Fuel for Thought › ca › en › files › 18 › 04 › Fuel... · Crude oil futures are hitting...
Transcript of Fuel for Thought › ca › en › files › 18 › 04 › Fuel... · Crude oil futures are hitting...
FUEL FOR THOUGHT
November 7, 2017
Currencies in U.S. dollars unless otherwise stated. stated .
For Reg AC Certification and important disclosures see Appendix A of this report. Analysts employed by non-U.S. affiliates are not registered/qualified as research analysts with FINRA in the U.S.
1
ANALYST TEAM
COMMODITY STRATEGY
Michael Loewen, MBA, CFA | Analyst
416-863-7985
Scotia Capital Inc. – Canada
EQUITY RESEARCH
Gavin Wylie | Analyst
403-213-7333
Scotia Capital Inc. – Canada
Patrick Bryden, CFA | Analyst
403-213-7750
Scotia Capital Inc. – Canada
Fuel for Thought
Inside
WTI-Brent Widens: Middle East/African Geopolitics & U.S. Pipeline Dynamics 1
Geopolitical Supply Risk on the Rise 2
WTI Underperforming as Transport Costs Increase 3
Equity Implications: Brent Producers Come Out Ahead 6
Calendar of Events 8
Energy Price Workbook 9
WTI-Brent Gap Widens on Middle East/African
Geopolitics & U.S. Pipeline Dynamics
Crude oil futures are hitting multi-year highs, coinciding with a steady stream of
global supply-risk events dragging the barrel higher. Due to the persistence of an
oversupplied market in recent years, a pipeline bombing or political shake-up in the
Middle East would have provided little incentive for oil prices to move higher and
only on a temporary basis before succumbing to the selling pressure characteristic
of a market awash with oil. However, OPEC+ supply caps have slowly reshaped
global balancing dynamics, and only now are certain factors, such as geopolitics,
becoming more important.
We believe location is a key consideration for oil market dynamics. While
there are a handful of factors moving oil market pricing lately, there may be some
relative winners and losers from a market-access standpoint, especially when
considering the widening WTI-Brent differential. The E&Ps that stand to benefit
the most from strong Brent pricing in the Scotiabank GBM universe of
coverage are: Parex (PXT), GeoPark (GPRK), Gran Tierra (GTE), and
Vermilion (VET).
Firstly, geopolitical conflict is on the rise. The frequency and number of
major changes and escalating tension in the Middle East and Africa has
created an air of supply uncertainty, supporting higher crude oil market pricing
and driving Brent prices into the mid-$60s bbl, in our view.
Secondly, growing U.S. production, coupled with increasing transportation
costs, may be depressing WTI on a relative basis. As domestic production
grows, so does competition for access to global markets and the corresponding
cost of transportation to the U.S. Gulf Coast.
Bottom line: We believe crude oil prices, more specifically Brent prices, are rising
due to tightening supply-demand balances and a general increase in global
supply-risk premiums. However, WTI is lagging global crude oil markets due to the
physical inland location of Cushing, growing domestic production, and the rising
cost of transportation to access global markets. Looking forward, oil prices are
likely to remain well supported, and, in our view, the WTI-Brent spreads may
remain wide, or perhaps widen further, over the next year under the following
scenarios: (1) OPEC+ supply caps are maintained through 2018, and (2) Middle
East and African geopolitical tension/supply risk remains elevated.
FUEL FOR THOUGHT
November 7, 2017
2
Geopolitical Supply Risk on the Rise
Global crude oil markets, more specifically Brent, have rallied in a near linear fashion over the last three-
and-a-half months. Prompt-month January futures are currently trading just shy of $64 bbl, representing a
44% gain from late-June lows. While one could argue that Q2/18 prices were artificially depressed as a
result of lacklustre demand data during the first half of the year, the oil markets story has largely shifted to
supply concerns after the OPEC+ consortium announced plans
to discuss extending the group’s supply caps through 2018.
However, it was the subsequent catalysts – such as the Kurdistan
independence referendum and the Saudi, UAE, and Bahrain-led
blockade of Qatar – that recently brought geopolitical supply risk
to the forefront of oil markets, in our view.
Geopolitical supply risk is only now becoming relevant due
to tight global balances. Most of the supply-risk events
affecting the market today would likely have been broadly
dismissed by the market only a few months ago. The impact of
a few hundred thousand barrels a day here or there would have
been easily absorbed by growing production and then
burgeoning inventories. Now that OPEC+ supply caps have
been in place for nearly a year, and after progressing through
abnormally weak demand in 1H/17, global inventories are
noticeably drawing down, which is creating a sense of urgency
when coupled with the threat of potential supply disruptions.
