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Energy J. Marshall Adkins, (713) 789-3551, Marshall.Adkins@RaymondJames.com Collin Gerry, (713) 278-5275, Collin.Ge

Energy

J. Marshall Adkins, (713) 789-3551, Marshall.Adkins@RaymondJames.com Collin Gerry, (713) 278-5275, Collin.Gerry@RaymondJames.com James M. Rollyson, (713) 278-5254, Jim.Rollyson@RaymondJames.com Aryan Barto, Res. Assoc., (713) 278-5243, Aryan.Barto@RaymondJames.com

Energy: Stat of the Week

U.S. Research

Published by Raymond James & Associates

June 25, 2012

Industry Brief

Rigging Down; Lowering 2012 & 2013 U.S. Rig Count Forecasts

In today’s Stat, we take a deeper look into our new rig count assumptions that drive our proprietary bottom-up production-by- play model. Recall, on April 16, we lowered our 2013 U.S. rig count forecast to a 3% average annual DECLINE (or a 10% beginning-to- end-of-year decline in 2013). Following the further reduction in our oil price outlook last week, we now expect average annual onshore rig growth of only 4% in 2012 and a 13% DECLINE in 2013. In fact, we think the looming oil supply problem potentially could be so severe that WTI oil prices must fall far enough to drive the total U.S. onshore rig count down roughly 25% from now until exit 2013. Keep in mind that consensus expectations for 2013 still assume increasing drilling activity y/y. To put this into perspective, last week the total rig count reached 1,966 rigs, and we anticipate by the end of 2013 there will be roughly 1,470 active rigs.

Old vs New Rig Count Forecast 2350 Jan 30 Forecast/Current Consensus 2250 2150 2050 April
Old vs New Rig Count Forecast
2350
Jan 30 Forecast/Current Consensus
2250
2150
2050
April 16 Forecast
1950
1850
Jan 30 Forecast/Current
Consensus
April 16 Forecast
1750
New Forecast
New Forecast
1650
1550
1450
Source: Baker Hughes; Raymond James Research
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13

Oil Activity Starts to Slow Now; Tumbles Later We believe the oil rig count needs to drop ~300 rigs from today through exit 2013. Where are the rigs going to drop? On absolute numbers, the largest number of rigs will likely come out of the “Big 3” plays (Eagle Ford, Permian, Bakken). However, the more marginal oil plays, particularly the Midcontinent (sans the Mississippi Lime), should represent the largest percentage declines as they tend to be most cost intensive. Looking outside the 14 major basins, we suspect there should be significant decreases as these smaller, more mature reservoirs tend to have the highest breakeven points on average. While we anticipate the rig count beginning to turn over in the summer (read July 2012) as spot rigs start to rig down and as contracts are not renewed, we expect the pace to meaningfully accelerate starting in 2Q13. Overall, we expect the U.S. onshore oil rig count to fall from its current level of 1,421 rigs to roughly 1,100 rigs by the end of 2013. The charts below depict our oil rig count assumptions by basin (right) and total (left).

Please read domestic and foreign disclosure/risk information beginning on page 10 and Analyst Certification on page 10.

Raymond James

U.S. Research

Oil Rig Count 1500 1400 1300 1200 1100 1000 900 Source: Baker Hughes; RJ Est.
Oil Rig Count
1500
1400
1300
1200
1100
1000
900
Source: Baker Hughes; RJ Est.
Oil Rig Growth 120 100 2011 2012 2013 80 60 40 20 0 -20 -40
Oil Rig Growth
120
100
2011
2012
2013
80
60
40
20
0
-20
-40
-60
-80
-100
Eagle Ford
Bakken
Permian
Granite
Mississippi
Other
Wash
Lime
Source: Baker Hughes; RJ Est.

