%) 3.0% 9.2 5.7 4.6 8.5%
Source: Refinitiv Eikon, HSBC estimates. Priced at close 3 November 2021

Disclosures & Disclaimer Issuer of report: HSBC Bank plc

This report must be read with the disclosures and the analyst certifications in
View HSBC Global Research at:
the Disclosure appendix, and with the Disclaimer, which forms part of it.
https://www.research.hsbc.com
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 Equities ● Oil & Gas
9 November 2021

Running out of steam

 Sector runs out of steam as commodity momentum fades

 Despite strong fundamentals we think energy transition concerns will
continue to constrain valuation upside
 Update target prices. Raise RDSA/B from Hold to Buy

Raising price forecasts, updating target prices

Long-term Brent price
forecast raised from USD65/b
to USD75/b
In a report published concurrently (Oil market outlook: Spare capacity diminishing; raising price
forecasts, 9 November 2021) we have raised our Brent crude price forecasts from USD65/b to
USD75/b, flat real from 2022. This change comes for three reasons:
 Near-term demand is being boosted by ~0.5mbd from fuel switching, but the underlying
recovery is also strong; we now expect 2022 demand to be fully back to 2019 levels, before
jet demand is anywhere near back to normal again
 US supply growth is resuming (and we expect growth of ~1mbd in 2022e) but activity is
being hampered by logistical and manpower constraints, while spending beyond the private
producers remains tightly reined in. Conventional non-OPEC supply should just about
recover to 2019 levels, but the outlook beyond 2022e-23e is one of gradual decline
 We are increasingly concerned on the outlook for global spare capacity on a 1-2-year view.
Baseline supply allocations will become less relevant in 2022e as spare capacity becomes
much more limited and concentrated. Within the next year, the total could fall to ~3mbd or
less, with 70% of this in just two producers – Saudi Arabia and the UAE.

HSBC crude price forecasts, USD/b

2019 2020 1Q21 2Q21 3Q21 4Q21e 2021e 2022e 2023e
Current
Brent 64.2 43.3 61.3 69.1 73.2 82.0 71.4 75.0 76.5
WTI 57.0 39.5 58.1 66.2 70.6 79.0 68.5 72.0 73.5
Previous
Brent 70.0 68.4 65.0 66.3
WTI 67.0 65.5 62.0 63.3
Change
Brent 12.0 3.0 10.0 10.2
WTI 12.0 3.0 10.0 10.2
Source: Refinitiv Eikon, HSBC forecasts

8% average increase to our
2022e-23e CFPS estimates
Estimate changes
In this report, we update our estimates on the companies to reflect our oil price forecast
changes, but also 3Q results and company updates. On average, this results in an 8% increase
to our cash flow per share estimates for 2022e-23e.

2
 Equities ● Oil & Gas
9 November 2021

HSBC EPS estimate changes

_____ Current forecast ____ _____ Prev forecast _____ ______ F/c change ______
21e 22e 23e 21e 22e 23e 21e 22e 23e
BP (BP/ LN) USD 0.61 0.70 0.79 0.56 0.57 0.66 8% 22% 20%
Chevron (CVX US) USD 8.41 8.87 8.96 7.02 6.91 6.90 20% 28% 30%
Exxon (XOM US) USD 5.14 5.28 5.52 4.70 4.36 4.63 9% 21% 19%
Shell A/B (RDSA/B LN) USD 2.59 3.73 3.73 2.70 3.26 3.27 (4%) 15% 14%
TotalEnergies (TTE FP) USD 6.27 6.86 6.81 5.66 6.01 5.84 11% 14% 17%
ENI (ENI IM) EUR 1.30 1.43 1.57 1.00 1.12 1.23 29% 28% 28%
Repsol (REP SQ) EUR 1.56 1.80 1.80 1.57 1.61 1.59 (0%) 11% 14%
Equinor (EQNR NO) USD 3.07 2.82 2.85 3.03 2.72 2.48 2% 3% 15%
Average 9% 18% 20%
Source: HSBC estimates

HSBC CFPS estimate changes

_____ Current forecast ____ _____ Prev forecast _____ ______ F/c change ______
21e 22e 23e 21e 22e 23e 21e 22e 23e
BP (BP/ LN) USD 1.32 1.34 1.44 1.25 1.24 1.33 6% 8% 8%
Chevron (CVX US) USD 17.54 18.33 18.77 15.51 16.27 16.84 13% 13% 11%
Exxon (XOM US) USD 9.79 9.85 10.10 9.58 9.02 9.32 2% 9% 8%
Shell A/B (RDSA/B LN) USD 6.71 6.91 7.04 6.51 6.11 6.21 3% 13% 13%
TotalEnergies (TTE FP) USD 10.40 11.20 11.71 9.73 10.49 10.83 7% 7% 8%
ENI (ENI IM) EUR 3.99 4.24 4.54 3.62 3.95 4.17 10% 7% 9%
Repsol (REP SQ) EUR 4.75 4.52 4.66 4.62 4.30 4.36 3% 5% 7%
Equinor (EQNR NO) USD 8.68 5.59 5.77 8.55 5.25 5.73 2% 6% 1%
Average 6% 9% 8%
Source: HSBC estimates

Sector rally has run out of steam

The speed and scale of the sector’s recent rally was very reminiscent of what we saw in late
2020 – relative to the market, the big oils outperformed by 13% in the month of September. In
November 2020, the rally was sparked by the start of a prolonged rally in Brent crude and this
time round it has been driven by the spike in commodity prices, not least dramatically higher
natural gas prices as well as the strength in crude.

However, as the upward momentum of commodity prices has run out of steam, so too has
Sector has underperformed
by 3% YTD
sector performance, with the sector now having lost half of its recent gains. While the sector’s
performance in absolute terms has been strong this year – the stocks are up by more than 30%
on average – it has now underperformed the broad market by 3% YTD.

European and US integrated oils: performance vs domestic market, past two years

110 90
100 80
90 70
80 60
70 50
60 40
50 30
40 20
Nov-19 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 Ma y-21 Jul-21 Sep-21
Europe Integrated Oils vs Mkt US Integrated Oils vs Mkt Brent crude, USD (RHS)
Source: Refinitiv Eikon

3
 Equities ● Oil & Gas
9 November 2021

The big question with this rally is whether it was the start of a broad sector re-rating, or just a
A short-term commodity-
driven rally, not a
short-term commodity-driven move. We suspect that it is the latter.
fundamental re-rating The evidence of this lies in the sector performance so far this year.
 Firstly, after its November 2020 rally, the sector failed to outperform at all on balance in this
year up to September, despite overwhelming evidence of its move from extreme financial
stress to strong excess free cash. From February onwards, this transformation was already
reflected in higher dividends and increasingly widespread management discussion on
additional cash distributions.
 Secondly, as good as 3Q results have been – and we believe 4Q numbers are set to be
even stronger – the stocks haven’t reacted to them in any significant way through results
season, suggesting sentiment is up with events.

Integrated oils: share price performance in Integrated oils: share price performance in
USD, past month USD, past 3 months
10% 35%
8% 30%
6% 25%
4%
20%
2%
15%
0%
10%
-2%
-4% 5%

-6% 0%
REP EQNR RDA RDB BP TOT XOM ENI CVX BP RDA XOM REP CVX RDB TOT ENI EQNR
Source: Refinitiv Eikon Source: Refinitiv Eikon

Previous valuations are increasingly irrelevant

Sector valuations jumped in September off a low base, the sector having de-rated severely in
recent years on any metric. This long-term de-rating resulted from a combination of severe
pressure on company finances from the oil price collapse and increasing market concerns over
the implications of the energy transition for company financial frameworks. By longer-term
historical standards, sector valuations are still attractive. However, we continue to believe that
older historical valuations for the major oils are fairly irrelevant.

European oil majors: forward P/CF vs the European oil majors: forward P/E vs the
STOXX600 Index STOXX600 Index
75% 110%

70% 100%
65% 90%
60%
80%
55%
70%
50%
60%
45%
40% 50%

35% 40%
Aug-16 Aug-17 Aug-18 Aug-19 Aug-20 Aug-21 Oct-16 Oct-17 Oct-18 Oct-19 Oct-20 Oct-21
Source: Refinitiv Eikon Source: Refinitiv Eikon

4

Energy transition risk is a
major valuation headwind
which isn’t going away
We benchmark valuations to
the six months immediately
pre-pandemic
Equities ● Oil & Gas
9 November 2021
It’s clear from results so far in 2021 that the financial outlook of the companies has been
transformed since the commodity price rally. But on balance, easing of market concerns on this
front has done virtually nothing for valuations, and neither (with one or two notable exceptions)
has the wide range of positive news flow on dividends and share buybacks.
Meanwhile, the uncertainty over the longer-term outlook of the sector has never been greater,
as a result of the energy transition and the companies’ responses to it. The climate ambitions of
all the European IOCs point to a dramatic evolution in the nature of their businesses in the next
10-20 years as they shrink hydrocarbon exposure and build out their low-carbon asset bases.
This prospect has led to widespread investor scepticism over their longer-term financial
sustainability, particularly with respect to risks to returns in renewables.
In practice, we think this scepticism is overdone, and the companies look fairly well placed to
manage the transition, as we examined in detail in our report Global integrated oils: How long
are you willing to wait? (22 July 2021). However, we think it will remain a valuation headwind for
some time for two reasons:
 While the European IOCs are growing low-carbon businesses aggressively, these are still
dwarfed by the scale of their legacy assets. We estimate that renewables will contribute
little more than 10% of cash flows on average by 2030, with the companies still facing the
investability issues of being predominantly hydrocarbon-oriented. It will likely take many
years for companies to have both the critical mass and financial disclosure in low-carbon to
start to address investor concerns.
 Secondly, there are real risks that investor expectations of the companies on climate
continue to harden. In particular, we have seen momentum building behind net zero 2050
pathways and an increasing focus on absolute emissions, rather than the intensity metrics
targeted by most IOCs. This could translate into more pressure for the companies to move
even faster with their energy transition strategies (for more, see Big Oils and Climate: How
oil majors could accelerate their transition, 15 September 2021).
On balance, we continue to think that the six months prior to the pandemic in early 2020 is a
reasonable benchmark for valuations which could be achievable on a 12-month view. This
pre-pandemic period was one of reasonably strong crude prices (around USD65/b Brent on
average), but before much of the intensification of climate focus on the oils, and before many of
the net zero ambitions of the companies were unveiled, with all of their implications for company
strategies.
After the latest correction, these valuations would imply around 10% upside on P/CF relative,
but 16% on P/E relative. Given the sector’s lack of reaction to the strength of recent results, and
the fact that our USD75/b Brent price assumption would imply a 10% drop from current crude
price levels, we are using the lower of these two benchmarks in setting our target prices on the
stocks as we’re not convinced much more is achievable in the short to medium term.
Valuation methodology
Our target prices are derived from a 50/50 blend of 2022e P/CF relative multiples and 2022e
target dividend yields, which reflect our updated Brent price assumption USD75/b in 2022e –
see our report published concurrently (Oil market outlook: Spare capacity diminishing; raising
price forecasts, 9 November 2021).
Dividend yield valuations: For the yield-driven part of our methodology, we assess the
potential of each stock to re-rate on an absolute basis and vs its peer group, based on our view
of its ability to cover dividends from free cash flow, as well as the potential for further dividend
growth or additional cash distributions. For the European oils, our prospective yields are
equivalent to a sector average forward yield of 5.2% vs 5.4% now. For the US names, it
equates to an average yield of 5.1% vs 5.3% now.
5
 Equities ● Oil & Gas
9 November 2021

P/CF methodology: We set a target 2022e P/CF relative to the market for each stock. We have
broken down this methodology into two elements: (1) our view of the re-rating potential of the
sector as a whole vs the broad market, based on sector prospects (as discussed above); and
(2) our view of the potential of each stock to re-rate on P/CF valuation relative to its peer group
based on our view of the outlook for each of the individual companies. We use target sector
average P/CF valuations relative to market of 43% for the European oils and 46% on the US
oils (down from 46% and 51%, respectively, previously, because of the sector’s lack of
response to the latest positive news flow). This implies only around 10% re-rating potential for
the Europeans, 8% in the US.

Under both methodologies, where company reporting currency differs from the currency of the
shares’ primary listing, we have adjusted for the relevant FX rate (note: the CFPS figures in our
table of estimate changes are all stated in USD).

Target prices raised by 3% on
average, giving average
upside of 8%
Overall, we raise our target prices by an average of 3%. This reflects the effect of our updated
estimates, offset by a more cautious view of the sector’s re-rating potential on a 6-12-month
view, as discussed above. The average upside to our target prices is 8%.

Integrated oils: Changes to HSBC ratings and target prices (local currency)
_______ Rating ______ ____ Target price____ _________ TP ________
Company Curr. Price New Old New Old Change Upside
BP (BP/ LN) GBp 334.9 Hold Hold 365 360 1% 9%
Chevron (CVX US) USD 113.0 Hold Hold 124.0 117.0 6% 10%
ExxonMobil (XOM US) USD 63.9 Hold Hold 64.0 61.5 4% 0%
Shell A (RDSA LN) GBp 1,629 Buy Hold 1,890 1,795 5% 16%
Shell B (RDSB LN) GBp 1,629 Buy Hold 1,890 1,810 4% 16%
Total (FP FP) EUR 42.91 Buy Buy 48.1 47.1 2% 12%
ENI (ENI IM) EUR 12.38 Hold Hold 13.90 12.70 9% 12%
Repsol (REP SQ) EUR 10.72 Hold Hold 11.80 11.90 (1%) 10%
Equinor (EQNR NO) NOK 220.2 Hold Hold 213.0 212.0 0% (3%)
Average 3% 8%
Source: Refinitiv Eikon, HSBC estimates, Prices as of close at 03 November 2021

Integrated oils: Valuation snapshot

_______ PE ______ ______ P/CF ______ ____ EV/DACF ____ ____ FCF yield____ _______DY ______
Company 2022e 2023e 2022e 2023e 2022e 2023e 2022e 2023e 2022e 2023e
BP 6.6 5.8 3.4 3.2 6.2 6.0 9.8% 9.7% 5.0% 5.2%
CVX 12.7 12.6 6.2 6.0 7.7 7.8 9.8% 8.6% 4.9% 5.1%
XOM 12.1 11.6 6.5 6.3 7.7 7.7 8.4% 8.1% 5.6% 5.9%
RDS 6.0 6.0 3.2 3.2 4.8 5.0 13.5% 11.6% 4.5% 4.7%
TOT 7.2 7.3 4.4 4.3 6.2 6.1 10.0% 10.4% 6.3% 6.5%
ENI 8.6 7.9 3.4 3.2 4.9 4.7 11.3% 11.5% 8.0% 8.1%
REP 6.0 5.9 2.8 2.7 4.6 4.6 9.9% 7.4% 6.1% 6.6%
EQNR 9.2 9.1 4.6 4.5 5.7 5.7 8.5% 6.9% 3.0% 3.5%
Average 8.6 8.3 4.3 4.2 6.0 6.0 10.4% 9.3% 5.3% 5.6%
Source: Refinitiv Eikon, HSBC estimates, Prices as of close at 03 November 2021. RDS multiples are for a blend of A shares (53%) and B shares (47%).

6

Average free cash yields of 9-
10%
BP and Shell share counts to
fall >14% by end-2024e
Equities ● Oil & Gas
9 November 2021
What we learned from 3Q results
3Q results followed the trend of the previous two quarters, and reinforced the scale of the
transformation in sector fundamentals. Our main observations from the recent set of results are
as follows:
1: Cash distributions – the good news continues
The positive news flow of recent quarters continued. Mostly it was incremental and focussed on
short-term (4Q) buyback guidance, with a couple of exceptions such as Exxon.
 BP guided to USD1.25bn of buybacks for 4Q, up from USD0.9bn in 3Q. At USD60/b oil,
BP expects to be able to buy back ~USD1bn/qtr and increase DPS at 4%pa through 2025
 Chevron expects 4Q buybacks at the high end of current guidance, equivalent to
~USD750m vs USD625m/qtr in 3Q
 Exxon announced its intention to start a buyback of up to USD10bn over 2022-23
 Repsol raised its dividend by 5% one year ahead of time and announced a 75m share
repurchase programme until spring 2022, equivalent to 5% of shares outstanding
 Shell’s 4Q buybacks are likely to be similar to the USD1bn of 3Q. 2022 buybacks will be
boosted by an additional USD7 of proceeds from the pending Permian sale
 Equinor raised 2H21 buybacks from previous guidance of USD600m to USD1.3bn
We would expect to hear much more at full-year results next February, when companies lay out
their strategic outlooks in more detail.
On our updated oil price forecasts, we see a sector average free cash yield of 9-10% over the
period 2022e-24e at USD75/b Brent, with the highest prospective free cash yields at Shell and
ENI. With the latest announcements on dividends we forecast a 2022e sector dividend yield of
5.3%, with yields above 6% at ENI and Total. On top of this, we expect share buybacks to take
distribution yields to around 8% for 2022e, rising towards 9% by 2024e.
Integrated oils: free cash yields and distribution yields, 2022e-24e average (%)
14%
12%
10%
8%
6%
4%
2%
0%
EQNR RDS CVX BP XOM REP TOT ENI
DY Buyback FY yld
Source: HSBC estimates
Over the next few years, we see the greatest reduction to share count coming from BP and
Shell (both more than 14% by end-2024e), with above-average buybacks more than
compensating for below average dividend yields relative to the other supermajors. We have
estimated the balance of free cash usage between buybacks and further deleveraging, based
on either specific payout guidance or on our own judgement. Shell is notable among the group
7
 Equities ● Oil & Gas
9 November 2021

in that we see the flexibility for not just the biggest reduction in share count in the next few
years, but simultaneously one of the biggest reductions to balance sheet gearing.