And this potential appears to be increasing each day. From memory, the market has witnessed at least a
half-dozen significant geopolitical events occurring in and around major oil-producing regions that could
eventually affect the security of supply:
Nigerian Delta Avengers threatened to end the ceasefire that has held since August 2016. Recall, the
NDA was responsible for disrupting nearly 500 kbbld, a quarter of Nigeria’s oil production, in early 2016
over disputed resource payments.
The Kurdistan independence referendum reportedly saw a voter turnout of roughly 72% of the 8.4 million
Iraqi Kurdish population, which voted overwhelmingly in favour of secession from Iraq. The event
spurred threats and even military maneuvers from Turkish, Iraqi, and Iranian officials, leading to the
KRG’s leader, President Massoud Barzani, stepping down from power.
Saudi Arabia, UAE, and Bahrain sever diplomatic ties and blockade Qatar over claims of terrorist
financing and cooperation with neighboring Iran.
Nearly a dozen Saudi princes were arrested, including Prince Alwaleed, with a handful of government
ministers and dozens of prominent businessmen and officials. While the move was publicized as part of
an anti-corruption probe orchestrated by the Saudi Crown Prince, Mohammad Bin Salman, some view
the shake-up as a consolidation of power for the rising prince.
Yemeni Houthis ballistic missiles were fired, and intercepted, near Riyadh, the Saudi Arabian capital.
Col. Turki Al-Maliki has made claims that Riyadh has evidence to prove the full complicity of the Tehran
regime in the Yemen conflict.
Prime Minister Saad Hariri of Lebanon resigns while visiting Riyadh due to concerns for his
life/assassination, leading to another power vacuum in Lebanon.
Bottom line: Geopolitical supply risk is on the rise, which is affecting global (Brent) oil markets, in our view.
Exhibit 1: Global Balances in a Deficit
Note: comprises crude oil, condensates, NGLs, and other sources. Source: IEA; DOE EIA; JODI; OPEC; Scotiabank GBM estimates.
(2.5)
(2.0)
(1.5)
(1.0)
(0.5)
-
0.5
1.0
1.5
2.0
2.5
90
92
94
96
98
100
102
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2013 2014 2015 2016 2017 2018
Net B
ala
nce (
MM
bbl/d)
Supply
& D
em
and (
MM
bbl/d)
Global Supply-Demand Forecast
Net Balance Forecasted S/D Supply Demand
FUEL FOR THOUGHT
November 7, 2017
3
WTI Underperforming as Transport Costs Increase
The performance of WTI futures has lagged their equivalent Brent contracts over the last few
months and we don’t expect this to reverse in the near term. The WTI-Brent spread has widened
from a steady -$2.50 bbl during the first half of the year toward -$6.50 to -$6.75 bbl in mid-Q4/17. We’re
only starting to see signs of infrastructure constraints moving barrels from Cushing to the U.S. Gulf Coast.
Importantly, we are under the impression that there is space on the Marketlink and Seaway Twin
pipelines; however, the dynamics governing the cost of transportation and endemic supply-demand
balancing inland may be what is influencing WTI market pricing relative to global markets. We view
the relatively constant and tight Light Louisiana Sweet spread to Brent as evidence that U.S. trading hubs
with physical access to tidewater are largely unaffected by the dynamics currently facing WTI.
Exhibit 3: Tight LLS-Brent Spread Suggests Cushing May Have a Localized Problem
Source: Bloomberg.
Exhibit 2: WTI Disconnecting from Global Brent Markets
Source: Bloomberg.
FUEL FOR THOUGHT
November 7, 2017
4
The drivers of the historically wide WTI-Brent spread may not necessarily be the same issues facing
the current market. We believe that the widening WTI-Brent spread is more holistically a combination of
three factors:
1. Transportation costs from Cushing, Ok, to the U.S. Gulf Coast are rising. Both Enterprise Products
Partners and TransCanada have sought to increase tolls on their pipelines, the Seaway pipeline system
and Marketlink, respectively.
2. Relative supply-demand balancing favours global oil markets. While 24 nations (OPEC+ group) are
currently participating in supply caps/curtailments, U.S. tight oil production growth continues apace. This
dynamic is likely causing localized oversupply within the United States and relative undersupply in global
markets, in our view.
3. Geopolitical supply risk may affect global prices more acutely than inland U.S. markets. Inland
markets within the United States may be less reliant on foreign barrels, especially as domestic
production continues to grow. Consequently, the combination of localized supply, plus the
price/competition bottleneck to access global markets, may be insulating WTI from reaping a portion of
the rewards of OPEC+ supply caps.
This is not the first time WTI disconnected from global market dynamics. The WTI-Brent spread
stretched nearly $30 bbl wide in 2011 when physical transportation bottlenecks created an oversupply and
storage problem at Cushing, ultimately depressing WTI futures. A number of pipelines and refineries were
subsequently constructed, which ultimately debottlenecked this inland market.