Dry Gas Rig Count Continues to Bleed & Wet Gas Follows Oil Downward Despite the large shift out of gassy plays, there are still ~560 gas directed drilling rigs. Of these we estimate roughly one-third are drilling for “dry” gas. This component of the rig count has fallen at a dramatic pace with a >40% decrease year to date. Given the over-supplied gas market, we expect these rigs to continue to drift lower, albeit at a slower pace than we have seen thus far. By year-end 2013 we still think the dry gas rig count will fall from its current level of 182 rigs to ~100 rigs. The more important and glaring change is our expectation for decreases in the wet gas rig count. While wet gas has held up better as a result of higher oil prices, it too has taken a licking, but we don’t think it will keep on ticking. With crude oil coming down, NGL pricing should follow suit and should fall meaningfully faster as many wet gas plays are more marginally economic when compared to oil. Specifically we expect the wet gas count to fall from 359 rigs active today to roughly 270 rigs by year-end 2013. As illustrated below, the lion’s share of these rigs are dispersed in some of today’s largest plays (Eagle Ford, Marcellus, Utica, Granite Wash, etc.). Overall, we expect the U.S. gas rig count to fall about 190 rigs (or 33%) from current levels.

Gas Rig Counts 600 Wet Gas 500 Dry Gas 400 300 200 100 0 Source:
Gas Rig Counts
600
Wet Gas
500
Dry Gas
400
300
200
100
0
Source: Baker Hughes; RJ Est.
Wet Gas Breakdown June 2012 Granite Wash Other 14% 22% Cana Woodford 11% Barnett 9%
Wet Gas Breakdown
June 2012
Granite Wash
Other
14%
22%
Cana
Woodford
11%
Barnett
9%
Eagle Ford
21%
Marcellus
15%
Permian
8%
Source: Baker Hughes; RJ Est.

What Does Sub-$80 WTI Do For E&P Cash Flows? As you may suspect, our forecasted E&P cash flows will likely be coming down as we see production growth more than offset by significantly lower crude oil and NGL prices. After inserting our new price deck and adjusting for our current production forecasts given the lower rig count, E&P cash flows are expected to decline significantly both this year and in 2013. This is not surprising, however we think the proper way to view this is to look at the expectations for 2014 and 2015. With our long-term oil forecast at a reasonable $80 WTI, we suspect that the increase in production combined with the rebound in oil prices and a recovery in gas prices should leave energy companies well positioned for a 2014 and 2015 recovery. Under our forecasts, 2014 cash flows should rebound to near 2011 levels, while 2015 cash flows should be ~7% higher year over year. As such, our expectations for drilling activity follow as we suspect that the rig count should meaningfully rebound in the second half of 2014 and through 2015.

Raymond James

U.S. Research

E&P Cash Flows Available for Drilling $150,000 $140,000 $130,000 +7% $120,000 $110,000 +32% $100,000 -14%
E&P Cash Flows Available for Drilling
$150,000
$140,000
$130,000
+7%
$120,000
$110,000
+32%
$100,000
-14%
$90,000
-15%
$80,000
2010
2011
2012E
2013E
2014E
2015E
Sources: U.S. Energy Information Administration, Spears and Associates, Inc., RJ Est.

We should note that we fully recognize that looking only at E&P cash flow available for drilling to forecast drilling activity is overly simplistic. Most industry veterans would be quick to tell you that E&P companies habitually outspend cash flow.

Conclusion:

Our increased negativity is predicated on the belief that significantly rising U.S. oil production in the face of weaker global oil demand growth is on track to drive oil prices lower in 2013. As a result, we believe that U.S. drilling activity must eventually come down in order to rein in supply growth to help balance the market. We now believe that the 2012 rig count will average 1,944 rigs. This is down 4% from our old forecast. Perhaps more importantly, we are now expecting the 2013 rig count will average 1,693 rigs, this is down 13% from our expected 2012 average rig count assumption and down 13% from our prior forecast.