Integrated oils: change in share count, end Integrated oils: change in balance sheet
2020-end 2024e gearing, 3Q21 to end '24e
0% 0%
-2% -2%
-4% -4%
-6%
-6%
-8%
-8%
-10%
-10% -12%
-12% -14%
-14% -16%
-16% -18%
-18% -20%
XOM TOT ENI CVX EQNR REP BP RDS REP TOT BP XOM ENI CVX RDS EQNR

Source: Company reports, HSBC estimates Source: Company reports, HSBC estimates

2: The market was largely up with 3Q events

Apart from the announcements on cash distributions mentioned above, the sector’s lack of
response to some very good results highlights the degree to which market sentiment appears to
have been up with events before time.

In fact, even more than that, most companies’ results were somewhat ahead of consensus on
earnings, and also ahead of our own forecasts or consensus (where available) on cash flow. By
and large, this doesn’t seem to have mattered in terms of share price reaction to the results.

Integrated oils: quarterly cash flow and momentum of news flow, USDm
3Q20 2Q21 3Q21 Y/Y Q/Q Comments
BP 4,392 5,877 6,770 54% 15% EBIT 3% ahead of consensus, cash flow ~USD1bn above our est.
CVX 3185 7084 9006 183% 27% EPS and cash flow both well ahead of consensus
XOM 3,526 10,030 11,432 224% 14% EPS and cash flow in line; new USD10bn buyback announced
RDS 8,236 13,124 16,777 104% 28% NI USD1.4bn below, but CF boosted by USD4bn margining effects
TOT 3,791 6,352 8,060 113% 27% EPS 8% above consensus, cash flow 20% above our est.
ENI 2,074 3,370 3,935 90% 17% EPS and cash flow well above consensus/our est.
REP 886 1,656 1,890 113% 14% EPS slightly ahead, cash flow well above our est., 5% DPS increase,
new 5% buyback
EQNR 3,232 6,199 9,299 188% 50% EPS slightly ahead, cash flow well above our est., 4Q buyback raised
Total 29,322 53,692 67,169 129% 25%
Source: Company reports, HSBC

3Q21 adj net income vs consensus 3Q21 underlying CFFO vs HSBC estimate
40% 30%

30% 25%
20%
20%
15%
10%
10%
0%
5%
(10%) 0%
(20%) (5%)
RDS XOM EQNR REP TOT BP CVX ENI XOM CVX EQNR BP REP ENI TOT RDS
Source: Company data Source: Company data, HSBC estimates

8
 Equities ● Oil & Gas
9 November 2021

3: Free Cash Flow – plenty of headroom

Since 2012-14 the integrated oils have managed to halve their average free cash breakevens,
improving capital efficiency dramatically and leaving them in an extremely healthy position. We
estimate an average sector breakeven (for cash flow to cover capex and dividends) in the low
USD40’s/b Brent for 2021e. The sharp drop in free cash breakevens in 2021 compared to 2020
owes itself in part to the rally in natural gas prices, notably in Europe and Asia, the recovery in
refining margins from trough 2020 levels, and the rise in petrochemical margins to multi-year highs.

Integrated oils: FCF breakevens (pre-IFRS 16) and Brent price (USD/b)
144
140 134

112 116
120
96
100
78 81
63 72 76 61
80 65 56
57 55 58
60 41
42
40
20
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021e 2022e 2023e
Pre divi breakeven Dividend cost Brent
Source: Company data, HSBC estimates. NB: Excludes Equinor in 2021 due to distorting effect of Norwegian tax time lags

Breakevens rising with
higher capex and dividend
costs, but there’s still plenty
of headroom
For 2022, we see this figure rising somewhat – there are three main factors behind this:
 Higher dividend costs, with step-changes increases for some such as Shell
 Higher capex levels for most companies, although spending is set to remain substantially
below pre-pandemic levels. On a 12-month rolling basis, organic capex to end-3Q21 was
34% below levels from two years ago. We expect organic capex to rise by around a quarter
in 2022e. Around half of the increase in absolute terms comes from upstream: we assume a
~18% y/y increase in E&P spending from the 2021 trough – some companies are taking
advantage of high oil & gas prices to nudge up short-cycle spending. Nevertheless, E&P
capex in 2022e should remain some 20% below 2019 levels (see chart overleaf). The other
half comes from increased downstream and low-carbon investments.
 Offsetting these two factors to some extent, higher oil-indexed natural gas prices and better
downstream margins should help reduce breakeven crude prices by boosting other
revenues and cash flows

On balance, we expect a rise in average breakevens to the mid-USD50/b’s in 2022e and around
USD60/b in 2023e, which would take them back to somewhere around their 2018-19 levels.

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 Equities ● Oil & Gas
9 November 2021

Integrated oils – Aggregate organic capex (USDbn)

250 120

200 100

80
150
60
100
40
50 20

0 0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021e 2022e 2023e 2024e

Upstream Downstream and Low-Carbon Brent price (USD/b, RHS)

Source: Company data, HSBC estimates

There’s quite a range of breakevens from the highest to the lowest, but all the companies have
moved into a solidly free cash positive position. The lowest breakevens on our 2022 forecasts
are at Shell, Equinor and Chevron. In the cases of Shell and Equinor, this still reflects the 2020
dividend cuts to some extent. Although dividends at both have been partially reversed since,
they are the two stocks with the lowest cash flow payout ratios in the group.

Integrated oils: 2022e organic free cash breakevens before and after dividends, USD/b

70 63
60 59 59
57
60
17 50 50 50
50 17 26 25
11 13 32
40 22
30
47
20 40 38 38 35 34
28 27
10
0
REP BP RDS EQNR ENI TOT CVX XOM
Pre dividend b/e Dividend cost
Source: HSBC estimates

For most of the oil majors, average gearing levels are now back to pre-COVID-19 levels. Even
with higher cash distributions we see room for balance sheet deleveraging to continue in the
next few years. On our forecasts, sector average gearing (net debt to capital employed,
ex-leases) is set to fall from a peak of ~26% at year-end 2020 to only 11% by 2023e.

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 Equities ● Oil & Gas
9 November 2021

Oil majors - Gearing (ND/Capital employed), pre-IFRS 16

30%

25%

20%

15%

10%

5%

0%
4Q15 4Q16 4Q17 4Q18 4Q19 4Q20 4Q21e 4Q22e 4Q23e
Source: Company data, HSBC estimates

4: Growth momentum will continue into 4Q

We have now had two quarters in succession where year-on-year growth comparisons have
been pretty meaningless, since we have been comparing strong numbers this time round with
those at the worst of the pandemic last year. 4Q will probably be another stellar set of results;
we expect Brent to be another USD9/b higher q/q, and of course much of the spike in natural
gas prices will only be felt in 4Q, and combined with higher oil-indexed natural gas prices.

Quarterly sector cash flow – y/y change, %

300%
250%
200%
150%
100%
50%
-
(50%)
(100%)
1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21e 1Q22e 2Q22e 3Q22e 4Q22e
Source: Company reports, HSBC estimates

For 2022e, our USD75/b Brent price would mean an uplift of USD3.6/b y/y, and the companies
should also benefit from stronger natural gas prices and gas price time lags. However, we
expect much of this to be offset by the lack of one-off gains (such as margining effects and
Equinor’s low tax rate) and a catch-up of cash tax payments in general.

On a trailing 12-month basis, cash flow per share is back up to around 80% of its 2013-14
peaks, and some 90% of its more recent, 2019 peaks. Aggregate 12m rolling operating
cashflow is 3% above its level from two years ago (to end-3Q19), despite upstream oil & gas
production still 7% below levels from two years ago and a 5% lower 12m rolling Brent price.

11
 Equities ● Oil & Gas
9 November 2021

12m rolling operating cashflow to end- 12m rolling upstream oil & gas volumes to
3Q21 vs end-3Q19 end-3Q21 vs end-3Q19
100% 5%
80%
0%
60%
(5%)
40%

20% (10%)
0%
(15%)
(20%)
(20%)
(40%)
BP REP RDS ENI XOM TOT EQNR CVX
BP ENI CVX TOT XOM RDS REP EQNR
Source: Company data Source: Company data

Equinor is a notable outlier, with cash flow per share well above previous peaks due to a
combination of its natural gas price exposure and the temporarily lower Norwegian cash tax
rate. Also of note is Shell, where cash flow per share is almost back to its 2013-14 levels, and
above those of 2019 again.

Rolling 12-month CFPS in USD, indexed from peak (12 months to 3Q/4Q14)

100
BP
90 CVX
80 XOM
RDS
70
TOT
60
ENI
50 EQNR
40 Brent

30
3Q/4Q14 4Q15 3Q16 2Q17 1Q18 4Q18 3Q19 2Q20 1Q21
Source: Company reports. NB: Chart excludes Repsol due to distorting effects of the Talisman acquisition

On our USD75/b Brent price forecast for 2022e we see no net growth in sector cash flows next
year (excluding the tax-related fall in cash flow at Equinor) followed by low single-digit growth
thereafter (c2%, in line with our inflation assumption).

Even with the benefit of accretion from share buybacks, we expect sector CFPS growth to
remain only around 6% p.a. from 2023e-24e.

5: Climate
Despite how far company climate ambitions have progressed in the past two years, the quarter
still had some significant new milestones on this topic:
 Chevron unveiled a target to achieve net zero scope 1-2 upstream emissions by 2050, with
unchanged 2028 interim target targets of a 40% cut to emission intensity for oil, and 26%
for gas vs 2016. The company has also issued its first goal on a scope 3 basis, albeit one
which only implies a ~2% intensity reduction from 2019 to 2028.
 Shell announced that it is now targeting a 50% reduction in absolute operated scope 1-2
emissions by 2030 vs 2016 levels. This is equivalent to a 48% cut from 2019 levels, vs the
recent Dutch court stipulation of a 45% cut – although this target refers only to Shell’s
scope 1-2 emissions, not scope 3 which forms the substantial majority of its emissions.

12
 Equities ● Oil & Gas
9 November 2021

 At its Low-Carbon investor day on 5 October, Repsol unveiled new targets of reducing
absolute scope 1-2 emissions by 55% and scope 3 emissions by 30% by 2030 vs 2016 (its
previous targets were only on an intensity basis).

In our recent report Big Oils and Climate: How oil majors could accelerate their transition (15
September 2021), we wrote that COP26 “could potentially act as a catalyst for carbon-intensive
companies such as oil majors to ratchet up their targets. It wouldn’t be the first time: Repsol
published its Net Zero 2050 ambition in early December 2019 to coincide with the COP25 held in
Madrid.” The oil majors were reportedly told they were “not welcome” at the Glasgow conference
(Times, 28 October) and had no formal representation. None of the European oil majors have so
far chosen to unveil new climate ambitions during COP26, and we don’t expect major
announcements from the companies for the remainder of the event. After giant leaps forward in
the companies’ climate ambitions in the last two years, the pace of change is now slowing down
and the oil majors are now moving into execution of their energy transition strategies.

Company views

BP: Hold, CP 335p, TP 365p (from 360p)

What we learned from 3Q: Underlying EBIT was 3% ahead of consensus, although net income
was 9% ahead thanks to a lower than expected tax rate. Cash flow of USD7.8b was ~1bn
ahead of our forecast. BP guided to USD1.25bn of buybacks for 4Q, following USD0.9bn at 3Q.
Beyond this, with its latest start-ups, BP’s management confirmed it has now met its
longstanding target of 900kbd of new major project production by 2021.

Investment view: To meet its absolute emissions targets, BP’s upstream volumes are set to fall
~40% by 2030. We think this scale of shrinkage in its legacy business gives BP more of a
challenge convincing investors on the sustainability of its financial framework than for many of
its peers, although management is confident it can grow EBITDA from its legacy hydrocarbon
businesses through 2025 despite this shrinkage. In practice, our analysis gives us confidence in
the company’s ability to manage its transition, but we don’t see investor perceptions on the
issue improving substantially, except in the longer term as a track record emerges (see BP –
Downgrade to Hold: Funding the future, 24 June 2021).

Progress on growing renewables assets is extremely strong, and management is increasingly

confident in its target of having 20GW of renewables developed to final investment decision
(FID) by 2025. At 3Q, BP reiterated guidance given the previous quarter of room for
~USD1bn/quarter of buybacks through 2022-25 at USD60/b Brent, while growing dividends per
share at 4%pa. Like the rest of the group, BP’s financial outlook is reaping the benefits of strong
commodity prices, but its exposure to higher prices is proportionally lower than many of its
peers, which is reflected in below-average increases to our CFPS estimates vs the other
supermajors. Based on BP’s guidance on excess cash payouts, its prospective distribution
yields are highly competitive and we see one of the biggest reductions in share count in the next
few years, but at the expense of a balance sheet which does not de-lever as fast as some. On
the balance of commodity price leverage and free cash strength, we prefer Shell.

13
 Equities ● Oil & Gas
9 November 2021

BP share price (p) and ADR price (USD) BP 2y fwd P/CF vs Sector average
550 50
110%
500 45
450 40 100%
400 35
90%
350 30
300 25 80%
250 20
200 15 70%

150 10
60%
Nov-19 May-20 Nov-20 May-21
Oct-19 Apr-20 Oct-20 Apr-21 Oct-21
BP shares (LHS) BP ADRs (RHS)
Source: Bloomberg Source: Refinitiv Eikon

Chevron: Hold, CP USD113, TP USD124 (from USD117)

What we learned from 3Q: This was a good set of results all round from Chevron, with both
earnings and cash flow more than USD1bn ahead of consensus. Underlying cash flow of
USD9.0bn was at a level seen in only one other quarter since 2014. With the strength of free
cash flow, balance sheet gearing ended the quarter below management’s 20-25% guidance
range at 19%. Buybacks are set to increase from USD675m in 3Q to USD750m in 4Q.

Investment view: In our view Chevron’s is a fairly straightforward story. Production growth is
limited in the short term – partly because of PSC expiry - but medium-term guidance is more
impressive, with 3.5mbd targeted in 2025 vs 3.1mbd in 2020. Meanwhile, Chevron’s above-
average leverage to the commodity upturn is now showing through in results; we see it producing
the strongest y/y cash flow growth in the group this year. Having restarted share buybacks at 3Q,
we expect initial guidance of USD2-3bn pa to be raised with 4Q results now that debt has been
brought down. On our estimates, at USD75/b there is room for more like USD6bn pa, although
guidance will probably come in lower than this on a lower assumed crude price.

Chevron’s new climate targets represent a solid move in the right direction. While the 2028
scope 1-2 upstream emissions targets are unchanged, management now targets net zero on
this basis by 2050, while it has also issued its first goal on a scope 3 basis, albeit one which
only implies a ~2% reduction from 2019 to 2028. Chevron’s stock has outperformed many of its
peers in recent weeks, but in our view this looks fully justified by its commodity leverage, and
forward cash flow valuations vs the group remain at the low end of their recent range.

Chevron share price (USD) Chevron 2y fwd P/CF vs Sector average

130 210%
120 200%
110 190%
100 180%
90 170%
80 160%
70 150%
60 140%
50 130%
Nov-19 May-20 Nov-20 May-21 Oct-19 Apr-20 Oct-20 Apr-21 Oct-21
Source: Bloomberg Source: Refinitiv Eikon

14
 Equities ● Oil & Gas
9 November 2021

ENI: Hold, CP EUR12.38, TP EUR13.90 (from EUR12.70)

What we learned from 3Q: ENI’s EBIT was in line with consensus but net income was well
above (33%) consensus due to a much-lower-than-expected tax rate – some of which looks
structural given a higher share of profits from lower-taxed regions. 2021 operating cashflow
guidance was raised substantially to EUR12bn, largely as a result of higher Brent price
(USD70/b) and gas prices. Its gas business should benefit from contract renegotiations, which is
likely to have a large positive one-off impact in 4Q. Having raised its dividend back to 2019
levels and announced a EUR400m buyback for 2021 only recently (at 2Q), there was no update
on ENI’s cash distribution policy at 3Q results.

Investment view: We believe ENI offers a good balance between medium-term growth,
distributions and climate considerations (see ENI: Low-carbon strategy underrated, 15 March
2021). ENI’s above-average leverage to oil prices more than makes up for its lower exposure to
strong spot gas prices in Europe and Asia, and the impact of our higher crude price deck on net
income estimates is among the biggest for ENI. ENI’s cash distribution formula implies strong
upside to its dividend for 2022e in a high oil price environment (EUR0.98-1.1/sh at USD70-75/b,
up from EUR0.86/sh for 2021), while buybacks should double next year vs the EUR400m level
for 2021e. Our updated forecasts imply cash returns to shareholders of ~EUR4bn for 2022e, or
a total distribution yield of ~9%.

ENI leads the peer group on climate ambition but lags on its renewable power build-out,
although the gap is narrowing after recent acquisitions. Following a number of deals (including
the recent entry into the Dogger Bank C offshore wind project), its renewable asset pipeline
allows it to meet its recently raised target of >6GW of installed capacity by end-2025.

ENI officially launched the IPO process of its “Renewables & Retail” arm. A strategy
presentation will take place on 22 November and the transaction will complete in 2022. The
spin-off might be a positive catalyst, but any boost to its share price is unlikely to last long in our
view. In upstream, ENI is progressing with two other corporate transactions: the planned
combination of its Angola E&P business with BP (completed by early 2022) and a potential IPO
or partial sale of Vår Energi, its Norwegian E&P business.