After half a dozen years of robust tight-oil production growth, which has shifted aggregate production further
inland toward the Permian basin, transportation dynamics within the United States once again appear to be
rapidly changing. Pipelines that were once viewed as market-equalizing and debottlenecking assets, are
now witnessing increasing volumes of flowing barrels heading south toward the U.S. Gulf Coast.
Exhibit 4: WTI-Brent Spread Once Reached Near -$30 bbl Due to Localized Oversupply
Source: Bloomberg.
FUEL FOR THOUGHT
November 7, 2017
5
Consequently, as production continues to climb, so does competition for space on these pipes in order to
access alternate markets, which may be pushing transportation tolls toward tidewater higher.
Lastly, local light grades may be penalized versus heavy grades. The aforementioned three factors
are likely exacerbated, as the United States continues to produce more quantities of similar types of light-
grade oil as a result of tight-oil drilling technology. With a relative abundance of light grades, and relatively
constant demand for end-use products, local refineries continue to import/demand medium/heavy grades.
This may lead to a higher volume of light grades being locally discounted in price and increasingly
earmarked for exports.
Bottom line: We believe that the inland U.S. oil market may be grappling with oversupply of light-grade oil
impacting localized supply-demand dynamics and transportation costs to global markets. Brent prices are
likely to outperform WTI over the next few years given these fundamentals. Other U.S. markets with more
direct access to tidewater (e.g., Light Louisiana Sweet) may not be affected to the same degree.
Exhibit 5: Light-Grade Oil Imports Decreasing, Medium/Heavy Grades Increasing, as Tight-Oil Volumes Grow
Source: DOE EIA; Scotiabank GBM.
-
1,000
2,000
3,000
4,000
5,000
6,000
1985 1990 1995 2000 2005 2010 2015
Gross Imports by API Gravity
-
2,000
4,000
6,000
8,000
10,000
1985 1990 1995 2000 2005 2010 2015
Gross Imports by API Gravity
Ultra-light>=40.1
Light30.1-40.0
Medium20.1-30.0
Heavy<=20.0
FUEL FOR THOUGHT
November 7, 2017
6
Equity Implications: Brent Producers Come Out Ahead
We see the Latin American producers as some of the best-positioned names to benefit from the
current differential situation and any sustained strength in Brent crude prices. In addition to the wide
WTI/Brent differential, we have seen the Vasconia/Brent differential maintain one of its tightest spreads at
~$4.00/bbl versus the historical average of $7.00-$8.00/bbl (see Exhibit 6), which adds incremental benefit
to Colombian realized prices. We continue to favour companies with the highest operational torque to higher
crude prices and the ability to rapidly expand drilling/exploration programs and deliver well-above-average
reserves/production growth in 2018E.
We see PXT, GPRK, and GTE as best situated to leverage strong crude prices into above-average
growth rates. We see both a significant potential increase in 2018E cash flow on the basis of strip crude
prices (versus our base estimate) and the ability to cycle cash flow into growth capex. That said, running
Brent crude futures in 2018E (+8% versus our base Brent forecast) implies cash flow upside of 10%-15%
on average, which would also equate to a yr/yr increase of 30%-40% (see Exhibit 7).
Discount valuation for above-average growth. Under our base Brent forecast, we already have PXT,
GPRK, and GTE growing at 20%, which at current futures prices could move into the 25%-30% range,
which is above the Canadian E&P (>30,000 boe/d) average of 12% and moving close to the U.S. E&P
average of 33%. On a valuation basis, the Colombian names remain at a discount at 2018E EV/DACF
multiples of 4.8x for PXT, 3.4x for GPRK, and 3.0x for GTE versus 7.0x-8.0x on average for the
U.S./Canadian E&Ps.
While not as flexible on the operational front due to the nature of their assets (long lead time/ultra-deep-
water programs), Petrobras (PBR) holds the most cash flow torque relative to their LatAm peers
(2018E/2019E cash flow growth from Brent $50 to Brent $60 = 52% and 61%, respectively).
From a European standpoint, VET is 24% exposed to Brent based on 2018E production and 30%
based on 2016 reserves. For 2018E, the company exhibits a funds flow sensitivity of $3.4 million for each
US$1/b change in Brent, and on an unhedged basis the sensitivity is $5.2 million. Note that the company is
also 32% exposed for 2018E production to European natural gas markets, along with 21% exposed based
on 2016 2P reserves, which can exhibit further sensitivity to the influences of Brent prices. For context,
management projects its funds flow for 2018E to be 34% derived from Brent-based markets and 37% from
European natural gas markets. We estimate, based on our current Scotiabank GBM price deck, $578 million
of corporate cash flow generation for VET in 2018E. Our estimates imply 2018E metrics of 10.8x EV/DACF,
2.4x net D/CF, an effective payout (DPS/CFPS + capex/CF) of 109%, and production growth of 10%.