Raymond James

U.S. Research

To better illustrate some of our basin-by-basin assumptions: Permian Marcellus 520 150 510 140 Decrease
To better illustrate some of our basin-by-basin assumptions:
Permian
Marcellus
520
150
510
140
Decrease of
500
Decrease of
130
76
rigs or
490
34 rigs or
120
15%
480
33%
110
470
100
460
90
450
80
440
430
70
420
60
Source: Baker Hughes; RJ Research
Source: Baker Hughes; RJ Research
Eagle Ford
Haynesville/Bossier
280
120
Decrease of
110
270
100
43 rigs or
Decrease of
90
260
16%
29 rigs or
80
55%
250
70
60
240
50
40
230
30
220
20
Source: Baker Hughes; RJ Research
Source: Baker Hughes; RJ Research
Bakken
Granite Wash
230
90
Decrease of
Decrease of
220
80
43
rigs or
43 rigs or
210
20%
70
57%
200
60
190
50
180
40
170
30
160
20
Source: Baker Hughes; RJ Research
Source: Baker Hughes; RJ Research

Raymond James

U.S. Research

New U.S. Rig Count Forecast

Q/Q Change

YOY Change

Old U.S. Rig Count Forecast

Vs. Original

 
 

Oil

Gas

Total

Oil

Gas

Total

Oil

Gas

Total

 

Oil

Gas

Total

Oil

Gas

Total

FY AVG

   

FY AVG

 

2007

297

1,466

1,768

2007

297

1,466

1,768

2008

379

1,491

1,879

28%

2%

6%

2008

379

1,491

1,879

2009

278

801

1,089

-27%

-46%

-42%

2009

278

801

1,089

2010

591

943

1,546

113%

18%

42%

2010

591

943

1,546

2011

984

887

1,879

67%

-6%

22%

2011

984

887

1,879

2012E

1,346

595

1,944

37%

-33%

3%

2012E

1,392

622

2,017

-3%

-4%

-4%

2013E

1,257

436

1,693

-7%

-27%

-13%

2013E

1,458

497

1,955

-14%

-12%

-13%

QTR AVG

 

QTR AVG

 

1Q09

279

1,053

1,344

1Q09

279

1,053

1,344

2Q09

196

729

934

-30%

-31%

-30%

2Q09

196

729

934

3Q09

270

689

970

38%

-6%

4%

3Q09

270

689

970

4Q09

359

738

1,108

33%

7%

14%

4Q09

359

738

1,108

1Q10

450

882

1,345

25%

19%

21%

61%

-16%

0%

1Q10

450

882

1,345

2Q10

536

957

1,506

19%

9%

12%

174%

31%

61%

2Q10

536

957

1,506

3Q10

631

977

1,618

18%

2%

7%

133%

42%

67%

3Q10

631

977

1,618

4Q10

725

952

1,688

15%

-3%

4%

102%

29%

52%

4Q10

725

952

1,688

1Q11

808

900

1,716

11%

-5%

2%

79%

2%

28%

1Q11

808

900

1,716

2Q11

938

880

1,826

16%

-2%

6%

75%

-8%

21%

2Q11

938

880

1,826

3Q11

1,043

894

1,944

11%

1%

6%

65%

-9%

20%

3Q11

1,043

894

1,944

4Q11

1,130

874

2,010

8%

-2%

3%

56%

-8%

19%

4Q11

1,130

874

2,010

1Q12

1,262

722

1,990

12%

-17%

-1%

56%

-20%

16%

1Q12E

1,262

722

1,990

2Q12E

1,372

595

1,972

9%

-18%

-1%

46%

-32%

8%

2Q12E

1,370

598

1,973

0%

0%

0%

3Q12E

1,386

547

1,932

1%

-8%

-2%

33%

-39%

-1%

3Q12E

1,433

594

2,028

-3%

-8%

-5%

4Q12E

1,363

518

1,882

-2%

-5%

-3%

21%

-41%

-6%

4Q12E

1,503

574

2,078

-9%

-10%

-9%

1Q13E

1,352

492

1,844

-1%

-5%

-2%

7%

-32%

-7%

1Q13E

1,503

549

2,052

-10%

-10%

-10%

2Q13E

1,306

460

1,766

-3%

-7%

-4%

-5%

-23%

-10%

2Q13E

1,480

518

1,998

-12%

-11%

-12%

3Q13E

1,232

414

1,646

-6%

-10%

-7%

-11%

-24%

-15%

3Q13E

1,447

476

1,923

-15%

-13%

-14%

4Q13E

1,137

378

1,515

-8%

-9%

-8%

-17%

-27%

-19%

4Q13E

1,401

446

1,847

-19%

-15%

-18%

Source: Raymond James Estimates, Baker Hughes

Raymond James

U.S. Research

U.S. Rig Count Breakdown

 