ENI share price (EUR) ENI 2y fwd P/CF vs European average

16 110%
14
100%
13

11
90%
10

8 80%

7
70%
5 Oct-19 Apr-20 Oct-20 Apr-21 Oct-21
Nov-19 May-20 Nov-20 May-21
Source: Bloomberg Source: Refinitiv Eikon

Equinor: Hold, CP NOK220.2, TP NOK213 (from NOK212)

What we learned from 3Q: Equinor’s net income was 5% above consensus, mainly thanks to a
large beat in Marketing, Midstream and Processing (MMP) reflecting mark-to-market gains on
rising European gas prices – however, management expects this gain to reverse in the next two
quarters when volumes are delivered. Cash tax payments will also rise steeply in the next few

15
 Equities ● Oil & Gas
9 November 2021

quarters as Equinor starts to pay cash taxes on its 2021 profits: Equinor guides to more than
USD6bn of Norwegian cash taxes in 4Q21 (vs <USD2bn YTD) and USD7.7bn in 1H22.

Given high oil and European gas prices, Equinor raised its buyback programme for 2H 2021 from
USD600m to USD1.3bn, including USD1bn for the second tranche in 4Q. One-third of this
buyback programme is done in the market, and two-thirds will be executed with the Norwegian
government in mid-2022. Equinor took a USD0.5bn impairment on its Mongstad refinery to reflect
higher assumed CO2 prices – an interesting trend which might impact other assets or European oil
companies. Equinor is conscious of its role as a key supplier of natural gas to Europe and is taking
steps to boost gas exports in 4Q (albeit at the margin) to take advantage of high gas prices.
Equinor continues to undershoot its guidance on spending and trimmed guidance on 2021 organic
capex by USD1bn to USD8bn as a result of project delays and cost efficiencies, while capex
guidance for future years remains unchanged for now and on an uptrend.

Investment view: Equinor has by far the group’s highest exposure to spot gas prices in Europe
(~2.5% in annual CFFO for every USD1/mBtu in European spot gas prices), which explains
much of its outperformance vs the sector in recent months. The stock continues to trade at a
meaningful premium to peers relative to history, which we think partly comes from perceptions
of better ESG credentials. This is not justified in our view, as Equinor’s emissions are set to rise
over the next five years in absolute terms while its relative exposure to renewables is
undifferentiated (see Equinor (Hold): Headwinds, 24 June 2021).

A catch-up in Norwegian tax payments means 2022 operating cashflow after tax will fall
significantly y/y from unusually high 2021 levels – by almost 40% from over USD28bn in 2021 to
USD17.5bn in 2022 on our estimates. We expect Equinor to further raise its share buybacks vs
its initial guidance (given at the June 2021 CMD) of USD1.2bn p.a. in a USD50-60/b
environment. In this note, we increase our buyback assumption to USD3bn p.a. in 2022e-24e,
implying a total distribution yield of more than 6% in 2022e. Even with higher buybacks,
Equinor’s gearing ratio (ND/CE pre-IFRS 16) could turn negative as early as 2022e, assuming a
Brent price of USD75/b and still-elevated European gas prices.

Equinor share price (NOK) Equinor 2y fwd P/CF vs European average

240 110%
220
100%
200
180 90%
160
80%
140
120 70%
100
60%
80
Oct-19 Apr-20 Oct-20 Apr-21 Oct-21
Nov-19 May-20 Nov-20 May-21
Source: Bloomberg Source: Refinitiv Eikon

Exxon: Hold, CP USD63.9, TP USD64.0 (from USD61.5)

What we learned from 3Q: Exxon’s earnings and cash flow were both broadly in line with
consensus, with a welcome return to profitability in the downstream for the first quarter since
1Q20 and the best upstream result since 2018. With net debt down by USD4bn in the quarter,
management now expects to be well within its target gearing range of 20-25% by end year. As a
result, in addition to raising the quarterly dividend from USD0.87/share to USD0.88/share (and

16
 Equities ● Oil & Gas
9 November 2021

preserving a 39-year record of annual dividend growth), it has guided to the restart of share
buybacks in 2022, with up to USD10bn targeted over the period 2022-23.

Investment view: Exxon has come a long way this year, as better macroeconomic conditions
have enabled it to move beyond what had been significant market concerns over dividend
sustainability for much of 2020. This was reflected in the best share price performance in the
group in the first half of 2021, although that performance has petered out to some extent in
recent months. We see Exxon producing one of the strongest cash flow growth rates in the
sector this year, but this relates largely to how weak its 2020 base was relative to its peers.

We don’t view Exxon as the best way to play high oil and gas prices – we see higher upstream
commodity leverage in the likes of Chevron or Shell. The shares’ prospective dividend yield is
the highest of the supermajors apart from Total, but prospective free cash yields are the lowest
in the group. We see a better risk/reward balance in Chevron.

Exxon share price (USD) Exxon 2y fwd P/CF vs sector average

80 180%
70
170%
60
160%
50
150%
40

30 140%

20 130%
Nov-19 May-20 Nov-20 May-21 Oct-19 Apr-20 Oct-20 Apr-21 Oct-21
Source: Bloomberg Source: Refinitiv Eikon

Repsol: Hold, CP EUR10.72, TP EUR11.8 (from EUR11.9)

What we learned from 3Q: Repsol beat net income by 7%, largely thanks to lower losses in
Corporate & Others (including intra-group adjustments), while Refining & Chemicals (‘Industrial’)
fell short. Refining margins have rebounded nicely but are partially offset by the rise in energy
and CO2 costs.

In light of strong results and balance sheet deleveraging, Repsol increased its 2021 dividend (to
be paid in 2022) by 5% to EUR0.63/sh; however, this remains below the pre-COVID-19 DPS of
EUR1.00/sh. In addition, Repsol will purchase 35m shares and cancel 75m shares in total (5%
of shares outstanding) at the next AGM in spring 2022, implying an acceleration in the pace of
buybacks (or at least front-loading) compared to the 200m programme scheduled for the period
2022-25.

Management expects 2022 capex to rebound sharply from 2021 levels of EUR3.9bn, including
a more than 70% y/y increase in upstream capex driven by higher activity in conventional
projects and North American shale. Upstream production guidance was cut to 605kbd for 2022,
implying only a modest rebound vs 2021 levels of 580kbd hit by outages in Peru and Trinidad &
Tobago.

Investment view: We have a Hold rating on Repsol. It was the first oil company to set net zero
2050 targets in late 2019, and has the biggest relative exposure to low-carbon business of its
European peers. That said, the difference is small and the low-carbon business won’t contribute
materially to profits for a while. A decision over a potential IPO or partial sale of its renewable

17
 Equities ● Oil & Gas
9 November 2021

power business is six months away; we remain sceptical that diluting clean energy exposure is
the optimal choice. See Repsol (Hold): Transition to low carbon in progress (12 October 2021).

In the nearer term, Repsol suffers from below-average leverage to oil and spot gas prices and
disappointing upstream production, which more than offset the recovery in European refining
margins. Despite the increase in buybacks for 2022 vs expectations, Repsol’s total cash
distribution yield (dividend plus cash buybacks, excluding the cancellation of Treasury shares
already on the balance sheet) is below the per group average at just over 7%.

Repsol Share price (EUR) Repsol 2y fwd P/CF vs European average

16 110%
105%
14
100%
12 95%
90%
10 85%
80%
8 75%
70%
6
65%
4 60%
Nov-19 May-20 Nov-20 May-21 Oct-19 Apr-20 Oct-20 Apr-21 Oct-21
Source: Bloomberg Source: Refinitiv Eikon

Shell: Buy (from Hold), CP (A/B) 1,629p/1,629p, TP 1,890p/1,890p (from 1,795p/1,810p)

What we learned from 3Q: Shell’s underlying income for the quarter was disappointing, coming
in USD1.2bn below consensus for a mix of reasons including weaker than expected LNG
trading profits and significant downstream maintenance. Underlying cash flow of USD17bn was
boosted by USD4bn of derivatives effects, but even without this it was an impressive figure. As
a result, net debt fell another USD8bn for the quarter, taking gearing down close to 20%.

Investment view: Shell’s sensitivity to oil and gas prices is among the highest in the sector,
something which is now clear in its results. Our increases to Shell’s CFPS forecasts are the
highest of the European oils, reflecting both this leverage and the additional per-share accretion
of the US7bn Permian sale proceeds to be allocated to buybacks in 2022, on top of “normal”
repurchases driven by its stated payout strategy. Although LNG liquefaction outages hampered
2Q/3Q trading profits, this does not diminish much from the strength of cash flow, which is set to
exceed USD50bn this year.

The 2Q rebasing of the dividend (a 38% increase) addressed a key issue, narrowing the yield
gap vs its peers. While the prospective yield is still the lowest of the supermajors (4.4% for
2022e vs an average 5.3%), its 2022e-25e free cash yields are the highest of the group on our
estimates, and well ahead of all the others except Total. This gives a good indication of future
cash distribution potential – while we expect dividends to keep growing at 4%, our forecasts
point to both the biggest reduction in share count (16%) in the peer group and the biggest
reduction in balance sheet gearing of the supermajors through the period to 2024e.

In addition to this strong free cash outlook, Shell’s climate credentials have taken another significant
step forward with its commitment to reduce scope 1-2 operational emissions by 50% by 2030 from
a 2016 base (48% from a 2019 base), which would more than meet the requirements of this part of
the Dutch Court ruling. After the recent correction vs the peer group on our 2022e estimates, Shell
trades on the lowest P/E, P/CF and EV/DACF multiples of the five supermajors. Our updated target
prices imply 16% upside, and we are raising our rating from Hold to Buy.

18
 Equities ● Oil & Gas
9 November 2021

Shell A share price (p) and ADR price Shell 2y fwd P/CF vs Sector average
(USD)
3000 70
100%
2500 60
90%
2000 50

1500 40 80%

1000 30
70%
500 20
Nov-19 May-20 Nov-20 May-21
60%
Shell A shares Shell A ADRs (RHS) Oct-19 Apr-20 Oct-20 Apr-21 Oct-21
Source: Bloomberg Source: Refinitiv Eikon

TotalEnergies: Buy, CP EUR42.9, TP EUR47.1 (from EUR48.1)

What we learned from 3Q: Total’s net income was 8% above consensus, with the beat coming
from iGRP (integrated Gas, Renewables & Power) thanks to a good performance in LNG
trading (>USD0.5bn) and the sharp rise in European/Asian gas prices. Total expects its realised
LNG prices to rise sequentially by one-third from USD9/mBtu to >USD12/mBtu in 4Q, pointing
to continued strong results from iGRP. 2021 net capex guidance was raised slightly to
USD13bn (from USD12-13bn previously) and 2022 capex is now expected to be at the top of
the USD13-15bn range, reflecting USD1bn of incremental short-cycle upstream capex activated
at higher commodity prices. Total’s buyback plan is unchanged (as it was confirmed only
recently at the September Investor Day): up to 40% of additional cashflow above USD60/b will
be allocated to buybacks, and USD1.5bn will be repurchased in 4Q.

Investment view: Total is one of only two major oil companies (with Shell) that we rate Buy. The
company is fully focused on the execution of its “multi-energy strategy”, and its September 2021
Investor Day made it clear that Total has no intention of going into wind-down mode anytime soon.
We believe Total offers the most balanced investment case of the European oil majors, with a good
compromise between growth, commodity price leverage (including to high gas/LNG prices, as
evidenced with 3Q results), yield (with a total distribution yield of ~7.6% in 2022 on our estimates,
lower than BP and Shell but including a higher dividend yield) and decarbonisation. Total’s climate
targets aren’t the most ambitious in the group but it comfortably leads competitors on renewable
power, which we think matters more to investors than emission reductions at present. We believe
Total’s shares deserve to re-rate meaningfully vs peers to reflect the company’s strong outlook. See
Total (Buy): Transition strategy moving into execution (5 October 2021).

Total share price (EUR) and ADR price (USD) Total 2y fwd P/CF vs Sector average
55 60
120%
50 55
45 50 110%

40 45
100%
35 40
30 35 90%

25 30
80%
20 25
Nov-19 Mar-20 Jul-20 Nov-20 Mar-21 Jul-21 70%
Total shares Total ADRs (RHS) Oct-19 Apr-20 Oct-20 Apr-21 Oct-21
Source: Bloomberg Source: Refinitiv Eikon

19
20

Integrated oils - summary of latest management guidance

Operating cash flow/EBIT Organic capex Shareholder returns FCF neutrality Disposals Production Opex/capital efficiencies Gearing Sensitivities
BP Surplus cashflow of USD13bn - unchanged Dividend unchanged in 3Q21 at 2H21 breakeven at Divestments of USD6- 2021 underlying Cash cost savings of Gearing (ND/cap pre-tax income:
USD900m in 3Q21 for 2021 (incl. USD5.46c/sh (to increase 4% USD45/b, USD13/b 7bn (vs. USD5-6bn) for production (ex. Rosneft) USD3-4bn in 2023 vs employed) up from 26.0% USD3.4bn for +/-
Growth in underlying EBIDA inorganics); 9bn pa through 2025 at USD60/b) RMM and USD3/mbtu 2021 slightly higher y/y (4Q21 2019 from "Reinvent to 26.4% in 3Q21. USD10/b Brent
of 5-6% pa (before hydrocarbons, 2bn Buyback of USD1.4bn HH Disposals target of higher than 3Q21), BP"” Net Debt at USD32bn in (~USD2.4bn post-tax)
divestments), Adj. convenience & mobility, completed on 1 November Average breakeven of USD25bn of sales from underlying production to Abs. cost base to 3Q21 from USD32.7bn in
EBIDA/share of 7-9% pa 2bn low-carbon 2021 using surplus cashflow USD40/b (at RMM:11,2H20 through 2025 grow over next 12-18 reduce by c.40% by 2Q21
(after divestments) 2022-25 USD14-16bn from 1H21 HH:USD3/mbtu in (agreed and completed months. 2023 vs 2014 40% of 2021 surplus
ROACE expected to rise to (USD5-7bn pa in low Execute further buyback of 2020 real terms) transaction of 2021 new production of cashflow for further
12-14% by 2025 at USD50- carbon and convenience USD1.25bn before 4Q21 through 2021-25 vs USD15.2bn, received 900mbd target achieved deleveraging
60/b & mobility, USD9bn in results announcement previous 2021 goal of >USD10bn) flat production from BPX
Convenience & Mobility upstream) =>60% of surplus cash flow USD35/b Energy over coming
EBITDA to double by 2030 Towards transition allocate to buybacks, average years
vs USD5bn in 2019 with c.USD4bn pa by 2025 USD1bn/quarter at USD60/b Upstream production to
ROACE of 15-20% and USD5bn pa by 2030 through 2025 (not including decline to 2mbd by 2025
employee share plan offset, and 1.5mbd in 2030.
includes divestment proceeds) 25Mtpa/30Mtpa of LNG
portfolio by 2025/2030
Chevron ROCE >10% in 2025 at 2021 capex of USD12- c.4% dividend increase in 2021.Aim to reduce BE into 2021 B/T asset sale 4Q21 production: 2021 opex down 10% Exit at end 2021 with net Post-tax cash flow:
USD60/b Brent (>2x ROCE 13bn (vs USD13bn) DPS unchanged in 3Q21 from the USD40s from proceeds of USD1-2bn turnarounds and vs. 2019 on track debt ratio <25% (18.7% as USD5.0bn for +/-
at USD50/b) 2022-25 capex of 1Q21 DPS raise of USD0.05/sh under USD50/b levels Completed asset sales downtime 60kbd >USD1bn run-rate at 3Q21-end) USD10/b in Brent
Excess cash of >USD25bn USD14-16bn (vs. to USD1.34 as downstream of USD7.7bn over 2018- Net production for 2021 transformation savings Net debt ratio to peak at post tax earnings:
over 2021-25 at upside case USD19-22bn). Non-cash Dividend to be secure even in normalises 20 (middle of USD5- at similar level as 2020, Noble synergies 35% at USD40/b Brent USD4.0bn for +/-
of USD60/b c.15% of total USD40/b environment 10bn range) 3.5mbd in 2025 at >USD600m (vs. between 2021-25 USD10/b in Brent
>10% CAGR FCF through >USD3bn 2021-28 buybacks in 4Q21 c.USD750m. Post 2020, disposals +/- USD50/b Brent USD300m) achieved 3 production: 20kbd
2025 investments for lowering 3Q21 buyback at USD625m, USD2bn pa +3% growth y/y in 2021 months ahead of change for +/- USD10/b
Permian FCF (excl WC) carbon USD2-3bn/yr target w/o asset sales schedule in Brent (entitlement
>USD3bn (at USD65/b), >=USD60/b, excess cash used Permian production of effect)
ROCE c.25% by 2025 for dividends and buybacks c.1.mbd by 2025;
Can survive 2 years at 400kbd from other
USD30/b, invest, sustain unconventionals
dividend and exit at end 5% (vs. 6%-7%) decline
2021 with net debt ratio in 2021 Permian legacy
<25% production

Equinor 2021 FCF target at 2021 organic capex 3Q21 DPS unchanged at <USD35/b BE for Does not guide on future Production growth target2020 total savings of Gearing (ND/CE pre-IFRS Net income (Net
c.USD6bn at USD50/b (excl. c.USD8bn, 2021-22 USD0.18/share projects coming on disposals 2% for 2021 (excl. >USD3.7bn. Reduced 16) 13.2% at end-3Q21. Operating Income):
proceeds from Bakken sale) organic capex of USD9- Buybacks if Brent >=USD50- stream by 2030 3Q21 disposals: closed divestments) and c.3% opex by USD1bn (vs. Target gearing range of USD1.3bn (USD3.0bn)
12% return ROACE 2021- 10bn on average, 60/b and net debt ratio 15-30%: c.USD30/b upstream sale of Terra Nova pa growth from 2020 to target of USD700m) 15-30%; 20-35% incl IFRS for +/-USD10/b in Brent;
2030 at USD60/b exploration capex of USD1.3bn buyback in 2021 (vs. cash flow BE for 2Q21: sale of US 2026. USD4bn (before-tax) 16 USD0.5bn (USD1.8bn)
2021-26 Group FCF USD0.9bn for 2021. USD600m) (1st tranche of 2021-26 Bakken assets for 2% CAGR to 2026 in cash flow improvement comfortable with being for +/-USD1.0/mBtu gas
c.USD35bn; Oil & Gas FCF 2023-24 capex up to USD300m launched on 28 July USD819m, EPN; add >700kbd in target for 2020-25 temporarily below or price
(after tax & inv) >USD45bn USD12bn; USD13-14bn 2021, 2nd tranche USD1bn vs. 1Q21: sale of 10% new production from Improved unit above range.
at USD60b; 2021-30 NCS in 2025-30. previously USD300m interest in Dogger Bank projects and EOR. production cost by 5%