Exhibit 6: Differentials Continue to Benefit Colombian Producers – Widening Brent/WTI + Narrowing Vasconia/Brent
Source: Bloomberg; Scotiabank GBM.
40
45
50
55
60
65
Jan-17 Apr-17 Jul-17 Oct-17
$/b
bl
Spot Market Prices
Brent
Vasconia
WTI
(8)
(7)
(6)
(5)
(4)
(3)
(2)
(1)
-
Jan-17 Apr-17 Jul-17 Oct-17
$/b
bl
Vasconia and WTI Differentials vs. Brent
Vasconia - Brent
WTI - Brent
FUEL FOR THOUGHT
November 7, 2017
7
Exhibit 7: Latin American E&P Sensitivity Analysis
Source: Bloomberg; FactSet; Scotiabank GBM estimates.
Scotia Deck Strip US$50 Brent US$60 Brent US$70 Brent
2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E
WTI [$/bbl] $49.82 $52.00 $56.00 $50.74 $56.46 $52.52 $48.56 $46.00 $46.00 $51.08 $56.00 $56.00 $53.60 $66.00 $66.00
Brent [$/bbl] $53.15 $56.00 $60.00 $54.44 $60.59 $57.68 $51.89 $50.00 $50.00 $54.41 $60.00 $60.00 $56.93 $70.00 $70.00
Henry Hub [$/mcf] $3.08 $3.05 $3.00 $3.02 $3.06 $2.92 $3.08 $3.05 $3.00 $3.08 $3.05 $3.00 $3.08 $3.05 $3.00
USD/CAD FX Rate [US$/CDN$] $0.78 $0.86 $0.84 $0.77 $0.79 $0.79 $0.78 $0.86 $0.84 $0.78 $0.86 $0.84 $0.78 $0.86 $0.84
GeoPark Ltd.
Production [boe/d] 27,577 32,626 34,632 27,577 32,626 34,632 27,577 32,626 34,632 27,577 32,626 34,632 27,577 32,626 34,632
% Oil [% ] 77% 82% 94% 77% 82% 94% 77% 82% 94% 77% 82% 94% 77% 82% 94%
GrowthYOY [% ] 22% 17% 6% 22% 17% 6% 22% 17% 6% 22% 17% 6% 22% 17% 6%
CF Growth vs. Previous Sensitivity [% ] 7% 15% -7% 14% 40% 52% 13% 30% 32%
Cash Flow [$M] $148,581 $179,829 $199,771 $158,895 $206,970 $186,739 $138,863 $145,487 $131,951 $158,719 $203,048 $200,784 $178,654 $263,456 $265,057
CFPS (F.D.) [$/share] $2.38 $2.88 $3.20 $2.54 $3.31 $2.99 $2.22 $2.33 $2.11 $2.54 $3.25 $3.21 $2.86 $4.21 $4.24
Growth YOY [% ] 100% 21% 11% 114% 30% -10% 87% 5% -9% 114% 28% -1% 141% 47% 1%
All-in Payout Ratio [% ] 71% 92% 97% 67% 80% 104% 76% 113% 147% 67% 81% 97% 59% 63% 73%
Market Price EV/DACF [x] 4.8x 4.0x 3.6x 4.5x 3.4x 3.7x 5.2x 5.1x 6.0x 4.5x 3.5x 3.5x 4.0x 2.4x 2.2x
Target Implied EV/DACF [x] 5.2x 4.3x 3.9x 4.8x 3.6x 4.0x 5.5x 5.4x 6.3x 4.8x 3.7x 3.7x 4.2x 2.6x 2.4x
Parex Resources Inc.
Production [boe/d] 35,830 42,774 49,664 35,830 42,774 49,664 35,830 42,774 49,664 35,830 42,774 49,664 35,830 42,774 49,664
% Oil [% ] 84% 81% 84% 84% 81% 84% 84% 81% 84% 84% 81% 84% 84% 81% 84%
GrowthYOY [% ] 15% 18% 14% 15% 18% 14% 15% 18% 15% 15% 18% 14% 15% 18% 14%
CF growth vs. previous sensitivity [% ] 3% 11% -5% 5% 24% 30% 6% 21% 24%
Cash Flow [$M] $270,280 $351,183 $412,251 $279,101 $388,984 $390,827 $264,414 $311,188 $319,097 $278,951 $384,367 $413,490 $295,631 $464,809 $510,721
CFPS (F.D.) [$/share] $1.72 $2.24 $2.63 $1.78 $2.48 $2.49 $1.68 $1.98 $2.03 $1.78 $2.45 $2.64 $1.88 $2.96 $3.26
Growth YOY [% ] 82% 30% 17% 88% 40% 0% 78% 18% 3% 87% 38% 8% 99% 58% 10%
All-in Payout Ratio [% ] 84% 92% 94% 82% 83% 99% 86% 103% 122% 82% 84% 94% 77% 69% 76%
Market Price EV/DACF [x] 7.1x 5.4x 4.6x 6.9x 4.8x 4.8x 7.3x 6.3x 6.3x 6.9x 4.9x 4.5x 6.5x 3.8x 3.2x
Target Implied EV/DACF [x] 10.0x 7.6x 6.5x 9.7x 6.8x 6.7x 10.3x 8.8x 8.8x 9.7x 6.9x 6.3x 9.1x 5.5x 4.7x
Canacol Energy Ltd.