6/22/2012

6/15/2012

W/W

YTD

YTD %

Y/Y

Y/Y %

Total Count

             

U.S. Rig Count

1966

1971

(5)

(41)

-2%

84

4%

By Basin*

             

Permian

518

515

3

63

14%

95

22%

Eagle Ford

266

261

5

30

13%

79

42%

Bakken

218

218

0

26

14%

46

27%

Marcellus

101

103

(2)

-37

-27%

-27

-21%

Granite Wash

72

73

(1)

1

1%

-8

-10%

Mississippi Lime

64

61

3

16

33%

30

88%

Cana Woodford

55

55

0

-3

-5%

-2

-4%

Haynesville

48

51

(3)

-66

-58%

-91

-65%

DJ Basin

39

42

(3)

-3

-7%

0

0%

Barnett

39

41

(2)

-20

-34%

-29

-43%

Uinta

36

36

0

6

20%

12

50%

San Joaquin Basin

36

35

1

4

13%

7

24%

Utica

21

21

0

5

31%

10

91%

Powder River Basin

19

19

0

-2

-10%

8

73%

Pinedale

19

19

0

-10

-34%

-6

-24%

Piceance Basin

17

17

0

-10

-37%

-12

-41%

Fayetteville

16

18

(2)

-10

-38%

-13

-45%

Arkoma Woodford

8

8

0

-12

-60%

-8

-50%

Other

374

378

(4)

-19

-5%

-7

-2%

Drill For

             

Oil

1421

1405

16

228

19%

418

42%

Dry Gas

182

191

(9)

(154)

-46%

(180)

-50%

Wet Gas

359

371

(12)

(114)

-24%

(152)

-30%

Thermal

4

4

0

(1)

-20%

(2)

-33%

Trajectory

             

Horizontal Oil

792

774

18

164

26%

330

71%

Horizontal Gas

373

388

(15)

(166)

-31%

(246)

-40%

Horizontal

1165

1162

3

(2)

0%

84

8%

% Horizontal

59%

59%

0%

1%

2%

Source: Baker Hughes, Inc, Raymond James Estimates *Includes all trajectories

Raymond James

U.S. Research

 

Oil Rig Count

   

Horizontal Rig Count

 
1600 1400 1200 1000 800 600 400 2010 2011 2012
1600
1400
1200
1000
800
600
400
2010
2011
2012
1300 1200 1100 1000 900 800 700 600 500 2010 2011 2012
1300
1200
1100
1000
900
800
700
600
500
2010
2011
2012
 

This

Last

Beginning

Last

 

This

Last

Beginning

Last

Week

Week

of Year

Year

Week

Week

of Year

Year

Rig Count

1421

1405

1191

1003

Price

1165

1162

1160

1081

Percent Change

1.1%

19.3%

41.7%

Percent Change

0.3%

0.4%

7.8%

Source: Baker Hughes

Source: Baker Hughes

6

 

Wet Gas Rig Count

   

Dry Gas Rig Count

 
600 550 500 450 400 350 2010 2011 2012
600
550
500
450
400
350
2010
2011
2012
475 425 375 325 275 225 175 2010 2011 2012
475
425
375
325
275
225
175
2010
2011
2012
 

This

Last

Beginning

Last

 

This

Last

Beginning

Last

Week

Week

of Year

Year

Week

Week

of Year

Year

Price

359

371

473

511

Price

182

191

338

362

Percent Change

-3.3%

-24.1%

-29.8%

Percent Change

-4.7%

-46.2%

-49.7%

Source: Baker Hughes

Source: Baker Hughes

Raymond James

U.S. Research

Raymond James Weekly Oilfield Review

For Week Ending:

12 Month Oil Calendar Strip

Brent $130.00 $120.00 $110.00 $100.00 $90.00 $80.00 $70.00 $60.00 $50.00 $40.00 2010 2011 2012 This
Brent
$130.00
$120.00
$110.00
$100.00
$90.00
$80.00
$70.00
$60.00
$50.00
$40.00
2010
2011
2012
This
Last
Beginning
Last
Week
Week
of Year
Year
Price
$92.15
$97.02
$111.60
$106.06
Percent Change
-5.0%
-17.4%
-13.1%

Source: Bloomberg

6/22/2012

12 Month Gas Calendar Strip

Henry Hub $6.50 $5.50 $4.50 $3.50 $2.50 2010 2011 2012
Henry Hub
$6.50
$5.50
$4.50
$3.50
$2.50
2010
2011
2012
 

This

Last

Beginning

Last

Week

Week

of Year

Year

Price

$3.13

$3.02

$3.38

$4.52

Percent Change

3.6%

-7.3%

-30.8%

Source: Bloomberg

 

22-Jun-12

15-Jun-12

24-Jun-11

Change From:

This

Last

Last

Last

Last

Week

Week

Year

Week

Year

1. U.S.Rig Activity

   

U.S. Oil

1,421

1,405

1,003

1.1%

41.7%

U.S. Gas

541

562

873

-3.7%

-38.0%

U.S. Miscellaneous

4

4

6

 

U.S. Total

1,966

1,971

1,882

-0.3%

4.5%

U.S. Horizontal

1,165

1,162

1,081

0.3%

7.8%

U.S. Directional

233

233

236

0.0%

-1.3%

U.S. Offshore

48

51

33

-5.9%

45.5%

U.S. Offshore Gulf of Mexico

   

Fleet Size

115

115

122

0.0%

-5.7%

# Contracted

77

76

67

1.3%

14.9%

Utilization

67.0%

66.0%

54.9%

1.5%

22.0%

U.S. Weekly Rig Permits *

0

1,337

1,351

-100.0%

-100.0%

2. Canadian Activity

   

Rig Count

238

248

250

-4.0%

-4.8%

3. (6/22/12)

Stock Prices

   

OSX S&P 500 DJIA S&P 1500 E&P Index

192.7

203.3

248.7

-5.2%

-22.5%

1,335.0

1,342.8

1,268.5

-0.6%

5.2%

12,640.8

12,767.2

11,934.6

-1.0%

5.9%

487.4

507.1

602.1

-3.9%

-19.1%

Alerian MLP Index

364.0

362.2

363.5

0.5%

0.1%

4. Inventories

   

U.S. Gas Storage (Bcf) Canadian Gas Storage (Bcf) Total Petroleum Inventories ('000 bbls)

3,006

2,944

2,354

2.1%

27.7%

583

575

366

1.3%

59.2%

868,861

861,924

887,562

0.8%

-2.1%

5. Spot Prices (US$) Oil (W.T.I. Cushing)

$79.36

$84.03

$90.83

-5.6%

-12.6%

Oil (Brent) NGL Composite Gas (Henry Hub) Residual Fuel Oil (New York) Gas (AECO) UK Gas (ICE)

$91.33

$97.55

$105.12

-6.4%

-13.1%

$0.00

$0.00

$55.09

#DIV/0!

-100.0%

$2.50

$2.44

$4.20

2.3%

-40.4%

$13.39

$14.38

$16.21

-6.9%

-17.4%

$1.95

$1.77

$3.92

10.2%

-50.3%

$8.72

$8.71

$9.33

0.1%

-6.4%

Sources: Baker Hughes, ODS-Petrodata, API, EIA, Oil Week, Bloomberg * Note: Weekly rig permits reflect a 1 week lag