Equities ● Oil & Gas

FCF c.USD4.5bn/year at 2021-26 Gross capex commenced on 27 Oct 2021) and 50% in Empire Wind 2030 production at 2020 vs 2019 (2021 target

9 November 2021
USD60/b; EPI FCF (pre-debt finance) in USD1.2bn annual share & Beacon wind for production level achieved)
c.USD30bn at USD60/b renewables c.USD23bn buyback from 2022 (incl. govt USD285m and (c.2.1mbd)
2025-30 CFFO of (USD12bn net); >50% of share) USD1.2bn resp.
c.USD15bn at USD50/b total gross capex by 2030


 Integrated oils - summary of latest management guidance

Operating cash flow/EBIT Organic capex Shareholder returns FCF neutrality Disposals Production Opex/capital efficiencies Gearing Sensitivities
ENI 2021 CFFO c.EUR12bn at 2021-24 avg capex DPS floor of EUR0.36/sh (at 2021 cash neutrality 2021-24 disposal plan 2021 production at EUR1.9bn cost savings 3Q21 leverage (Net for +USD1/b in
USD70/b (vs. >EUR10bn at EUR7bn (65% on >USD43/b Brent) + a variable at USD51/b for >EUR2bn gross 1.7mbd, 1.76mbd in vs pre-COVID-19 level debt/Equity) at 28% (vs Brent/Ref. margin: Adj.
USD65/b, >11bn at upstream, 20% on component of 30-45% of organic capex + floor (to be reinvested for 4Q21 2021-24 target finding 28% at 2Q21) EBIT
USD70/b), FCF EUR6-7bn green+retail, 15% on incremental FCF if Brent is dividend portfolio reshaping) 4% production CAGR cost of USD1.6/b 2021 leverage to be 28% EUR0.21bn/EUR0.16bn,
*Retail+Renewable 2021 others) USD43-60/b. 2024 cash neutrality 2020-24 to c.2mbd by Cut opex by EUR1.4bn at USD70/b Adj Net
EBIT EUR0.35bn; 2021 2021 Capex at EUR6bn Floor to be reviewed every year at floor dividend 2024 in 2021 Target leverage below EUR0.14bn/EUR0.11bn,
EBITDA >EUR0.6bn; 2024 (EUR4.5bn in E&P) and grow in line with business. (EUR0.36/sh) Target 2021 exploration 20% (pre-IFRS 16, or FCF
>EUR1bn; 2025 EUR1.2bn. Retail+Renewables 2021 buyback reference price <USD40/b discoveries 500mb ~30% post-IFRS) over EUR0.15bn/EUR0.16bn
*Downstream 2021 EBIT 2022-25 capex EUR1.5- at USD65/b (2021e FY dividend Gas % of portfolio 60% 2020-23
EUR0.2bn (vs. EUR0.4bn), 1.8bn. EUR0.86/share as per formula, by 2030; 2024 proven
2024 EUR1.4bn. Natural Resources: 4YP back to pre-COVID-19 level) reserves: 55% gas
*2021 GGP EBIT avg capex EUR4.5bn/yr Buybacks EUR400m to LNG growth of 14mtpa
>EUR0.5bn (vs at b/e), FCF (>55% uncommitted in commence conclude by end- in 2024 (>70% equity
>EUR0.3bn (vs. EUR0.2bn). 2023-24) 2021. share)
*Upstream CFFO in 2021 Energy Evolution: avg Buybacks: EUR300m if Brent
USD6.5bn, 2022 USD9bn, capex ~EUR2bn/yr USD56-60/b; EUR400m at
2024 USD10.4bn. USD61-65/b; EUR800m at
2021-24 FCF EUR17bn >USD65/b
(EUR12bn at USD50/b)
Exxon Cumulative excess FCF of Higher capex in 4Q21 4Q21 Dividend increased to Breakeven price for USD15bn asset sales by 3Q21 volumes higher Achieved USD1.5bn Expect to be well within Post-tax upstream
c.USD15bn at USD50/b and and significant increase USD0.88/share from maintaining dividend 2021 (USD5bn per year due to lower curtailment structural reductions in target gearing range of income: USD4.75bn for
c.USD30bn at USD55/b overin 2022. Capex at lower USD0.87/share and capex program is on avg vs USD3.5bn avg and higher gas demand. 9M21; +USD3bn 20%-25% by end-2021 +/- USD10/b oil prices;
2021-25 @ USD50/b end of USD16-19bn in Shareholder distributions USD50/b for last 5 years) 2021 production through 2023 for total Aim to keep gross debt USD1.75bn for +/-
2021-25 cumulative CFFO 2021. USD15bn in 2021 2021 BE of USD45/b 250kbd divestment till c.3.7mbd, 2025 flat vs. USD6bn vs 2019. <USD70bn to preserve USD1/mcf in gas
of USD200bn; in 2021 USD20-25bn annually. USD100bn in dividends over at 10-yr low margins 2025 2021 (vs. March 2020 Structural efficiencies of access to cost-competitive realisations
c.USD32bn (10-yr low Cumulative Low-carbon 2019-25 period at USD60/b With margins ambition of c.5mbd) >USD6bn by 2023 debt (USD56.6bn at end- Cumulative available
margins) rising to investment c.USD15bn Brent (assumed flat based on recovering to LT Permian production at (Downstream c.1.5bn + 3Q21). Debt reduction of cash increase:
c.USD43.5bn (10-yr avg from 2022 through 2027. 2018 gross payout) average + cash from 410-430kbd (vs Chemicals c.1bn) USD4bn in 3Q21 >USD15bn at 10-yr high
margins) Buyback from 2022 of up to projects online by c.400kbd) in 2021 and Debt reduced at downstream & chemical
Upstream CFFO up c.20% USD10bn over 12-24months 2025, BE to go down c.700kbd by 2025 (vs. >USD50/b and 10-yr low margins
in 2025 vs 2021 at flat to c. USD35/b >1mbd by 2024) ref & chemical margins c.USD3bn for every
production Guyana production at Debt to reduce at level USD1/b increase in
ROCE at 14% in 2025 c.750Kbd by 2026 (vs. <USD50/b as downstream Brent
750-1000kbd by 2025) margins recover
Repsol CCS EBITDA guidance 2021 capex of EUR2.9bn Dividend increased by 5% to 2021-25 FCF BE post 2021 upstream 2021 production down Optimisation of 2021 Net debt EUR6bn CFFO: EUR540m for +/-
EUR6.7bn in 2021 (unchanged), increase of EUR0.63/sh (vs. EUR0.6/sh) in dividend USD50/b divestment of EUR0.3bn.to ~580kbd (vs 590- EUR700m (vs. (vs. EUR6.1bn), hybrid USD10/b in Brent;
@USD70/b Brent (vs. EUR0.3bn towards low 2022 to grow by EUR0.05/sh (inc. buybacks), could sell non-core low- 600kbd), in 2022 EUR800m) in working transactions EUR0.3bn EUR328m for +/-
EUR6.1bn @USD65/b carbon (1/3rd in low p.a. from 2023 to 2025 at Brent <USD45/b (pre- margin E&P production ~605kbd capital Net Debt c.EUR2.52bn USD1/mBtu Henry Hub;
Brent), EUR6.6bn in 2022, carbon) >USD50/b. buyback) 2021-25 production to EUR400m in additional (ex. Hybrids) at end-3Q21. EUR184m for +/-
EUR8.2bn in 2025 In case of excess cash, EUR1.4-2.0bn allocated to E&P FCF BE 2021-25 avg ~620kbd (vs 650kbdsavings for 2021 2025 debt level same as USD1/b refining margin
(@USD50/b Brent) spend EUR200-300m buybacks in 2022-25. Buy back <USD40/b (USD30/b previously) 15% opex reduction in 2020; 2021-25 gearing avg
Commercials (excl additional on 75m shares (35m launching in in 2020) E&P over 2021-25 25%
Renewables): EBITDA unconventional and in November, rest from treasury Target equivalent to

Equities ● Oil & Gas

USD1.4bn by 2025 low carbon stock position). Buy back 50m <EUR4.2bn before hybrids

9 November 2021
CFFO/share 2019-25 +7% Avg 2021-25 capex of shares/year post 2022, if Brent
CAGR. EUR3.6bn (EUR18.3bn >50/b.
2021-25 FCF of total) with EUR5.5bn Incl buybacks, TSR > EUR1/sh
EUR2.2bn/yr, FCF (c.30%) on low-carbon in 2025.
EUR3.4bn in 2025 projects
21


22

Integrated oils - summary of latest management guidance

Operating cash flow/EBIT Organic capex Shareholder returns FCF neutrality Disposals Production Opex/capital efficiencies Gearing Sensitivities
Shell Medium-term cash flow: Cash capex <USD20bn Raised DPS to USD0.24/share Upstream avg break- 9M21 divestment 4Q21: IG production IG: c.20% opex Net debt target of IG: CFFO USD1.2bn for
c.USD43bn at USD50/b, in 2021 (vs USD22bn). in 2Q21 (from USD0.1735 in even of c.USD30/b proceeds USD6bn 940-980kbd; Upstream reduction by 2022 vs. USD65bn (vs. USD57.5bn +/-10/b in Brent, Adj.
c.USD50bn at USD60/b, While Net Debt 1Q21), flat in 3Q21. ~USD20bn total production 2,100- 2019. at end-3Q21). Gearing at Earnings USD1.1bn for
from USD34bn in 2020 >USD65bn: USD19-22bn Progressive going forward divestments over 2021- 2,350kbd Upstream: 20-30% opex 25.6% in 3Q21. +/-10/b in Brent
Growth pillar: c.20% of cash (incl. inorganic spend) (c.4% growth pa) 25 Oil production peaked in reduction by 2025 vs. Reduce gearing to 20% Upstream: CFFO
flow when Net Debt (Upstream USD8bn, Buybacks targeted at USD2bn 2019; to decline 1-2% 2019. (pre IFRS) and over time USD4bn for +/-10/b in
>USD65bn, c.25% beyond marketing USD3bn, for 2H21 pa through 2030. Annual cost savings back to pre-downturn Brent, Adj. Earnings
2025 renewables USD2-3bn, To distribute 20-30% of CFFO Projects under from org. change and levels of 15-25%. IFRS 16 USD3bn for +/-10/b in
Chemicals and products IG USD4bn, Chemicals & to shareholders once debt falls construction >1mboed; other measures of increases gearing by 4- Brent
segment: CFFO growth of Products USD4-5bn). to USD65bn (unchanged) pre-FID options USD2.0-2.5bn by 2022. 5%.
USD1-2bn pa by 2030 from Once Net Debt >800kboed at peak Underlying opex
new projects <USD65bn: Increase production reduced by USD4.5bn
cash capex to USD23- >7mtpa of new LNG in 2020 to USD33bn
27bn pa (50% of capacity onstream by (vs. target of USD3-
incremental capex to 2025 4bn), to remain
growth pillar) <USD35bn pa.
25% Growth businesses <USD9/b upstream unit
(vs. 11%) rest to be 50- opex in 2025
50 split b/w upstream and
transition enablers (IG +
Chemical & Products)
Total 2021 DACF of >USD25bn at 2021 Net Capex at 3Q21 DPS maintained flat q/q Dividend "supported" no guidance 4Q21 upstream USD500m savings in Gearing (ND/Equity pre- cashflow sensitivities in
USD65/b (vs USD24bn at USD13bn (vs USD12- at EUR0.66 and expect same at USD40/b, FCF production at 2.85- 2021 (vs USD300m), IFRS 16) of 17.7% in 2021:
USD60/b previously) and 13bn), incl. USD3bn in level in 2021. breakeven (after 2.9mbd bringing 2021 USD200m in 2022, 3Q21 (vs 18.5% in 2Q21). USD3.2bn in for +/-
2025 DACF USD26-29.2bn Renewables & Electricity. Buyback of USD1.5bn capex and dividends) upstream production USD700m in 2023, in Target gearing sustainably USD10/b Brent;
at USD50-60/b (iGRP 50% for existing business completed in 4Q21 below USD60/b. c.2.83mbd, to grow at addition to USD1.1bn below 20%. Gearing USD250m for +/-
+USD3bn, downstream and 50% for growth, of Allocate up to 40% of additional FCF positive in 3%p.a.to 3.3mbd in opex savings achieved ceiling of 30% in USD1/mbtu gas;
+USD2bn and E&P which 50% for cashflow generated above Renewables & 2026 (vs 3.3-3.4mbd in in 2020 downcycle USD500m for +/-
+USD1bn vs 2020 Renewables and USD60/b to buybacks; Electricity by 2030 2025) taking into 2021 production cost USD10/t refining margin
normalised at USD50/b). Electricity buybacks to run from Sept to account Mozambique target USD5/b (vs
2021 downstream CFFO of 2022 net capex towards Dec 2021 LNG delay USD5.1/b in 2020)
>USD5bn at USD25/t the upper range of LNG sales target
2021 ROCE >10% at USD13-15bn; 2022-25 42mtpa in 2021, 50mtpa
USD65/b net capex USD13-15bn. by 2025
Renewables & electricity
>USD3bn pa for 2021-30
Source: Company data, HSBC

Equities ● Oil & Gas

9 November 2021

 Equities ● Oil & Gas
9 November 2021

Recent HSBC Oil & Gas research

Integrated Oils – Sector

Integrated Oils: Great results may not push the sector much higher (18 October 2021)
Big Oils and Climate: How oil majors could accelerate their transition (15 September 2021)
Integrated oils: As good as it gets (6 August 2021)
Global integrated oils: How long are you willing to wait? (22 July 2021)
Big Oils and Climate: Implications of the Shell court ruling for the sector (27 May 2021)
Big Oils and Climate: How to engage constructively with oil majors on climate (19 May 2021)
Big Oils and Climate: The journey to "net zero" by 2050 in pictures (20 April 2021)
Big Oils and Climate: Decarbonisation targets - reading the fine print (27 January 2021)
Big Oils in 2021: We’ve probably seen the best of the sector rally (14 January 2021)
Big Oils and Climate: Should oil majors spin off their renewable assets? (6 January 2021)
Big oils and climate: The importance of share buybacks in managing the energy transition
(25 August 2020)
Integrated Oils – Companies
Repsol (Hold): Transition to low carbon in progress (12 October 2021)
TotalEnergies (Buy) - Transition strategy moving into execution (5 October 2021)
Equinor (Hold): Headwinds (24 June 2021)
BP: Downgrade to Hold: Funding the future (24 June 2021)
Eni: Upgrade to Buy: Low-carbon strategy underrated (15 March 2021)
Equinor (Hold): A new offshore wind major (16 February 2021)
Exxon Mobil (Hold): The kindest cut (25 January 2021)
Repsol (Hold): Climate strategy deep-dive (6 January 2021)
Royal Dutch Shell (Buy): Aiming for the right balance (3 December 2020)
Oil and gas markets
Oil market outlook: Spare capacity diminishing; raising price forecasts (9 November 2021)
Oil things considered: OPEC+ still in the driving seat (27 September 2021)
Global Natural Gas: The crunch is here, and it's not even winter (21 September 2021)
Oil things considered: OPEC+ deadlock unlocked (20 July 2021)
Global Natural Gas: A hot summer for gas (6 July 2021)
Oil things considered: Oil demand: A game of two halves (25 June 2021)
Oil things considered: If Iranian oil exports return.... (11 June 2021)
US tight oil outlook: Inflection point (8 June 2021)
Oil and gas markets: Long-term demand: a world of uncertainty (24 May 2021)
Oil markets: Saudi Arabia: the power of spare capacity (14 March 2021)
Energy transition / Climate change
Carbon capture & sequestration: Let's get the UK party started (21 October 2021)
Energy & Climate Watch : Do we need to start pulling carbon out of thin air? (8 October 2021)
Architects of the Energy Transition: Renewable independent power producers (7 October 2021)
A race on two fronts: Climate mitigation vs adaptation at COP26 (23 September 2021)
A guide to COP26: Navigating the finer points of the climate in Glasgow (6 September 2021)
Energy & Climate Watch: Energy efficiency; the forgotten pillar of decarbonisation (3 Sept 2021)
Hydrogen electrolysers: Patience is a virtue, but currently hard to come by (1 September 2021)
IPCC climate science: The twelve key points you need to know (10 August 2021)
Spotlight: Sustainable aviation fuel: The key to aviation decarbonisation (27 July 2021)
Carbon capture & sequestration: More tortoise than hare; for now (30 June 2021)
Gas markets: Is gas still a transition fuel? (25 May 2021)
Energy & Climate Watch: The 'race to net zero' is on (20 May 2021)
Energy Transition: Carbon-neutral LNG: 'green' cargoes (19 April 2021)