Production [boe/d] 17,660 25,365 39,322 17,660 25,365 39,322 17,660 25,365 39,322 17,660 25,365 39,322 17,660 25,365 39,322
% Oil [% ] 87% 56% 45% 87% 56% 45% 87% 56% 45% 87% 56% 45% 87% 56% 45%
GrowthYOY [% ] 11% 38% 47% 11% 38% 47% 11% 38% 47% 11% 38% 47% 11% 38% 47%
CF growth vs. previous sensitivity [% ] 1% 2% -3% 2% 7% 2% 2% 6% 2%
Cash Flow [$M] $92,976 $140,381 $195,849 $93,985 $143,630 $189,421 $91,984 $134,342 $189,363 $93,968 $143,211 $192,257 $95,952 $152,079 $195,143
CFPS (F.D.) [$/share] $0.53 $0.80 $1.12 $0.54 $0.82 $1.08 $0.52 $0.77 $1.08 $0.54 $0.82 $1.10 $0.55 $0.87 $1.12
Growth YOY [% ] -21% 51% 40% -20% 53% 32% -22% 46% 41% -20% 53% 34% -19% 59% 28%
All-in Payout Ratio [% ] 103% 88% 89% 101% 86% 92% 104% 92% 92% 101% 87% 91% 99% 82% 89%
Market Price EV/DACF [x] 7.3x 5.0x 3.6x 7.3x 4.9x 3.7x 7.4x 5.3x 3.8x 7.3x 4.9x 3.7x 7.1x 4.6x 3.5x
Target Implied EV/DACF [x] 10.0x 6.9x 5.0x 9.9x 6.7x 5.1x 10.1x 7.2x 5.2x 9.9x 6.7x 5.0x 9.7x 6.3x 4.9x
Gran Tierra Energy Ltd.
Production [boe/d] 27,020 32,896 35,854 27,002 32,756 35,733 27,037 33,031 36,111 27,003 32,771 35,725 26,978 32,595 35,445
% Oil [% ] 83% 78% 91% 84% 79% 91% 83% 78% 91% 84% 79% 91% 84% 79% 91%
GrowthYOY [% ] 17% 22% 9% 16% 21% 9% 17% 22% 9% 16% 21% 9% 16% 21% 9%
CF growth vs. previous sensitivity [% ] 6% 15% -9% 12% 47% 54% 8% 23% 24%
Cash Flow [$M] $220,604 $290,969 $344,309 $233,125 $333,197 $314,671 $208,107 $223,694 $222,543 $232,978 $328,984 $343,238 $250,760 $405,535 $424,880
CFPS (F.D.) [$/share] $0.55 $0.75 $0.89 $0.59 $0.86 $0.81 $0.52 $0.58 $0.58 $0.58 $0.85 $0.89 $0.63 $1.05 $1.10
Growth YOY [% ] 69% 36% 18% 79% 47% -6% 60% 11% -1% 79% 45% 4% 92% 67% 5%
All-in Payout Ratio [% ] 103% 95% 96% 97% 83% 105% 109% 124% 149% 97% 84% 96% 90% 68% 78%
Market Price EV/DACF [x] 4.9x 3.7x 3.1x 4.5x 3.0x 3.3x 5.2x 5.1x 5.5x 4.6x 3.1x 2.9x 4.2x 2.3x 2.0x
Target Implied EV/DACF [x] 8.4x 6.3x 5.3x 7.9x 5.4x 5.8x 8.9x 8.5x 9.0x 7.9x 5.5x 5.2x 7.3x 4.2x 3.8x
Ecopetrol
Production [boe/d] 715,654 718,467 723,173 715,654 718,467 723,173 715,654 718,467 723,173 715,654 718,467 723,173 715,654 718,467 723,173
% Oil [% ] 83% 83% 84% 83% 83% 84% 83% 83% 84% 83% 83% 84% 83% 83% 84%
GrowthYOY [% ] 0% 0% 1% 0% 0% 1% 0% 0% 1% 0% 0% 1% 0% 0% 1%
CF growth vs. previous sensitivity [% ] 4% 16% 1% 8% 35% 34% 8% 26% 26%
Cash Flow [COP Billion] $16,069 $16,005 $17,769 $16,704 $18,511 $18,021 $15,440 $13,476 $13,882 $16,697 $18,134 $18,640 $17,954 $22,791 $23,397
CFPS (F.D.) [COP/share] $391 $389 $432 $406 $450 $438 $376 $328 $338 $406 $441 $453 $437 $554 $569
Growth YOY [% ] -15% 0% 11% -12% 11% -3% -19% -13% 3% -12% 9% 3% -5% 27% 3%