Raymond James

U.S. Research

Raymond James Weekly Coal Review

For Week Ending: 6/22/2012 12 Month Big Sandy Barge Prices 12 Month Powder River Basin
For Week Ending:
6/22/2012
12 Month Big Sandy Barge Prices
12 Month Powder River Basin 8800 Prices
$90.00
$17.00
$75.00
$15.00
$13.00
$60.00
$11.00
$9.00
$45.00
$7.00
$30.00
$5.00
2010
2011
2012
2010
2011
2012
This
Last
Beginning
Last
This
Last
Beginning
Last
Week
Week
of Year
Year
Week
Week
of Year
Year
Price
$52.00
$52.65
$67.50
$67.25
Price
$8.05
$6.90
$12.00
$12.60
Percent Change
-1.2%
-23.0%
-22.7%
Percent Change
16.7%
-32.9%
-36.1%
Source: Bloomberg
Source: Bloomberg
 

22-Jun-12

16-Jun-12

25-Jun-11

Change From:

This

Last

Last

Last

Last

Week

Week

Year

Week

Year

1. Coal Prices Eastern U.S. CSX 1% Western U.S. Powder River 8800

$52.00

$52.65

$67.25

-1.2%

-22.7%

$8.05

$6.90

$12.60

16.7%

-36.1%

2. Production

9-Jun-12

2-Jun-12

12-Jun-11

 

Eastern U.S.

8,260

8,153

9,042

1.3%

-8.6%

Western U.S.

9,603

10,645

11,885

-9.8%

-19.2%

Total

17,863

18,798

20,927

-5.0%

-14.6%

Source: Bloomberg

Raymond James

U.S. Research

Important Investor Disclosures

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Analyst Information

Registration of Non-U.S. Analysts: The analysts listed on the front of this report who are not employees of Raymond James & Associates, Inc., are not registered/qualified as research analysts under FINRA rules, are not associated persons of Raymond James & Associates, Inc., and are not subject to NASD Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public companies, and trading securities held by a research analyst account.

Analyst Holdings and Compensation: Equity analysts and their staffs at Raymond James are compensated based on a salary and bonus system. Several factors enter into the bonus determination including quality and performance of research product, the analyst's success in rating stocks versus an industry index, and support effectiveness to trading and the retail and institutional sales forces. Other factors may include but are not limited to: overall ratings from internal (other than investment banking) or external parties and the general productivity and revenue generated in covered stocks.

The views expressed in this report accurately reflect the personal views of the analyst(s) covering the subject securities. No part of said person's compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. In addition, said analyst has not received compensation from any subject company in the last 12 months.

Ratings and Definitions

Raymond James & Associates (U.S.) definitions

Strong Buy (SB1) Expected to appreciate, produce a total return of at least 15%, and outperform the S&P 500 over the next six to 12 months. For higher yielding and more conservative equities, such as REITs and certain MLPs, a total return of at least 15% is expected to be realized over the next 12 months. Outperform (MO2) Expected to appreciate and outperform the S&P 500 over the next 12-18 months. For higher yielding and more conservative equities, such as REITs and certain MLPs, an Outperform rating is used for securities where we are comfortable with the relative safety of the dividend and expect a total return modestly exceeding the dividend yield over the next 12-18 months. Market Perform (MP3) Expected to perform generally in line with the S&P 500 over the next 12 months. Underperform (MU4) Expected to underperform the S&P 500 or its sector over the next six to 12 months and should be sold. Suspended (S) The rating and price target have been suspended temporarily. This action may be due to market events that made coverage impracticable, or to comply with applicable regulations or firm policies in certain circumstances, including when Raymond James may be providing investment banking services to the company. The previous rating and price target are no longer in effect for this security and should not be relied upon.

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Raymond James Ltd. (Canada) definitions

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

Raymond James Latin American rating definitions

Strong Buy (SB1) Expected to appreciate and produce a total return of at least 25.0% over the next twelve months. Outperform (MO2) Expected to appreciate and produce a total return of between 15.0% and 25.0% over the next twelve months. Market Perform (MP3) Expected to perform in line with the underlying country index. Underperform (MU4) Expected to underperform the underlying country index. Suspended (S) The rating and price target have been suspended temporarily. This action may be due to market events that made coverage impracticable, or to comply with applicable regulations or firm policies in certain circumstances, including when Raymond James may be providing investment banking services to the company. The previous rating and price target are no longer in effect for this security and should not be relied upon.