23

Valuation and risks (see page 5 for valuation methodology)
Valuation
Current price: Our estimate of BP’s target DY is 4.8% (unchanged) for 2022, which
BP
335p gives us an implied value of 351p (unchanged) when applied to our
BP LN 2022e DPS estimate. We use a target P/CF of 3.8x (vs. 4.0x
Target price:
365p previously) applied to our updated 2022e CFPS estimates, which
gives us an implied value of 374p (vs. 362p previously). Our weighted (2) better operational performance in the hydrocarbons
Hold Up/downside: average target price is rounded to 365p (vs. 360p previously),
9% equivalent to USD30.0/ADR (BP US, CP USD27.3). This implies
upside of 9% vs the current share price.
We rate the stock as Hold. We believe it offers an attractive
valuation, a solid-dividend yield and a clear road map on climate, but allocation towards these assets significantly, (2) any shift
improved financial metrics and guidance on buybacks are now largely in investor pressure for extending absolute emissions
discounted in the market.
Current price: Our estimate of Chevron’s target DY is 4.8% (unchanged) for 2022,
Chevron
USD113.0 which gives us an implied value of USD117.1 (unchanged) when
CVX US applied to our 2022e DPS estimate. We use a target P/CF of 7.2x
Target price:
USD124.0 (unchanged) applied to our updated 2022e CFPS estimates, which
gives us an implied value of USD131.5 (vs. USD117.0 previously).
Hold Up/downside: Our weighted average target price is rounded to USD124.0 (vs.
10% USD117.0 previously). This implies upside of 10% vs the current
share price.
Chevron is one of the most leveraged stocks in the sector to
improvements in crude prices and its dividend is well supported, but
we think positive newsflow on share buybacks is now largely
discounted in valuations. As a result, we rate the shares Hold.
Current price: Our estimate of Eni’s target DY is 7.25% (vs. 7.0% previously) for
ENI
EUR12.38 2022 (partly reflecting our updated’22e DPS forecast which we have
ENI MI raised by 13%), which gives us an implied value of EUR13.6 (vs.
Target price:
EUR13.90 EUR12.4 previously) when applied to our updated 2022e DPS
estimate. We use a target P/CF of 3.9x (vs. 3.8x previously) applied to
Hold Up/downside: our 2022e CFPS estimates, which gives us an implied value of
12% EUR14.2 (vs. EUR13.0 previously). Our weighted average target price
is rounded to EUR13.9 (vs. EUR12.7 previously). This implies upside
of 12% vs the current share price.
We rate the stock as Hold. The stock offers attractive prospective
total shareholder returns including buybacks, but we believe this is
already discounted by the market. Moreover, we see short-term
downside risks to crude prices, to which ENI would be more exposed
than most. ENI has one of the most credible climate strategies,
however we don’t expect investors to re-rate the stock on this basis
for some while, and the company lags on low-carbon growth.
Current price: Our estimate of Equinor’s target DY is 3.3% (unchanged) for 2022,
Equinor
NOK220.2 which gives us an implied value of NOK201 (unchanged) when
EQNR NO applied to our 2022e DPS estimate. We use a target P/CF of 4.7x (vs.
Target price:
5.0x previously) applied to our 2022e CFPS estimates, which gives us
NOK213.0
an implied value of NOK225 (vs. NOK224 previously). Our weighted
Hold Up/downside: average target price is rounded to NOK213 (vs. NOK212.0
-3% previously), implying downside of 3% vs the current share price.
We have a Hold rating. The stock has outperformed peers on the back
of rising gas prices; which we believe have probably peaked. Valuation
multiples vs peers are rich compared to history, and its dividend yield is
the lowest in the sector. The stock could rise on the back of potential
short-term spikes in gas prices this winter, hence our Hold rating.
24
Equities ● Oil & Gas
9 November 2021
Risks
In addition to commodity price risks facing all the major
oils, we view the main company-specific risks as follows:
Upside: (1) greater than expected share buybacks as a
result of extended strength in commodity prices,
business than we expect, and (3) any guidance on
increases in dividends per share.
Downside: (1) rising investor perceptions of risks around
returns on low-carbon assets as BP increases capital
reductions to emissions from all product sales, and
(3) continued Russia risks given BP’s substantial
shareholding in Rosneft.
In addition to commodity price risks facing all the major
oils, we view the main company-specific risks as follows:
Upside: (1) sustained crude price strength beyond our
expectations, (2) a higher level of buybacks than our
forecasts; (3) better line of sight on strong volume growth
post-2021e.
Downside: (1) Any continued downturn in the crude price
could have a disproportionately negative effect on
consensus estimates, given Chevron’s price leverage;
(2) the scale of new LNG projects gives Chevron
significantly increased leverage to risks around LNG pricing;
(3) Chevron has had execution issues at major projects: any
further issues could be penalised by the market.
In addition to commodity price risks facing all the major
oils, we view the main company-specific risks as follows:
Upside: (1) commodity leverage – ENI is one of the most
highly geared to any improvement in crude prices from
current levels, (2) faster shareholder remuneration
increases at higher oil prices; (3) better operational
performance than we expect; (4) an IPO of the low-
carbon business acting as a positive catalyst.
Downside: (1) Lower oil prices impacting cash
distributions; (2) disappointments on operating cash flow
generation; (3) execution risks on key upstream projects,;
(4) above-average political risk, notably North Africa and
Venezuela; (5) lack of further exploration success;
(6) expensive acquisitions in renewables to meet targets.
In addition to commodity price risks facing all the major
oils, we view the main company-specific risks as follows:
Upside risks: (1) sustained strength or further spikes in
European gas prices; (2) faster dividend increases or higher
share buybacks vs company guidance; (3) higher oil prices
given the company's high perceived exposure to oil; and
(4) faster growth in offshore wind and renewables.
Downside: (1) lower European gas prices or volumes
given Equinor’s high exposure to the European gas
market; (2) slower dividend increases; (3) project delays
or cost overruns; (4) slower-than-expected growth, or
evidence of lower profitability in offshore wind due to
increased competition; (5) rising investor pressure to set
absolute interim emission reduction targets.

Valuation
Current price: Our estimate of ExxonMobil’s target DY is 5.5% (unchanged) for
ExxonMobil
USD63.93 2022, which gives us an implied value of USD65.3 (unchanged) when
XOM US applied to our 2022e DPS estimate. We use a target P/CF of 6.4x
Target price:
(unchanged) applied to our 2022e CFPS estimates, which gives us an
USD64.00
implied value of USD63.2 (vs. USD58.0 previously). Our weighted
Hold Up/downside: average target price is rounded to USD64.0 (vs. USD61.5 previously).
0% This implies upside of 0% vs the current share price.
We have a Hold rating: while improved crude prices have reduced
risks to the dividend significantly, payout ratios still look high to us and next few years but any failure to do so could harm
we see all four of the other supermajors having prospective
distribution yields higher than Exxon’s by 2023e.
Current price: Our estimate of Repsol’s target DY is 6.3% (unchanged) for 2022,
Repsol
EUR10.72 which gives us an implied value of EUR10.8 (vs. EUR10.3 previously)
REP SQ when applied to our 2022e DPS estimate. We use a target P/CF of
Target price:
EUR11.8 3.3x (vs. 3.6x previously, reflecting the shares’ recent
underperformance) applied to our 2022e CFPS estimates, which
Hold Up/downside: gives us an implied value of EUR12.8 (vs. EUR13.5 previously). Our
10% weighted average target price is rounded to EUR11.8 (vs. EUR11.9
previously), implying upside of 10% vs the current share price.
We rate the stock Hold given Repsol’s lower exposure vs peers to
crude and spot gas prices, and higher exposure to refining. We
thought Repsol’s strategic plan and the October 2021 Low-Carbon
Day were solid, and see upside risk to our estimates if the company
delivers on its guidance, but believe it will take time for the market to
value growth opportunities, notably in low-carbon power.
Shell Current price: Our estimate of Shell’s target DY is 4.0% (unchanged) for 2022, which
RDSA/RDSB 1,629p/1,629p gives us an implied value of 1,824p (vs. 1,827p previously) when
LN applied to our 2022e DPS estimate, for both A and B shares. We use a
Target price:
target P/CF of 3.9x (vs. 4.0x previously) applied to our updated 2022e
1,890p/1,890p
CFPS estimates, which gives us an implied value of 1,951p (vs.1,780p
Buy Up/downside: previously) for both shares. Our weighted average target price is
16%/16% rounded to 1,890p for both the A and B shares, reflecting the lack of
premium of the A’s vs the B’s (vs. 1,795p/1,810p previously). These
target prices imply upside of c.16% for both the A and B shares. They
are equivalent to EUR22.28 for RDSA NA (CP EUR19.34) and
USD51.7 per ADR (RDS/A US, USD44.8/ADR).
We raise our ratings from Hold to Buy. Following the largest CFPS
upgrades in our coverage the shares offer the lowest 2022e P/CF,
EV/DACF and P/E multiples of the supermajors, which we think is
increasingly at odds with its high free cash yield. The latest absolute
emissions target eases some of our concerns over risks related to the
Dutch court ruling.
Current price: Our estimate of Total’s target DY is 5.8% (unchanged) for 2022, which
TotalEnergies
EUR42.91 gives us an implied value of EUR47.3 (unchanged) when applied to
TTE FP our 2022e DPS estimate. We use a target P/CF of 5.1x (vs. 5.2x
Target price:
EUR48.10 previously) applied to our 2022e CFPS estimates, which gives us an
implied value of EUR48.9 (vs. EUR46.9 previously). Our weighted
Buy Up/downside: average target price is rounded to EUR48.1 (vs. EUR47.1), implying
12% upside of 12% vs the current share price.
We rate Total Buy owing to its stable dividend and attractive dividend light of increasing competition in some parts of the
yield, resilient record on cash generation, ability to capture upside in renewables market; and (4) Total’s asset concentration
commodity prices, strong management team and good progress on its in countries with higher political risk.
low-carbon strategy, all of which justify a premium valuation, in our
view. Total’s total distribution is broadly in line with the sector average
but with a much higher dividend component, which should warrant a
premium in our view.
Priced at 3 November 2021 close
Source: HSBC estimates
Equities ● Oil & Gas
9 November 2021
Risks
In addition to commodity price risks facing all the major
oils, we view the main company-specific risks as follows:
Upside: (1) Demonstration of a faster recovery in cash
flow than our base case expectations; (2) rapid
execution on the disposals programme, and as a result a
lower level of balance sheet gearing than we are
currently forecasting.
Downside (1) We expect cash flow to recover well in the
sentiment further; (2) Prospective payout ratios could put
more of a constraint on longer-term growth than for its
major peers; (3) relative to the peer group, Exxon’s
crude price leverage is typically below average, so
consensus upgrades may lag those of sector peers.
In addition to commodity price risks facing all the major
oils, we view the main company-specific risks as follows:
Upside: (1) Higher than expected dividend or buybacks,
(2) a more rapid recovery in refining given Repsol’s
above-average exposure; (3) faster than expected
growth in renewables, or faster monetisation of the low-
carbon business e.g. through an IPO.
Downside: (1) Later than expected start of dividend
increases and/or share buybacks; (2) prolonged
weakness in refining margins; (3) unplanned production
outages; (4) returns dilution from growing investment into
renewables; (5) rising investor pressure to reduce
emissions from downstream oil sales.
In addition to commodity price risks facing all the major
oils, we view the main company-specific risks as follows:
Downside: (1) Lower than expected returns on the
growing proportion of capex allocated to energy transition
businesses; (2) further LNG liquefaction outage, given its
effect on trading earnings, (3) any material shift on
medium-term climate goals which implies a faster
shrinkage of hydrocarbon sales.
Downside: In addition to commodity price risks facing all
the major oils, we view the main company-specific risks
as follows:
(1) buyback guidance below market expectations;
(2) slower-than-expected deleveraging; (3) rising risks of
returns dilution as the company invests a growing
proportion of capex into low-carbon projects, notably in
25
 Equities ● Oil & Gas
9 November 2021

Financials & valuation: BP Hold

Financial statements Key forecast drivers

Year to 12/2020a 12/2021e 12/2022e 12/2023e Year to 12/2020a 12/2021e 12/2022e 12/2023e
Profit & loss summary (USDm) Brent crude (USD/b) 43.3 71.4 75.0 76.5
Revenue 104,261 155,013 188,062 192,304 US natural gas (USD/mBtu) 2.1 3.9 4.1 3.0
EBITDA 17,875 36,569 36,102 36,318 Refining marker margin (USD/b) 12.4 20.1 18.2 16.0
Depreciation & amortisation -20,723 -15,016 -11,282 -10,847 GB pound (USD) 1.28 1.38 1.35 1.35
Operating profit/EBIT -2,848 21,553 24,821 25,471
Net interest -2,523 -2,063 -1,721 -1,619
PBT -5,371 19,490 23,100 23,852 Valuation data
HSBC PBT -5,371 19,490 23,100 23,852 Year to 12/2020a 12/2021e 12/2022e 12/2023e
Taxation -743 -6,384 -9,008 -8,663 EV/sales 1.3 0.8 0.6 0.6
Net profit -5,690 12,271 13,432 14,529 EV/EBITDA 7.4 3.3 3.3 3.2
HSBC net profit -5,690 12,271 13,432 14,529 EV/IC 1.2 1.1 1.1 1.1
Cash flow summary (USDm) PE* nm 7.5 6.5 5.8
Cash flow from operations 13,535 26,652 25,673 26,335 PB 1.3 1.2 1.1 1.0
Capex -12,034 -12,454 -14,752 -15,500 FCF yield (%) 1.3 13.4 9.8 9.7
Cash flow from investment -7,858 -6,899 -10,752 -11,500 Dividend yield (%) 5.7 4.7 5.0 5.2
Dividends -7,116 -6,995 -9,663 -8,816 * Based on HSBC EPS (diluted)
Change in net debt -3,699 -10,941 -2,359 -3,119
FCF equity 1,202 14,023 10,622 10,535
Balance sheet summary (USDm) ESG metrics
Intangible fixed assets 18,573 18,689 18,689 18,689 Environmental Indicators 12/2020a Governance Indicators 12/2020a
Tangible fixed assets 158,780 159,547 159,706 161,027 GHG emission intensity* 436.4 No. of board members 11
Current assets 71,323 90,246 90,246 90,246 Energy intensity* 1,729.1 Average board tenure (years) 3.8
Cash & others 31,111 30,694 30,694 30,694
CO2 reduction policy Yes Female board members (%) 45.5
Total assets 265,995 285,801 285,960 287,281
Social Indicators 12/2020a Board members independence (%) 72.7
Operating liabilities 107,763 131,636 129,616 129,141
Gross debt 72,664 61,306 58,948 55,829 Employee costs as % of revenues 9.5
Net debt 41,553 30,612 28,254 25,135 Employee turnover (%) 20
Shareholders' funds 71,250 75,694 79,099 84,448 Diversity policy Yes
Invested capital 109,802 106,152 108,331 110,128 Source: Company data, HSBC
* GHG intensity and energy intensity are measured in kg and kWh respectively against revenue in USD ‘000s

Ratio, growth and per share analysis

Year to 12/2020a 12/2021e 12/2022e 12/2023e Issuer information
Y-o-y % change Share price (GBPp) 335 Free float 100%
Revenue -36.6 48.7 21.3 2.3 Target price (GBPp) 365 Sector Oil & Gas
EBITDA -46.5 104.6 -1.3 0.6 RIC (Equity) BP.L Country/Region United Kingdom
Operating profit -115.2 15.2 2.6 Bloomberg (Equity) BP/ LN Analyst Gordon Gray
PBT -134.1 18.5 3.3 Market cap (USDm) 91,047 Contact +44 20 7991 6787
HSBC EPS -157.1 14.8 13.3
Ratios (%)
Revenue/IC (x) 0.9 1.4 1.8 1.8 Price relative
ROIC -2.8 13.4 14.1 14.8
ROE -6.7 16.7 17.4 17.8 640 640
ROA -1.2 5.3 5.3 5.7
EBITDA margin 17.1 23.6 19.2 18.9 540 540
Operating profit margin -2.7 13.9 13.2 13.2
440 440
EBITDA/net interest (x) 7.1 17.7 21.0 22.4
Net debt/equity 48.6 33.8 30.1 25.3 340 340
Net debt/EBITDA (x) 2.3 0.8 0.8 0.7
CF from operations/net debt 32.6 87.1 90.9 104.8 240 240
Per share data (USD)
140 140
EPS Rep (diluted) -0.28 0.61 0.70 0.79
2019 2020 2021
HSBC EPS (diluted) -0.28 0.61 0.70 0.79 BP Rel to FTSE ALL-SHARE
DPS 0.26 0.22 0.23 0.24
Book value 3.52 3.83 4.22 4.71 Source: HSBC
Note: Priced at close of 03 Nov 2021