All-in Payout Ratio [% ] 52% 77% 98% 50% 68% 104% 54% 90% 117% 50% 70% 100% 47% 57% 89%
Market Price EV/DACF [x] 6.2x 6.1x 5.6x 5.9x 5.1x 5.4x 6.4x 7.3x 7.4x 5.9x 5.3x 5.2x 5.5x 4.0x 3.8x
Target Implied EV/DACF [x] 5.7x 5.6x 5.1x 5.4x 4.7x 4.9x 5.9x 6.8x 6.9x 5.4x 4.8x 4.8x 5.0x 3.7x 3.5x
Petrobras
Production [mboe/d] 2,772 2,958 3,240 2,772 2,958 3,240 2,772 2,958 3,240 2,772 2,958 3,240 2,772 2,958 3,240
% Gas [% ] 81% 81% 81% 81% 81% 81% 81% 81% 81% 81% 81% 81% 81% 81% 81%
GrowthYOY [% ] 0% 7% 10% 0% 7% 10% 0% 7% 10% 0% 7% 10% 0% 7% 10%
CF growth vs. previous sensitivity [% ] 4% 19% -9% 9% 52% 61% 7% 29% 33%
Cash Flow [$B] $28,301 $24,882 $27,297 $29,483 $29,542 $24,923 $27,139 $18,977 $16,920 $29,464 $28,924 $27,325 $31,413 $37,362 $36,235
CFPS (F.D.) [$/share] $2.17 $1.91 $2.09 $2.26 $2.26 $1.91 $2.08 $1.45 $1.30 $2.26 $2.22 $2.09 $2.41 $2.86 $2.78
Growth YOY [% ] -1% -12% 10% 4% 0% -16% -5% -30% -11% 4% -2% -6% 10% 19% -3%
All-in Payout Ratio [% ] 70% 79% 72% 73% 73% 86% 70% 100% 112% 72% 73% 78% 78% 65% 67%
Market Price EV/DACF [x] 4.9x 5.2x 4.6x 4.7x 4.3x 5.0x 5.1x 6.9x 7.8x 4.7x 4.4x 4.5x 4.3x 3.2x 3.0x
Target Implied EV/DACF [x] 5.1x 5.5x 4.9x 4.9x 4.5x 5.3x 5.4x 7.3x 8.2x 4.9x 4.6x 4.8x 4.6x 3.4x 3.2x
FUEL FOR THOUGHT November 7, 2017
Calendar of Events
Upcoming Events
Oct 30 31 1 2 3
DOE Crude Stats EIA NatGas Storage CFTC Commitments
10:30 AM 10:30 AM Mid Market
Nov 6 7 8 9 10
OPEC DOE Crude Stats EIA NatGas Storage CFTC Commitments
World Oil Outlook 10:30 AM 10:30 AM Mid Market
9:30 EST
Nov 13 14 15 16 17
OPEC Report IEA Report DOE Crude Stats EIA NatGas Storage CFTC Commitments
Before Market Before Market 10:30 AM 10:30 AM Mid Market
Nov 20 21 22 23 24
DOE Crude Stats Thanksgiving Day Market holiday
10:30 AM (Standard Hours) (U.S. early close)
EIA NatGas Storage CFTC Commitments
12:00 PM Mid Market
Nov 27 28 29 30 1
DOE Crude Stats OPEC 173rd Meeting CFTC Commitments
10:30 AM Vienna, Austria Mid Market
EIA NatGas Storage
10:30 AM
Source: Agency reports, Scotiabank GBM
http://www.opec.org/o
pec_web/en/press_ro
om/4557.htm
8
FUEL FOR THOUGHT November 7, 2017
Energy Market Price Book
Prompt-Month Market Price Performance
Price Previous Change (%) Characteristics
Contract Units 7-Nov-17 Day Week Month Year D/D W/W M/M Y/Y D W M Y
Crude Oil
Brent JAN 18 $/bbl 63.86 64.27 60.94 55.62 46.15 (0.6%) 4.8% 14.8% 38.4%
WTI Cushing DEC 17 $/bbl 57.16 57.35 54.38 49.29 44.89 (0.3%) 5.1% 16.0% 27.3%
West Canada Crude DEC 17 $/bbl 43.24 43.43 41.28 38.13 30.05 (0.4%) 4.7% 13.4% 43.9%
Louisiana Light Sw eet DEC 17 $/bbl 56.32 56.31 54.00 48.26 44.30 0.0% 4.3% 16.7% 27.1%