Raymond James Euro Equities, SAS rating definitions

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

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

Rating Distributions

 

Coverage Universe Rating Distribution

Investment Banking Distribution

 

RJA

RJL

RJ LatAm

RJEE

RJA

RJL

RJ LatAm

RJEE

Strong Buy and Outperform (Buy)

54%

70%

34%

54%

14%

34%

7%

0%

Market Perform (Hold)

38%

28%

56%

30%

9%

29%

0%

0%

Underperform (Sell)

8%

2%

10%

16%

0%

50%

0%

0%

Suitability Categories (SR)

For stocks rated by Raymond James & Associates only, the following Suitability Categories provide an assessment of potential risk factors for investors. Suitability ratings are not assigned to stocks rated Underperform (Sell). Projected 12-month price targets are assigned only to stocks rated Strong Buy or Outperform.

Total Return (TR) Lower risk equities possessing dividend yields above that of the S&P 500 and greater stability of principal.

Growth (G) Low to average risk equities with sound financials, more consistent earnings growth, possibly a small dividend, and the potential for long-term price appreciation.

Aggressive Growth (AG) Medium or higher risk equities of companies in fast growing and competitive industries, with less predictable earnings and acceptable, but possibly more leveraged balance sheets.

High Risk (HR) Companies with less predictable earnings (or losses), rapidly changing market dynamics, financial and competitive issues, higher price volatility (beta), and risk of principal.

Venture Risk (VR) Companies with a short or unprofitable operating history, limited or less predictable revenues, very high risk associated with success, and a substantial risk of principal.

Raymond James Relationship Disclosures

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

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Stock Charts, Target Prices, and Valuation Methodologies

Valuation Methodology: The Raymond James methodology for assigning ratings and target prices includes a number of qualitative and quantitative factors including an assessment of industry size, structure, business trends and overall attractiveness; management effectiveness; competition; visibility; financial condition, and expected total return, among other factors. These factors are subject to change depending on overall economic conditions or industry- or company-specific occurrences. Only stocks rated Strong Buy (SB1) or Outperform (MO2) have target prices and thus valuation methodologies.

Risk Factors

General Risk Factors: Following are some general risk factors that pertain to the projected target prices included on Raymond James research:

(1) Industry fundamentals with respect to customer demand or product / service pricing could change and adversely impact expected revenues and earnings; (2) Issues relating to major competitors or market shares or new product expectations could change investor attitudes toward the sector or this stock; (3) Unforeseen developments with respect to the management, financial condition or accounting policies or practices could alter the prospective valuation; or (4) External factors that affect the U.S. economy, interest rates, the U.S. dollar or major segments of the economy could alter investor confidence and investment prospects. International investments involve additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability.

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

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This document (and any attachments or exhibits hereto) is intended only for EEA institutional clients or others to whom it may lawfully be submitted.

For Canadian clients:

Review of Material Operations: The Analyst and/or Associate is required to conduct due diligence on, and where deemed appropriate visit, the material operations of a subject company before initiating research coverage. The scope of the review may vary depending on the complexity of the subject company’s business operations.

This report is not prepared subject to Canadian disclosure requirements.

For Latin American clients:

Registration of Brazil-based Analysts: In accordance with Regulation #483 issued by the Brazil Securities and Exchange Commission (CVM) in October 2010, all lead Brazil-based Research Analysts writing and distributing research are CNPI certified as required by Art. 1 of APIMEC’s Code of Conduct (www.apimec.com.br/supervisao/codigodeconduta). They abide by the practices and procedures of this regulation as well as

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internal procedures in place at Raymond James Brasil S.A. A list of research analysts accredited with the APIMEC can be found on the webpage (www.apimec.com.br/ certificacao/Profissionais Certificados).

Non-Brazil-based analysts writing Brazil research and or making sales efforts with the same are released from these APIMEC requirements as stated in Art. 20 of CVM Instruction #483, but abide by recognized Codes of Conduct, Ethics and Practices that comply with Articles 17, 18, and 19 of CVM Instruction #483.

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