26
 Equities ● Oil & Gas
9 November 2021

Financials & valuation: Chevron Hold

Financial statements Key forecast drivers

Year to 12/2020a 12/2021e 12/2022e 12/2023e Year to 12/2020a 12/2021e 12/2022e 12/2023e
Profit & loss summary (USDm) Brent crude (USD/b) 43.3 71.4 75.0 76.5
Revenue 94,692 156,328 164,192 167,476 WTI crude (USD/b) 39.5 68.5 72.0 73.5
EBITDA 11,052 39,780 40,625 39,870 US natural gas (USD/mBtu) 2.1 3.9 4.1 3.0
Depreciation & amortisation -17,790 -17,034 -17,106 -17,227 US refining margin (USD/b) 6.9 14.7 12.7 10.5
Operating profit/EBIT -6,738 22,747 23,519 22,643 Asia refining margin (USD/b) -0.2 1.6 3.8 4.9
Net interest -697 -1,689 -1,171 -880
PBT -7,435 21,058 22,348 21,762
HSBC PBT -7,435 21,058 22,348 21,762
Taxation 1,892 -5,518 -6,304 -6,030 Valuation data
Net profit -5,543 15,540 16,044 15,733 Year to 12/2020a 12/2021e 12/2022e 12/2023e
HSBC net profit -322 15,661 16,044 15,733 EV/sales 2.7 1.6 1.4 1.4
Cash flow summary (USDm) EV/EBITDA 23.3 6.1 5.8 5.8
Cash flow from operations 12,229 32,647 33,150 32,960 EV/IC 1.4 1.4 1.4 1.4
Capex -10,306 -7,904 -11,800 -14,250 PE* nm 13.4 12.7 12.6
Cash flow from investment -6,965 -6,904 -9,800 -12,250 PB 1.6 1.5 1.5 1.5
Dividends -11,206 -11,003 -16,078 -16,204 FCF yield (%) 0.9 11.3 9.8 8.6
Change in net debt 17,464 -13,196 -7,271 -4,505 Dividend yield (%) 4.6 4.7 4.9 5.1
FCF equity 1,941 24,669 21,350 18,710 * Based on HSBC EPS (diluted)
Balance sheet summary (USDm)
Intangible fixed assets 57,094 57,968 57,968 57,968
Tangible fixed assets 156,618 145,874 137,107 130,394 ESG metrics
Current assets 26,078 32,924 33,504 34,244 Environmental Indicators 12/2020a Governance Indicators 12/2020a
Cash & others 5,627 6,032 6,032 6,032 GHG emission intensity* 612.5 No. of board members 11
Total assets 239,790 236,766 228,579 222,606 Energy intensity* 2,167.8 Average board tenure (years) 5.9
Operating liabilities 50,180 52,331 52,331 52,331
CO2 reduction policy Yes Female board members (%) 36.4
Gross debt 44,315 31,524 24,253 19,748
Social Indicators 12/2020a Board members independence (%) 90.9
Net debt 38,688 25,492 18,221 13,716
Shareholders' funds 131,688 138,205 136,974 135,506 Employee costs as % of revenues n/a
Invested capital 183,983 178,403 170,216 164,243 Employee turnover (%) n/a
Diversity policy Yes
Source: Company data, HSBC
Ratio, growth and per share analysis * GHG intensity and energy intensity are measured in kg and kWh respectively against revenue in USD ‘000s
Year to 12/2020a 12/2021e 12/2022e 12/2023e
Y-o-y % change
Issuer information
Revenue -35.4 65.1 5.0 2.0
Share price (USD) 113.01 Free float 100%
EBITDA -62.4 259.9 2.1 -1.9
Operating profit -205.1 3.4 -3.7 Target price (USD) 124.00 Sector Oil & Gas
PBT -232.4 6.1 -2.6 RIC (Equity) CVX.N Country/Region United States
HSBC EPS -102.7 5.5 1.0 Bloomberg (Equity) CVX US Analyst Gordon Gray
Ratios (%) Market cap (USDm) 218,551 Contact +44 20 7991 6787
Revenue/IC (x) 0.5 0.9 0.9 1.0
ROIC -2.8 9.3 9.7 9.8
ROE -0.2 11.6 11.7 11.5 Price relative
ROA -2.1 7.0 7.3 7.3
EBITDA margin 11.7 25.4 24.7 23.8 139.00 139.00
Operating profit margin -7.1 14.6 14.3 13.5
EBITDA/net interest (x) 15.9 23.6 34.7 45.3 119.00 119.00
Net debt/equity 29.1 18.3 13.2 10.1
99.00 99.00
Net debt/EBITDA (x) 3.5 0.6 0.4 0.3
CF from operations/net debt 31.6 128.1 181.9 240.3 79.00 79.00
Per share data (USD)
EPS Rep (diluted) -2.96 8.35 8.87 8.96 59.00 59.00
HSBC EPS (diluted) -0.17 8.41 8.87 8.96
39.00 39.00
DPS 5.16 5.36 5.56 5.80
2019 2020 2021
Book value 70.42 74.26 75.76 77.21 Chevron Rel to S&P 500

Source: HSBC
Note: Priced at close of 03 Nov 2021

27
 Equities ● Oil & Gas
9 November 2021

Financials & valuation: ENI Hold

Financial statements Key forecast drivers

Year to 12/2020a 12/2021e 12/2022e 12/2023e Year to 12/2020a 12/2021e 12/2022e 12/2023e
Profit & loss summary (EURm) Brent crude (USD/b) 43.3 71.4 75.0 76.5
Revenue 44,947 73,466 84,481 85,618 US natural gas (USD/mBtu) 2.1 3.9 4.1 3.0
EBITDA 8,617 15,598 18,389 19,114 UK natural gas (USD/mcf) 3.2 14.0 11.9 8.5
Depreciation & amortisation -6,722 -5,780 -6,846 -7,056 European refining margin (USD/b) 3.4 1.9 3.9 4.5
Operating profit/EBIT 1,895 9,817 11,543 12,058 Euro (USD) 1.14 1.19 1.16 1.16
Net interest -893 -935 -832 -751
PBT 1,002 8,883 10,711 11,307
HSBC PBT 1,002 8,883 10,711 11,307
Taxation -1,753 -4,246 -5,707 -5,960 Valuation data
Net profit -757 4,621 4,998 5,341 Year to 12/2020a 12/2021e 12/2022e 12/2023e
HSBC net profit -757 4,621 4,998 5,341 EV/sales 1.4 0.8 0.7 0.7
Cash flow summary (EURm) EV/EBITDA 7.1 3.9 3.2 3.0
Cash flow from operations 6,871 11,983 12,751 13,304 EV/IC 1.3 1.2 1.2 1.2
Capex -4,587 -6,034 -6,858 -7,321 PE* nm 9.6 8.6 7.9
Cash flow from investment -4,833 -6,202 -6,178 -6,541 PB 1.2 1.0 1.0 1.0
Dividends -1,968 -2,688 -4,018 -4,177 FCF yield (%) -1.5 13.3 11.3 11.5
Change in net debt -623 -492 -1,654 -1,686 Dividend yield (%) 2.9 6.9 8.0 8.1
FCF equity -647 5,867 4,993 5,082 * Based on HSBC EPS (diluted)
Balance sheet summary (EURm)
Intangible fixed assets 2,936 3,724 3,724 3,724
Tangible fixed assets 56,978 58,208 58,244 58,473 ESG metrics
Current assets 32,858 52,189 42,382 41,829 Environmental Indicators 12/2020a Governance Indicators 12/2020a
Cash & others 14,915 13,828 13,828 13,828 GHG emission intensity* 751.4 No. of board members 9
Total assets 100,852 122,201 112,430 112,106 Energy intensity* n/a Average board tenure (years) 2.7
Operating liabilities 31,655 50,130 41,648 42,564
CO2 reduction policy Yes Female board members (%) 44.4
Gross debt 31,704 30,125 28,470 26,785
Social Indicators 12/2020a Board members independence (%) 77.8
Net debt 16,789 16,297 14,642 12,957
Shareholders' funds 37,415 41,858 42,223 42,669 Employee costs as % of revenues 7.3
Invested capital 46,202 50,163 48,873 47,634 Employee turnover (%) 6.1
Diversity policy Yes
Source: Company data, HSBC
Ratio, growth and per share analysis * GHG intensity and energy intensity are measured in kg and kWh respectively against revenue in USD ‘000s
Year to 12/2020a 12/2021e 12/2022e 12/2023e
Y-o-y % change
Issuer information
Revenue -36.7 63.5 15.0 1.3
Share price (EUR) 12.38 Free float 100%
EBITDA -44.6 81.0 17.9 3.9
Operating profit -78.9 418.1 17.6 4.5 Target price (EUR) 13.90 Sector Oil & Gas
PBT -87.6 786.5 20.6 5.6 RIC (Equity) ENI.MI Country/Region Italy
HSBC EPS -126.5 10.5 9.6 Bloomberg (Equity) ENI IM Analyst Kim Fustier
Ratios (%) Market cap (USDm) 51,235 Contact +44 20 3359 2136
Revenue/IC (x) 0.9 1.5 1.7 1.8
ROIC -2.8 10.6 10.9 11.8
ROE -1.8 11.7 11.9 12.6 Price relative
ROA -0.7 4.2 4.3 4.8
EBITDA margin 19.2 21.2 21.8 22.3
Operating profit margin 4.2 13.4 13.7 14.1 16.60 16.60
EBITDA/net interest (x) 9.6 16.7 22.1 25.5 14.60 14.60
Net debt/equity 44.8 38.9 34.6 30.3
12.60 12.60
Net debt/EBITDA (x) 1.9 1.0 0.8 0.7
CF from operations/net debt 40.9 73.5 87.1 102.7 10.60 10.60
Per share data (EUR) 8.60 8.60
EPS Rep (diluted) -0.21 1.30 1.43 1.57 6.60 6.60
HSBC EPS (diluted) -0.21 1.30 1.43 1.57
4.60 4.60
DPS 0.36 0.86 0.98 1.00
2019 2020 2021
Book value 10.47 11.84 12.25 12.71 ENI Rel to FTSE EUROTOP 300 INDEX

Source: HSBC
Note: Priced at close of 03 Nov 2021

28
 Equities ● Oil & Gas
9 November 2021

Financials & valuation: Equinor Hold

Financial statements Key forecast drivers

Year to 12/2020a 12/2021e 12/2022e 12/2023e Year to 12/2020a 12/2021e 12/2022e 12/2023e
Profit & loss summary (USDm) Brent crude (USD/bbl) 43.3 71.4 75.0 76.5
Revenue 45,754 86,669 86,688 81,616 US natural gas (USD/mBtu) 2.1 3.9 4.1 3.0
EBITDA 13,220 50,841 37,622 35,999 UK natural gas (GBp/therm) 3.2 13.5 11.9 8.5
Depreciation & amortisation -9,280 -20,649 -9,509 -9,598 NOK (USD) 9.4 8.6 8.7 8.7
Operating profit/EBIT 3,940 30,192 28,113 26,400
Net interest -836 -2,032 -1,308 -1,256
PBT -4,259 28,363 26,805 25,145
HSBC PBT -4,259 28,363 26,805 25,145
Taxation -1,238 -20,605 -19,173 -17,712 Valuation data
Net profit -5,497 7,758 7,632 7,433 Year to 12/2020a 12/2021e 12/2022e 12/2023e
HSBC net profit 926 9,966 8,940 8,689 EV/sales 2.3 1.0 1.0 1.0
Cash flow summary (USDm) EV/EBITDA 7.8 1.7 2.2 2.3
Cash flow from operations 10,910 28,172 17,741 17,631 EV/IC 2.0 2.1 2.0 1.9
Capex -7,892 -8,127 -10,027 -11,214 PE* 91.1 8.4 9.2 9.1
Cash flow from investment -9,253 -6,678 -10,097 -11,214 PB 2.5 2.1 1.9 1.7
Dividends -3,387 -2,248 -5,379 -5,503 FCF yield (%) 3.9 24.0 8.5 6.9
Change in net debt 3,064 -16,809 -2,265 -915 Dividend yield (%) 1.6 2.7 3.0 3.5
FCF equity 3,254 20,076 7,114 5,817 * Based on HSBC EPS (diluted)
Balance sheet summary (USDm)
Intangible fixed assets 9,667 9,667 9,667 9,667
Tangible fixed assets 68,823 67,605 67,624 68,502 ESG metrics
Current assets 45,886 76,072 64,501 61,802 Environmental Indicators 12/2020a Governance Indicators 12/2020a
Cash & others 18,622 28,847 28,847 28,847 GHG emission intensity* 284.1 No. of board members 11
Total assets 125,818 154,786 143,235 141,413 Energy intensity* 1,420.6 Average board tenure (years) 4.0
Operating liabilities 53,811 84,189 71,342 67,248
CO2 reduction policy Yes Female board members (%) 36.4
Gross debt 38,115 31,531 29,266 28,351
Social Indicators 12/2020a Board members independence (%) 72.7
Net debt 19,493 2,684 419 -496
Shareholders' funds 33,873 39,050 42,611 45,797 Employee costs as % of revenues 8.1
Invested capital 51,943 40,308 41,604 43,876 Employee turnover (%) n/a
Diversity policy Yes
Source: Company data, HSBC
Ratio, growth and per share analysis * GHG intensity and energy intensity are measured in kg and kWh respectively against revenue in USD ‘000s
Year to 12/2020a 12/2021e 12/2022e 12/2023e
Y-o-y % change
Issuer information
Revenue -27.3 89.4 0.0 -5.9
Share price (NOK) 220.15 Free float 100%
EBITDA -23.5 284.6 -26.0 -4.3
Operating profit -70.8 666.3 -6.9 -6.1 Target price (NOK) 213.00 Sector Oil & Gas
PBT -145.8 -5.5 -6.2 RIC (Equity) EQNR.OL Country/Region Norway
HSBC EPS -80.9 984.6 -8.3 1.0 Bloomberg (Equity) EQNR NO Analyst Kim Fustier
Ratios (%) Market cap (USDm) 83,736 Contact +44 20 3359 2136
Revenue/IC (x) 0.8 1.9 2.1 1.9
ROIC 9.4 17.9 19.5 18.3
ROE 2.5 27.3 21.9 19.7 Price relative
ROA -4.5 5.5 5.1 5.2
EBITDA margin 28.9 58.7 43.4 44.1
Operating profit margin 8.6 34.8 32.4 32.3 242.00 242.00
EBITDA/net interest (x) 15.8 25.0 28.8 28.7 222.00 222.00
Net debt/equity 57.5 6.9 1.0 -1.1 202.00 202.00
Net debt/EBITDA (x) 1.5 0.1 0.0 -0.0 182.00 182.00
CF from operations/net debt 56.0 1049.6 4236.3 162.00 162.00
Per share data (USD) 142.00 142.00
122.00 122.00
EPS Rep (diluted) -1.68 2.39 2.41 2.43
102.00 102.00
HSBC EPS (diluted) 0.28 3.07 2.82 2.85
82.00 82.00
DPS 0.41 0.70 0.77 0.89
2019 2020 2021
Book value 10.43 12.08 13.69 15.29 Equinor Rel to OBX INDEX

Source: HSBC
Note: Priced at close of 03 Nov 2021

29
 Equities ● Oil & Gas
9 November 2021

Financials & valuation: Exxon Mobil Hold

Financial statements Key forecast drivers

Year to 12/2020a 12/2021e 12/2022e 12/2023e Year to 12/2020a 12/2021e 12/2022e 12/2023e
Profit & loss summary (USDm) Brent crude (USD/b) 43.3 71.4 75.0 76.5
Revenue 181,502 299,644 314,716 321,011 WTI crude (USD/b) 39.5 68.5 72.0 73.5
EBITDA 13,500 59,216 57,127 59,396 US natural gas (USD/mBtu) 2.1 2.2 2.2 2.3
Depreciation & amortisation -41,225 -21,186 -18,733 -20,822 US refining margin (USD/b) 6.9 14.7 12.7 10.5
Operating profit/EBIT -27,725 38,030 38,394 38,573
Net interest -1,158 -1,986 -1,477 -1,273
PBT -28,002 35,595 36,317 36,684 Valuation data
HSBC PBT -28,002 35,595 36,317 36,684 Year to 12/2020a 12/2021e 12/2022e 12/2023e
Taxation 5,632 -13,681 -13,992 -13,768 EV/sales 1.8 1.1 1.0 0.9
Net profit -22,370 21,914 22,325 22,916 EV/EBITDA 24.7 5.3 5.4 5.1
HSBC net profit -1,412 21,962 22,325 22,916 EV/IC 1.7 1.7 1.7 1.7
Cash flow summary (USDm) PE* nm 12.4 12.1 11.6
Cash flow from operations 16,321 41,839 41,658 41,915 PB 1.7 1.6 1.6 1.5
Capex -22,139 -13,909 -18,813 -20,125 FCF yield (%) -2.1 10.3 8.4 8.1
Cash flow from investment -25,997 -11,777 -14,813 -16,125 Dividend yield (%) 5.4 5.5 5.6 5.9
Dividends -15,458 -14,866 -20,050 -20,521 * Based on HSBC EPS (diluted)
Change in net debt 19,445 -17,217 -6,796 -5,268
FCF equity -5,818 27,930 22,846 24,229
Balance sheet summary (USDm) ESG metrics
Intangible fixed assets 16,789 16,661 16,661 16,661 Environmental Indicators 12/2019a Governance Indicators 12/2020a
Tangible fixed assets 227,553 216,534 208,108 200,945 GHG emission intensity* 452.9 No. of board members 10
Current assets 44,893 54,145 54,145 54,145 Energy intensity* 1,572.7 Average board tenure (years) 6.8
Cash & others 4,364 4,768 4,768 4,768
CO2 reduction policy Yes Female board members (%) 30
Total assets 332,750 335,406 330,885 327,627
Social Indicators 12/2019a Board members independence (%) 90
Operating liabilities 82,815 90,966 91,366 91,366
Gross debt 67,640 50,827 44,032 38,763 Employee costs as % of revenues n/a
Net debt 63,276 46,059 39,264 33,995 Employee turnover (%) n/a
Shareholders' funds 157,150 172,064 173,939 175,949 Diversity policy Yes
Invested capital 202,056 191,606 182,781 175,618 Source: Company data, HSBC
* GHG intensity and energy intensity are measured in kg and kWh respectively against revenue in USD ‘000s