Dubai Fateh DEC 17 $/bbl 61.92 61.92 58.69 53.53 43.38 0.0% 5.5% 15.7% 42.7%
DME Oman JAN 18 $/bbl 62.20 62.20 59.00 53.85 43.56 0.0% 5.4% 15.5% 42.8%
Products
NY Harbor Gasoline DEC 17 USd/gal. 180.90 183.00 173.25 155.88 137.10 (1.1%) 4.4% 16.1% 31.9%
NY Harbor ULSD DEC 17 USd/gal. 192.62 194.22 188.05 174.39 144.06 (0.8%) 2.4% 10.5% 33.7%
Cushing 321 Crack DEC 17 $/bbl 20.45 21.08 20.46 18.76 13.67 (3.0%) (0.1%) 9.0% 49.6%
Gasoil-Brent Crack JAN 18 $/bbl 12.11 11.40 12.45 13.14 10.33 6.2% (2.7%) (7.8%) 17.3%
Note: Rolled three days early; Source: Bloomberg prices
-
10
20
30
40
50
60
70
2015 2016 2017
$/b
bl
Crude Oil Prices
WTI
Brent
WCC
Source: Bloomberg
(12)
(10)
(8)
(6)
(4)
(2)
-
2
-
10
20
30
40
50
60
70
2015 2016 2017
$/b
bl
$/b
bl
WTI-Brent Spread
WTI-Brent WTI Brent
Source: Bloomberg
(20)
(18)
(16)
(14)
(12)
(10)
(8)
(6)
(4)
(2)
-
-
10
20
30
40
50
60
70
2015 2016 2017
$/b
bl
$/b
bl
WCC Differential
WCC diff WTI WCC
Source: Bloomberg
1.15
1.20
1.25
1.30
1.35
1.40
1.45
-
10
20
30
40
50
60
70
2015 2016 2017
US
D/C
AD
$/b
bl &
C$/b
bl
WCC Flat Price & FX Impact
CAD WCC (C$) WCC
Source: Bloomberg
Crude Oil
9
FUEL FOR THOUGHT November 7, 2017
Spot Market Price Performance
Monthly Average
Spot MTD Month/Month Quarter/Quarter Year/Year
Location 7-Nov-17 Nov-17 ∆ M/M ∆ % ∆ Q/Q ∆ % ∆ Y/Y ∆ %
North American Crude Oil ($/bbl)
West Texas Intermediate Cushing, OK 57.09 55.78 4.22 8.2% 7.75 16.1% 10.21 22.4%
Alaska North Slope U.S. Alaska 63.84 62.21 4.94 8.6% 10.85 21.1% 17.23 38.3%
Light Louisiana Sw eet U.S. Gulf Coast 63.09 61.74 4.30 7.5% 10.70 21.0% 15.05 32.2%
Edm. C5 Condensate AB, Canada 61.89 60.61 6.75 12.5% 11.69 23.9% 15.53 34.4%
Syncrude Sw eet AB, Canada 59.09 57.88 2.74 5.0% 8.81 18.0% 13.90 31.6%
Western Canada Select AB, Canada 43.09 41.73 1.88 4.7% 3.75 9.9% 11.11 36.3%
European Crude Oil ($/bbl)
Dated BFOE North Sea 63.92 62.24 4.62 8.0% 10.87 21.2% 15.80 34.0%
Mediterranean Strip Mediterranean 63.85 62.19 4.61 8.0% 10.85 21.1% 15.78 34.0%
ESPO Pacif ic/Russia 65.30 63.26 4.78 8.2% 10.53 20.0% 16.39 35.0%
Central & South American Crude Oil ($/bbl)
Maya Mexico 56.22 54.62 5.19 10.5% 8.43 18.3% 14.99 37.8%
Oriente Ecuador 57.63 56.21 4.34 8.4% 9.37 20.0% 15.14 36.9%
Vasconia Colombia 59.63 58.01 4.31 8.0% 8.77 17.8% 15.74 37.2%
Middle East Crude Oil ($/bbl)
Arab Light Saudi Arabia 61.72 60.26 4.42 7.9% 10.18 20.3% 16.74 38.5%
Arab Heavy Saudi Arabia 59.33 57.86 3.97 7.4% 9.08 18.6% 17.19 42.3%
Arbian Gulf Oman Oman 60.35 59.46 3.96 7.1% 8.82 17.4% 15.30 34.6%
Basrah Light Iraq 60.88 59.41 4.12 7.5% 9.53 19.1% 16.89 39.7%
Basrah Heavy Iraq 57.28 55.81 4.32 8.4% 9.73 21.1% 17.99 47.6%