Ratio, growth and per share analysis

Year to 12/2020a 12/2021e 12/2022e 12/2023e Issuer information
Y-o-y % change Share price (USD) 63.93 Free float 100%
Revenue -31.5 65.1 5.0 2.0 Target price (USD) 64.00 Sector Oil & Gas
EBITDA -60.3 338.6 -3.5 4.0 RIC (Equity) XOM.N Country/Region United States
Operating profit -232.7 1.0 0.5 Bloomberg (Equity) XOM US Analyst Gordon Gray
PBT -242.7 2.0 1.0 Market cap (USDm) 270,652 Contact +44 20 7991 6787
HSBC EPS -114.7 2.8 4.5
Ratios (%)
Revenue/IC (x) 0.8 1.5 1.7 1.8 Price relative
ROIC -10.4 11.9 12.6 13.4
ROE -0.8 13.3 12.9 13.1
85.00 85.00
ROA -6.2 6.9 7.0 7.2
EBITDA margin 7.4 19.8 18.2 18.5 75.00 75.00
Operating profit margin -15.3 12.7 12.2 12.0 65.00 65.00
EBITDA/net interest (x) 11.7 29.8 38.7 46.6 55.00 55.00
Net debt/equity 38.6 26.3 22.2 19.0 45.00 45.00
Net debt/EBITDA (x) 4.7 0.8 0.7 0.6
35.00 35.00
CF from operations/net debt 25.8 90.8 106.1 123.3
25.00 25.00
Per share data (USD)
15.00 15.00
EPS Rep (diluted) -5.24 5.13 5.28 5.52
2019 2020 2021
HSBC EPS (diluted) -0.33 5.14 5.28 5.52 Exxon Mobil Corporation Rel to S&P 500
DPS 3.48 3.50 3.59 3.77
Book value 36.79 40.25 41.14 42.38 Source: HSBC
Note: Priced at close of 03 Nov 2021

30
 Equities ● Oil & Gas
9 November 2021

Financials & valuation: Repsol Hold

Financial statements Key forecast drivers

Year to 12/2020a 12/2021e 12/2022e 12/2023e Year to 12/2020a 12/2021e 12/2022e 12/2023e
Profit & loss summary (EURm) Brent crude (USD/bbl) 43.3 71.4 75.0 76.5
Revenue 27,950 48,284 58,234 59,399 US natural gas (USD/mBtu) 2.1 3.9 4.1 3.0
EBITDA 3,762 6,603 7,443 7,267 UK natural gas (GBp/therm) 3.2 13.5 11.9 8.5
Depreciation & amortisation -2,629 -2,343 -2,440 -2,522 European refining margin (USD/bbl) 2.2 2.3 4.5 5.1
Operating profit/EBIT 1,133 4,259 5,003 4,745 Euro (USD) 1.14 1.19 1.16 1.16
Net interest -238 -205 -249 -240
PBT 897 4,063 4,770 4,518
HSBC PBT 895 4,054 4,754 4,505
Taxation -299 -1,674 -2,093 -1,930 Valuation data
Net profit 598 2,390 2,677 2,588 Year to 12/2020a 12/2021e 12/2022e 12/2023e
HSBC net profit 598 2,390 2,677 2,588 EV/sales 0.9 0.5 0.4 0.4
Cash flow summary (EURm) EV/EBITDA 6.9 3.4 2.9 3.0
Cash flow from operations 3,568 6,117 5,800 5,770 EV/IC 0.9 0.8 0.8 0.7
Capex -2,263 -2,900 -3,887 -4,260 PE* 28.6 6.9 6.0 5.9
Cash flow from investment -1,149 -2,600 -3,887 -4,260 PB 0.8 0.7 0.7 0.6
Dividends -724 -1,289 -1,174 -1,376 FCF yield (%) 6.1 18.1 9.9 7.4
Change in net debt -1,634 -3,450 -589 15 Dividend yield (%) 5.4 5.6 6.1 6.6
FCF equity 981 2,893 1,589 1,186 * Based on HSBC EPS (diluted)
Balance sheet summary (EURm)
Intangible fixed assets 3,353 3,357 3,357 3,357
Tangible fixed assets 25,061 23,314 24,288 25,576 ESG metrics
Current assets 13,584 21,210 21,649 21,484 Environmental Indicators 12/2020a Governance Indicators 12/2020a
Cash & others 6,144 8,321 8,910 8,894 GHG emission intensity* 703.2 No. of board members 15
Total assets 49,302 55,185 56,598 57,721 Energy intensity* 2,249.8 Average board tenure (years) 7.8
Operating liabilities 7,046 12,227 12,227 12,227
CO2 reduction policy Yes Female board members (%) 33.3
Gross debt 16,003 14,730 14,730 14,730
Social Indicators 12/2020a Board members independence (%) 60
Net debt 9,859 6,409 5,820 5,836
Shareholders' funds 20,295 22,171 23,675 24,887 Employee costs as % of revenues 7.5
Invested capital 28,808 27,333 28,158 29,296 Employee turnover (%) 18
Diversity policy Yes
Source: Company data, HSBC
Ratio, growth and per share analysis * GHG intensity and energy intensity are measured in kg and kWh respectively against revenue in USD ‘000s
Year to 12/2020a 12/2021e 12/2022e 12/2023e
Y-o-y % change
Issuer information
Revenue -34.4 72.7 20.6 2.0
Share price (EUR) 10.72 Free float 100%
EBITDA -45.1 75.5 12.7 -2.4
Operating profit -69.1 276.0 17.5 -5.2 Target price (EUR) 11.80 Sector Oil & Gas
PBT -72.6 353.1 17.4 -5.3 RIC (Equity) REP.MC Country/Region Spain
HSBC EPS -72.0 317.9 14.9 0.3 Bloomberg (Equity) REP SM Analyst Kim Fustier
Ratios (%) Market cap (USDm) 18,512 Contact +44 20 3359 2136
Revenue/IC (x) 0.9 1.7 2.1 2.1
ROIC 2.3 8.9 10.1 9.5
ROE 2.6 11.3 11.7 10.7 Price relative
ROA 1.1 4.6 4.8 4.5
EBITDA margin 13.5 13.7 12.8 12.2
15.90 15.90
Operating profit margin 4.1 8.8 8.6 8.0
EBITDA/net interest (x) 15.8 32.2 29.9 30.3 13.90 13.90
Net debt/equity 48.0 28.6 24.3 23.2 11.90 11.90
Net debt/EBITDA (x) 2.6 1.0 0.8 0.8
CF from operations/net debt 36.2 95.4 99.6 98.9 9.90 9.90
Per share data (EUR) 7.90 7.90
EPS Rep (diluted) 0.37 1.56 1.80 1.80 5.90 5.90
HSBC EPS (diluted) 0.37 1.56 1.80 1.80
3.90 3.90
DPS 0.58 0.60 0.66 0.71
2019 2020 2021
Book value 12.94 14.52 16.30 17.53 Repsol Rel to MADRID SE

Source: HSBC
Note: Priced at close of 03 Nov 2021

31
 Equities ● Oil & Gas
9 November 2021

Financials & valuation: Royal Dutch Shell A Buy

Financial statements Key forecast drivers

Year to 12/2020a 12/2021e 12/2022e 12/2023e Year to 12/2020a 12/2021e 12/2022e 12/2023e
Profit & loss summary (USDm) Brent crude (USD/bbl) 43.3 71.4 75.0 76.5
Revenue 180,543 276,913 260,119 267,975 US natural gas (USD/mBtu) 2.1 3.9 4.1 3.0
EBITDA 23,386 57,549 50,903 48,359 UK natural gas (GBp/therm) 3.2 13.5 11.9 8.5
Depreciation & amortisation -24,981 -23,590 -23,644 -24,088 European refining margin (USD/b) 4.9 5.4 6.1 6.9
Operating profit/EBIT -1,595 33,958 27,260 24,271 US refining margin (USD/b) 6.9 14.7 12.7 10.5
Net interest -3,934 -2,995 -2,090 -1,690 GB pound (USD) 1.28 1.38 1.35 1.35
PBT -22,971 19,341 29,237 27,186
HSBC PBT -22,971 19,341 29,237 27,186
Taxation 3,271 -5,687 -1,163 -447 Valuation data
Net profit -19,920 13,193 27,488 26,188 Year to 12/2020a 12/2021e 12/2022e 12/2023e
HSBC net profit 4,848 20,098 27,488 26,188 EV/sales 1.4 0.8 0.8 0.8
Cash flow summary (USDm) EV/EBITDA 10.7 3.9 4.2 4.3
Cash flow from operations 25,923 52,067 50,850 49,423 EV/IC 1.2 1.1 1.1 1.0
Capex -17,827 -20,000 -24,000 -26,000 PE* 35.8 8.6 6.0 6.0
Cash flow from investment -13,817 -4,518 -20,000 -22,000 PB 1.1 1.0 0.9 0.8
Dividends -7,423 -6,272 -7,341 -7,258 FCF yield (%) 2.8 16.5 13.5 11.6
Change in net debt -2,185 -27,992 -7,213 -8,768 Dividend yield (%) 2.9 4.0 4.5 4.7
FCF equity 4,896 28,867 23,650 20,223 * Based on HSBC EPS (diluted)
Balance sheet summary (USDm)
Intangible fixed assets 22,822 22,344 22,344 22,344
Tangible fixed assets 226,794 219,041 219,406 220,951 ESG metrics
Current assets 90,695 172,812 162,543 166,302 Environmental Indicators 12/2020a Governance Indicators 12/2020a
Cash & others 31,830 38,073 38,073 38,073 GHG emission intensity* 584.1 No. of board members 13
Total assets 362,957 436,843 426,938 432,243 Energy intensity* n/a Average board tenure (years) 4.4
Operating liabilities 96,406 179,764 169,139 171,631
CO2 reduction policy Yes Female board members (%) 38.5
Gross debt 108,014 86,265 79,052 70,284
Social Indicators 12/2020a Board members independence (%) 76.9
Net debt 76,184 48,192 40,979 32,211
Shareholders' funds 155,310 167,521 175,454 187,035 Employee costs as % of revenues 6.7
Invested capital 212,075 196,360 197,080 199,893 Employee turnover (%) n/a
Diversity policy Yes
Source: Company data, HSBC
Ratio, growth and per share analysis * GHG intensity and energy intensity are measured in kg and kWh respectively against revenue in USD ‘000s
Year to 12/2020a 12/2021e 12/2022e 12/2023e
Y-o-y % change
Issuer information
Revenue -47.7 53.4 -6.1 3.0
Share price (GBPp) 1,629 Free float 100%
EBITDA -56.6 146.1 -11.5 -5.0
Operating profit -105.5 -19.7 -11.0 Target price (GBPp) 1,890 Sector Oil & Gas
PBT -192.3 51.2 -7.0 RIC (Equity) RDSa.L Country/Region United Kingdom
HSBC EPS -69.6 316.2 44.3 -0.1 Bloomberg (Equity) RDSA LN Analyst Gordon Gray
Ratios (%) Market cap (USDm) 174,592 Contact +44 20 7991 6787
Revenue/IC (x) 0.8 1.4 1.3 1.4
ROIC -0.6 11.7 13.3 12.0
ROE 2.8 12.5 16.0 14.4 Price relative
ROA -4.3 3.9 7.0 6.6
EBITDA margin 13.0 20.8 19.6 18.0
Operating profit margin -0.9 12.3 10.5 9.1 2680 2680
EBITDA/net interest (x) 5.9 19.2 24.4 28.6
Net debt/equity 48.1 28.2 22.9 16.9 2180 2180
Net debt/EBITDA (x) 3.3 0.8 0.8 0.7
CF from operations/net debt 34.0 108.0 124.1 153.4 1680 1680
Per share data (USD)
1180 1180
EPS Rep (diluted) -2.56 1.70 3.73 3.73
HSBC EPS (diluted) 0.62 2.59 3.73 3.73
680 680
DPS 0.65 0.89 1.00 1.04
2019 2020 2021
Book value 19.97 21.79 24.48 27.29 Royal Dutch Shell A Rel to FTSE ALL-SHARE

Source: HSBC
Note: Priced at close of 03 Nov 2021

32
 Equities ● Oil & Gas
9 November 2021

Financials & valuation: Royal Dutch Shell B Buy

Financial statements Key forecast drivers

Year to 12/2020a 12/2021e 12/2022e 12/2023e Year to 12/2020a 12/2021e 12/2022e 12/2023e
Profit & loss summary (USDm) Brent crude (USD/bbl) 43.3 71.4 75.0 76.5
Revenue 180,543 276,913 260,119 267,975 US natural gas (USD/mBtu) 2.1 2.7 3.0 4.3
EBITDA 23,386 57,549 50,903 48,359 UK natural gas (GBp/therm) 3.2 6.5 8.8 16.8
Depreciation & amortisation -24,981 -23,590 -23,644 -24,088 European refining margin (USD/b) 4.9 3.8 4.5 5.9
Operating profit/EBIT -1,595 33,958 27,260 24,271 US refining margin (USD/b) 6.9 11.1 14.8 17.5
Net interest -3,934 -2,995 -2,090 -1,690 GB pound (USD) 1.28 1.38 1.35 1.35
PBT -22,971 19,341 29,237 27,186
HSBC PBT -22,971 19,341 29,237 27,186
Taxation 3,271 -5,687 -1,163 -447 Valuation data
Net profit -19,920 13,193 27,488 26,188 Year to 12/2020a 12/2021e 12/2022e 12/2023e
HSBC net profit 4,848 20,098 27,488 26,188 EV/sales 1.4 0.8 0.8 0.8
Cash flow summary (USDm) EV/EBITDA 10.8 4.0 4.3 4.3
Cash flow from operations 25,923 52,067 50,850 49,423 EV/IC 1.2 1.1 1.1 1.0
Capex -17,827 -20,000 -24,000 -26,000 PE* 35.8 8.6 6.0 6.0
Cash flow from investment -13,817 -4,518 -20,000 -22,000 PB 1.1 1.0 0.9 0.8
Dividends -7,423 -6,272 -7,341 -7,258 FCF yield (%) 2.8 16.4 13.4 11.5
Change in net debt -2,185 -24,137 -8,712 -11,124 Dividend yield (%) 2.9 4.0 4.5 4.7
FCF equity 4,896 28,867 23,650 20,223 * Based on HSBC EPS (diluted)
Balance sheet summary (USDm)
Intangible fixed assets 22,822 22,344 22,344 22,344
Tangible fixed assets 226,794 219,041 219,406 220,951 ESG metrics
Current assets 90,695 172,812 162,543 166,302 Environmental Indicators 12/2020a Governance Indicators 12/2020a
Cash & others 31,830 38,073 38,073 38,073 GHG emission intensity* 584.1 No. of board members 13
Total assets 362,957 436,843 426,938 432,243 Energy intensity* n/a Average board tenure (years) 4.4
Operating liabilities 96,406 175,909 166,783 171,631
CO2 reduction policy Yes Female board members (%) 38.5
Gross debt 108,014 90,120 81,408 70,284
Social Indicators 12/2020a Board members independence (%) 76.9
Net debt 76,184 52,047 43,335 32,211
Shareholders' funds 155,310 167,521 175,454 187,035 Employee costs as % of revenues 6.7
Invested capital 212,075 200,215 199,436 199,893 Employee turnover (%) n/a
Diversity policy Yes
Source: Company data, HSBC
Ratio, growth and per share analysis * GHG intensity and energy intensity are measured in kg and kWh respectively against revenue in USD ‘000s
Year to 12/2020a 12/2021e 12/2022e 12/2023e
Y-o-y % change
Issuer information
Revenue -47.7 53.4 -6.1 3.0
Share price (GBPp) 1,629 Free float 100%
EBITDA -56.6 146.1 -11.5 -5.0
Operating profit -105.5 -19.7 -11.0 Target price (GBPp) 1,890 Sector Oil & Gas
PBT -192.3 51.2 -7.0 RIC (Equity) RDSb.L Country/Region United Kingdom
HSBC EPS -69.6 316.2 44.3 -0.1 Bloomberg (Equity) RDSB LN Analyst Gordon Gray
Ratios (%) Market cap (USDm) 175,854 Contact +44 20 7991 6787
Revenue/IC (x) 0.8 1.3 1.3 1.3
ROIC -0.6 11.6 13.1 12.0
ROE 2.8 12.5 16.0 14.4 Price relative
ROA -4.3 3.9 7.0 6.6
EBITDA margin 13.0 20.8 19.6 18.0
Operating profit margin -0.9 12.3 10.5 9.1 2640 2640
EBITDA/net interest (x) 5.9 19.2 24.4 28.6
Net debt/equity 48.1 30.5 24.2 16.9 2140 2140
Net debt/EBITDA (x) 3.3 0.9 0.9 0.7
CF from operations/net debt 34.0 100.0 117.3 153.4 1640 1640
Per share data (USD)
1140 1140
EPS Rep (diluted) -2.56 1.70 3.73 3.73
HSBC EPS (diluted) 0.62 2.59 3.73 3.73
640 640
DPS 0.65 0.89 1.00 1.04
2019 2020 2021
Book value 19.97 21.79 24.48 27.29 Royal Dutch Shell B Rel to FTSE ALL-SHARE

Source: HSBC
Note: Priced at close of 03 Nov 2021

33
 Equities ● Oil & Gas
9 November 2021

Financials & valuation: TotalEnergies Buy

Financial statements Key forecast drivers

Year to 12/2020a 12/2021e 12/2022e 12/2023e Year to 12/2020a 12/2021e 12/2022e 12/2023e
Profit & loss summary (USDm) Brent crude (USD/bbl) 43.3 71.4 75.0 76.5
Revenue 146,437 254,605 290,542 299,681 US natural gas (USD/mBtu) 2.1 3.9 4.1 3.0
EBITDA 18,491 36,994 40,439 41,039 UK natural gas (GBp/therm) 3.2 13.5 11.9 8.5
Depreciation & amortisation -11,043 -9,564 -9,858 -11,044 Total refining margin (USD/bbl) 4.2 4.7 4.8 5.4
Operating profit/EBIT 7,448 27,430 30,580 29,994 Euro (USD) 1.14 1.19 1.16 1.16
Net interest -1,739 -1,384 -1,250 -1,111
PBT 5,709 26,046 29,330 28,883
HSBC PBT 5,709 26,046 29,330 28,883 Valuation data
Taxation -1,642 -9,132 -11,239 -11,209 Year to 12/2020a 12/2021e 12/2022e 12/2023e
Net profit 4,059 16,557 17,716 17,281 EV/sales 1.2 0.7 0.6 0.5
HSBC net profit 4,059 16,557 17,716 17,281 EV/EBITDA 9.3 4.5 4.0 3.9
Cash flow summary (USDm) EV/IC 1.4 1.4 1.3 1.2
Cash flow from operations 15,697 27,478 28,950 29,718 PE* 32.1 7.9 7.2 7.3
Capex -10,408 -11,712 -14,800 -15,020 PB 1.3 1.2 1.1 1.0
Cash flow from investment -13,058 -12,912 -14,800 -15,020 FCF yield (%) 3.6 11.3 10.0 10.4
Dividends -7,422 -9,835 -10,029 -10,312 Dividend yield (%) 6.1 6.3 6.3 6.5
Change in net debt 10,156 -7,133 -3,320 -3,586 * Based on HSBC EPS (diluted)
FCF equity 4,702 14,766 13,150 13,698
Balance sheet summary (USDm)
Intangible fixed assets 33,114 33,114 33,114 33,114 ESG metrics
Tangible fixed assets 127,931 130,185 131,244 131,825 Environmental Indicators 12/2020a Governance Indicators 12/2020a
Current assets 83,077 127,080 121,936 125,354 GHG emission intensity* 375.6 No. of board members 13
Cash & others 35,898 32,881 32,881 32,881 Energy intensity* 1,003.8 Average board tenure (years) 4.6
Total assets 271,120 317,377 313,292 317,291
CO2 reduction policy Yes Female board members (%) 46.2
Operating liabilities 87,733 135,064 126,238 126,461
Social Indicators 12/2020a Board members independence (%) 61.5
Gross debt 77,302 67,152 63,832 60,246
Net debt 41,404 34,271 30,951 27,365 Employee costs as % of revenues 6.1
Shareholders' funds 103,702 111,949 120,011 127,373 Employee turnover (%) 11.2
Invested capital 120,491 122,434 127,175 130,951 Diversity policy Yes
Source: Company data, HSBC
* GHG intensity and energy intensity are measured in kg and kWh respectively against revenue in USD ‘000s
Ratio, growth and per share analysis
Year to 12/2020a 12/2021e 12/2022e 12/2023e
Y-o-y % change
Issuer information
Share price (EUR) 42.91 Free float 100%
Revenue -39.6 73.9 14.1 3.1
EBITDA -45.1 100.1 9.3 1.5 Target price (EUR) 48.10 Sector Oil & Gas
Operating profit -62.9 268.3 11.5 -1.9 RIC (Equity) TTEF.PA Country/Region France
PBT -68.5 356.2 12.6 -1.5 Bloomberg (Equity) TTE FP Analyst Kim Fustier
HSBC EPS -65.7 304.5 9.4 -0.7 Market cap (USDm) 131,242 Contact +44 20 3359 2136
Ratios (%)
Revenue/IC (x) 1.2 2.1 2.3 2.3
ROIC 4.4 14.7 15.1 14.2 Price relative
ROE 3.7 15.4 15.3 14.0
ROA 1.5 5.7 5.7 5.6 57.00 57.00
EBITDA margin 12.6 14.5 13.9 13.7 52.00 52.00
Operating profit margin 5.1 10.8 10.5 10.0 47.00 47.00
EBITDA/net interest (x) 10.6 26.7 32.3 36.9 42.00 42.00
Net debt/equity 39.0 29.8 25.1 21.0 37.00 37.00
Net debt/EBITDA (x) 2.2 0.9 0.8 0.7
32.00 32.00
CF from operations/net debt 37.9 80.2 93.5 108.6
27.00 27.00
Per share data (USD)
22.00 22.00
EPS Rep (diluted) 1.55 6.27 6.86 6.81
17.00 17.00
HSBC EPS (diluted) 1.55 6.27 6.86 6.81
2019 2020 2021
DPS 3.01 3.13 3.16 3.25 TotalEnergies Rel to SBF-120
Book value 39.09 42.96 46.85 50.70
Source: HSBC
Note: Priced at close of 03 Nov 2021

34
 Equities ● Oil & Gas
9 November 2021

Disclosure appendix
Analyst Certification
The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s)
whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering
analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or
issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other
views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect
their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific
recommendation(s) or views contained in this research report: Gordon Gray and Kim Fustier

Important disclosures
Equities: Stock ratings and basis for financial analysis
HSBC and its affiliates, including the issuer of this report (“HSBC”) believes an investor's decision to buy or sell a stock should
depend on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations and that
investors utilise various disciplines and investment horizons when making investment decisions. Ratings should not be used or
relied on in isolation as investment advice. Different securities firms use a variety of ratings terms as well as different rating
systems to describe their recommendations and therefore investors should carefully read the definitions of the ratings used in
each research report. Further, investors should carefully read the entire research report and not infer its contents from the rating
because research reports contain more complete information concerning the analysts' views and the basis for the rating.

From 23rd March 2015 HSBC has assigned ratings on the following basis:
The target price is based on the analyst’s assessment of the stock’s actual current value, although we expect it to take six to 12
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Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation or resumption of coverage, change
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Prior to this date, HSBC’s rating structure was applied on the following basis:
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stock to reach over our performance horizon. The performance horizon was 12 months. For a stock to be classified as Overweight,
the potential return, which equals the percentage difference between the current share price and the target price, including the
forecast dividend yield when indicated, had to exceed the required return by at least 5 percentage points over the succeeding 12
months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock was
expected to underperform its required return by at least 5 percentage points over the succeeding 12 months (or 10 percentage
points for a stock classified as Volatile*). Stocks between these bands were classified as Neutral.

*A stock was classified as volatile if its historical volatility had exceeded 40%, if the stock had been listed for less than 12 months
(unless it was in an industry or sector where volatility is low) or if the analyst expected significant volatility. However, stocks which
we did not consider volatile may in fact also have behaved in such a way. Historical volatility was defined as the past month's
average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating, however,
volatility had to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.

35
 Equities ● Oil & Gas
9 November 2021

Rating distribution for long-term investment opportunities

As of 08 November 2021, the distribution of all independent ratings published by HSBC is as follows:
Buy 60% (42% of these provided with Investment Banking Services in the past 12 months)
Hold 34% (40% of these provided with Investment Banking Services in the past 12 months)
Sell 6% (39% of these provided with Investment Banking Services in the past 12 months)
For the purposes of the distribution above the following mapping structure is used during the transition from the previous to current
rating models: under our previous model, Overweight = Buy, Neutral = Hold and Underweight = Sell; under our current model Buy
= Buy, Hold = Hold and Reduce = Sell. For rating definitions under both models, please see “Stock ratings and basis for financial
analysis” above.

For the distribution of non-independent ratings published by HSBC, please see the disclosure page available at
http://www.hsbcnet.com/gbm/financial-regulation/investment-recommendations-disclosures.

To view a list of all the independent fundamental ratings disseminated by HSBC during the preceding 12-month period, please
use the following links to access the disclosure page:

Clients of Global Research and Global Banking and Markets: www.research.hsbc.com/A/Disclosures

Clients of HSBC Private Banking: www.research.privatebank.hsbc.com/Disclosures

HSBC & Analyst disclosures

Disclosure checklist

Company Ticker Recent price Price date Disclosure

BP BP.L 3.45 05 Nov 2021 1, 4, 5, 6, 7
CHEVRON CVX.N 114.74 05 Nov 2021 5, 6, 7
ENI ENI.MI 12.67 05 Nov 2021 2, 5, 6, 7
EQUINOR STL.OL 225.95 05 Nov 2021 2, 5, 6, 7
EXXON MOBIL CORPORATION XOM.N 65.02 05 Nov 2021 5, 6, 7
REPSOL REP.MC 10.81 05 Nov 2021 1, 4, 5, 6, 7
ROYAL DUTCH SHELL A SHS RDSa.L 16.83 05 Nov 2021 4, 5, 6, 7
ROYAL DUTCH SHELL B SHS RDSb.L 16.83 05 Nov 2021 4, 5, 6, 7
TOTALENERGIES TTEF.PA 43.41 05 Nov 2021 4, 5, 6, 7
Source: HSBC

1 HSBC has managed or co-managed a public offering of securities for this company within the past 12 months.
2 HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next 3
months.
3 At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this
company.
4 As of 30 September 2021, HSBC beneficially owned 1% or more of a class of common equity securities of this company.
5 As of 30 September 2021, this company was a client of HSBC or had during the preceding 12 month period been a client
of and/or paid compensation to HSBC in respect of investment banking services.
6 As of 30 September 2021, this company was a client of HSBC or had during the preceding 12 month period been a client
of and/or paid compensation to HSBC in respect of non-investment banking securities-related services.
7 As of 30 September 2021, this company was a client of HSBC or had during the preceding 12 month period been a client
of and/or paid compensation to HSBC in respect of non-securities services.
8 A covering analyst/s has received compensation from this company in the past 12 months.
9 A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as
detailed below.
10 A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this
company, as detailed below.
11 At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in
securities in respect of this company
12 As of 03 Nov 2021, HSBC beneficially held a net long position of more than 0.5% of this company’s total issued share
capital, calculated according to the SSR methodology.

36
 Equities ● Oil & Gas
9 November 2021

13 As of 03 Nov 2021, HSBC beneficially held a net short position of more than 0.5% of this company’s total issued share
capital, calculated according to the SSR methodology.
HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments, both equity and debt
(including derivatives) of companies covered in HSBC Research on a principal or agency basis or act as a market maker or
liquidity provider in the securities/instruments mentioned in this report.

Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking,
sales & trading, and principal trading revenues.

Whether, or in what time frame, an update of this analysis will be published is not determined in advance.

Non-U.S. analysts may not be associated persons of HSBC Securities (USA) Inc, and therefore may not be subject to FINRA
Rule 2241 or FINRA Rule 2242 restrictions on communications with the subject company, public appearances and trading
securities held by the analysts.

Economic sanctions imposed by the EU, the UK, the USA and certain other jurisdictions generally prohibit transacting or dealing
in any debt or equity issued by Russian SSI entities on or after 16 July 2014 (Restricted SSI Securities). Economic sanctions
imposed by the USA also generally prohibit US persons from purchasing or selling publicly traded securities issued by companies
designated by the US Government as “Chinese Military-Industrial Complex Companies” (CMICs) or any publicly traded securities
that are derivative of, or designed to provide investment exposure to, the targeted CMIC securities (collectively, Restricted CMIC
Securities). This report does not constitute advice in relation to any Restricted SSI Securities or Restricted CMIC Securities, and
as such, this report should not be construed as an inducement to transact in any Restricted SSI Securities or Restricted CMIC
Securities.

For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company
available at www.hsbcnet.com/research. HSBC Private Banking clients should contact their Relationship Manager for queries
regarding other research reports. In order to find out more about the proprietary models used to produce this report, please contact
the authoring analyst.

Additional disclosures
1 This report is dated as at 09 November 2021.
2 All market data included in this report are dated as at close 03 November 2021, unless a different date and/or a specific
time of day is indicated in the report.
3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its
Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of
Research operate and have a management reporting line independent of HSBC's Investment Banking business.
Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses
to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.
4 You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest
payable, or other sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the
price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument,
and/or (iii) measuring the performance of a financial instrument or of an investment fund.
5 As of 04 Nov 2021 HSBC owned a significant interest in the debt securities of the following company(ies): BP, CHEVRON,
ENI, EQUINOR, EXXON MOBIL CORPORATION, REPSOL, ROYAL DUTCH SHELL A SHS, ROYAL DUTCH SHELL B
SHS

Production & distribution disclosures

1. This report was produced and signed off by the author on 08 Nov 2021 16:55 GMT.

2. In order to see when this report was first disseminated please see the disclosure page available at
https://www.research.hsbc.com/R/34/rg7L6Bg

37
 Equities ● Oil & Gas
9 November 2021

Disclaimer
Legal entities as at 1 December 2020 Issuer of report
‘UAE’ HSBC Bank Middle East Limited, DIFC; HSBC Bank Middle East Limited, Dubai; ‘HK’ The Hongkong and Shanghai HSBC Bank plc
Banking Corporation Limited, Hong Kong; ‘TW’ HSBC Securities (Taiwan) Corporation Limited; ‘CA’ HSBC Securities 8 Canada Square
(Canada) Inc.; ‘France’ HSBC Continental Europe; ‘Spain’ HSBC Continental Europe, Sucursal en España; ‘Italy’ HSBC London, E14 5HQ, United Kingdom
Continental Europe, Italy; ‘Sweden’ HSBC Continental Europe Bank, Sweden Filial; ‘DE’ HSBC Trinkaus & Burkhardt AG, Telephone: +44 20 7991 8888
Düsseldorf; 000 HSBC Bank (RR), Moscow; ‘IN’ HSBC Securities and Capital Markets (India) Private Limited, Mumbai; ‘JP’ Fax: +44 20 7992 4880
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[1181701]

38
Global Natural Resources & Energy
Research Team
Metals and Mining CEEMEA Latin America
Bülent Yurdagül +90 212 376 46 12 Lily Yang, CFA +1 212 525 0990
North America & Latin America bulentyurdagul@hsbc.com.tr lilyanna.x.yang@us.hsbc.com
James Steel +1 212 525 3117
james.steel@us.hsbc.com Ildar Khaziev, CFA +44 20 7992 3302 Utilities
ildar.khaziev@hsbc.com
Jonathan Brandt, CFA +1 212 525 4499 Europe
jonathan.l.brandt@us.hsbc.com Anup Kataria, CFA +91 80 6737 2218 Adam Dickens +44 20 7991 6798
anup.g.kataria@hsbc.co.in adam.dickens@hsbcib.com
CEEMEA
Leroy Mnguni +27 11 676 4224 Latin America Verity Mitchell +44 20 7991 6840
leroy.mnguni@za.hsbc.com Lily Yang, CFA +1 212 525 0990 verity.mitchell@hsbcib.com
lilyanna.x.yang@us.hsbc.com
Shilan Modi +27 82 558 9818 Asia
shilan.modi@za.hsbc.com Asia Regional Head of Utilities and Alternative
Head of Resources & Energy Research, Energy and HK and mainland China
Asia Asia-Pacific Conglomerates Research
Head of Resources & Energy Research, Thomas C. Hilboldt, CFA +852 2822 2922 Evan Li +852 2996 6619
Asia-Pacific thomaschilboldt@hsbc.com.hk evan.m.h.li@hsbc.com.hk
Thomas C. Hilboldt, CFA +852 2822 2922
thomaschilboldt@hsbc.com.hk Jeremy Chen +8862 6631 2866 Puneet Gulati, CFA + 91 22 2268 1235
jeremy.cm.chen@hsbc.com.tw puneetgulati@hsbc.co.in
Howard Lau, CFA +852 2996 6625
howard.h.b.lau@hsbc.com.hk Puneet Gulati, CFA +91 22 2268 1235 Daniel Yang +852 2996 6976
puneetgulati@hsbc.co.in daniel.h.yang@hsbc.com.hk
Paul Choi +822 3706 8758
paulchoi@kr.hsbc.com Akshay Malhotra +91 89 6897 9321 Paul Choi +822 3706 8758
akshay.malhotra@hsbc.co.in paulchoi@kr.hsbc.com
Yushin Park +82 2 3706 8756
yushin.park@kr.hsbc.com Saurabh Jain +91 22 6164 0691 Yushin Park +822 3706 8756
saurabh2jain@hsbc.co.in yushin.park@kr.hsbc.com
Energy
Yonghua Park, CFA +852 3941 7005 Wilson Ling +852 2914 9795
Europe yonghua.park@hsbc.com.hk wilson.s.l.ling@hsbc.com.hk
Global Sector Head, Oil and Gas
Gordon Gray +44 20 7991 6787 Nicholas Lai +886 2 6631 2867 Latin America
gordon.gray@hsbcib.com nicholas.yl.lai@hsbc.com.tw Lily Yang, CFA +1 212 525 0990
lilyanna.x.yang@us.hsbc.com
Kim Fustier +44 20 3359 2136 Chemicals
kim.fustier@hsbc.com CEEMEA
Europe/US Alternative Energy
Charles Swabey +44 20 3268 3954 Global Sector Head, Chemicals EEMEA Head of Industrials Research
charles.swabey@hsbc.com Sriharsha Pappu, CFA +44 20 7991 9243 Sean McLoughlin +44 20 7991 3464
sriharsha.pappu@hsbc.com sean.mcloughlin@hsbcib.com
Tarek Soliman, CFA +44 20 3268 5528
tarek.soliman@hsbc.com Martin Evans +44 20 7991 2814 Evan Li +852 2996 6619
martin1.j.evans@hsbc.com evan.m.h.li@hsbc.com.hk
Abhishek Kumar +91 80 4555 2753
abhishek.kumar@hsbc.co.in CEEMEA Daniel Yang +852 2996 6976
Global Sector Head, Chemicals daniel.h.yang@hsbc.com.hk
Swarup Bhattar +91 80 4555 2760 Sriharsha Pappu, CFA +44 20 7991 9243
swarup.bhattar@hsbc.co.in sriharsha.pappu@hsbc.com

Nicholas Paton, CFA +971 4 423 6923

nicholas.paton@hsbc.com

Prateek Bhatnagar +91 80 4555 2757

prateekbhatnagar@hsbc.co.in

Asia
Jeremy Chen +8862 6631 2866
jeremy.cm.chen@hsbc.com.tw

Puneet Gulati, CFA + 91 22 2268 1235

puneetgulati@hsbc.co.in

Saurabh Jain +91 22 6164 0691

saurabh2jain@hsbc.co.in

Yonghua Park, CFA +852 3941 7005

yonghua.park@hsbc.com.hk

Nicholas Lai +886 2 6631 2867

nicholas.yl.lai@hsbc.com.tw
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