Dubai Fateh U.A.E. 61.90 59.86 4.28 7.7% 9.43 18.7% 16.09 36.8%
Iran Light Iran 61.92 60.46 4.42 7.9% 10.11 20.1% 16.74 38.3%
Iran Heavy Iran 60.03 58.57 4.02 7.4% 9.21 18.7% 16.20 38.2%
Africa Crude Oil ($/bbl)
Angola Strip Angola 63.74 62.10 4.65 8.1% 10.82 21.1% 15.65 33.7%
West Africa Strip WAF 63.71 62.07 4.66 8.1% 10.80 21.1% 15.55 33.4%
(26)
(21)
(16)
(11)
(6)
Jul-17 Aug-17 Sep-17 Oct-17 Nov-17
$/bbl Canadian Heavy Differential
WCS Bitumen
40
45
50
55
60
65
70
Jul-17 Aug-17 Sep-17 Oct-17 Nov-17
$/bbl Select Global Benchmarks
WTI Brent
40
45
50
55
60
65
70
Jul-17 Aug-17 Sep-17 Oct-17 Nov-17
$/bbl Select Global Benchmarks
ESPO Arab Heavy W.Africa
Source: Bloomberg; Scotiabank GBM
Crude Oil
10
FUEL FOR THOUGHT November 7, 2017
Weekly Average Spot Market Differentials
Inland Coastal Imported
$/bbl WTI Bakken Midland WTS WCS Maya LLS Mars BrentArab
Light
WTI -2.02 -0.45 0.27 13.67 1.31 -6.03 -2.49 -6.69 -3.40
Bakken 2.02 1.57 2.29 15.69 3.33 -4.01 -0.47 -4.67 -1.38
Midland 0.45 -1.57 0.72 14.12 1.76 -5.58 -2.04 -6.24 -2.95
WTS -0.27 -2.29 -0.72 13.40 1.04 -6.30 -2.76 -6.96 -3.67
WCS -13.67 -15.69 -14.12 -13.40 -12.36 -19.70 -16.16 -20.36 -17.07
Maya -1.31 -3.33 -1.76 -1.04 12.36 -7.34 -3.80 -8.00 -4.71
LLS 6.03 4.01 5.58 6.30 19.70 7.34 3.54 -0.66 2.63
Mars 2.49 0.47 2.04 2.76 16.16 3.80 -3.54 -4.20 -0.91
Brent 6.69 4.67 6.24 6.96 20.36 8.00 0.66 4.20 3.29
Arab Light 3.40 1.38 2.95 3.67 17.07 4.71 -2.63 0.91 -3.29
Source: Bloomberg prices as of: Friday, 3-Nov-2017
Inla
nd
Imp
ort
ed
Co
asta
l
Inland Coastal Imported
$/bbl WTI Bakken Midland WTS WCS Maya LLS Mars BrentArab
Light
WTI -0.03 -0.58 -0.52 1.09 -0.72 0.29 0.23 -1.72 0.24
Bakken 0.03 -0.55 -0.49 1.12 -0.69 0.32 0.26 -1.69 0.27
Midland 0.58 0.55 0.06 1.67 -0.14 0.87 0.81 -1.14 0.82
WTS 0.52 0.49 -0.06 1.61 -0.20 0.81 0.75 -1.20 0.76
WCS -1.09 -1.12 -1.67 -1.61 -1.81 -0.80 -0.86 -2.81 -0.85
Maya 0.72 0.69 0.14 0.20 1.81 1.01 0.95 -1.00 0.96
LLS -0.29 -0.32 -0.87 -0.81 0.80 -1.01 -0.06 -2.01 -0.05
Mars -0.23 -0.26 -0.81 -0.75 0.86 -0.95 0.06 -1.95 0.01
Brent 1.72 1.69 1.14 1.20 2.81 1.00 2.01 1.95 1.96
Arab Light -0.24 -0.27 -0.82 -0.76 0.85 -0.96 0.05 -0.01 -1.96
Source: Bloomberg prices as of: Friday, 3-Nov-2017
Inla
nd
Co
asta
lIm
po
rted
Weekly Average Change in Spot Market Differentials
Crude Oil
11
FUEL FOR THOUGHT November 7, 2017
Crude Oil
Futures/Forward Curves
Brent WTI Western Canadian Crude Canadian Light Sw eet LLS
Month Contract $/bbl $/bbl Sw ap* diff to WTI $/bbl C$/bbl diff to WTI $/bbl C$/bbl diff to Brent $/bbl
1 DEC 17 n.a. 57.17 n.a. -13.92 43.25 55.33 -1.49 55.68 71.23 -0.84 n.a.
2 JAN 18 63.59 57.39 -6.99 -15.20 42.19 53.92 -2.65 54.74 69.96 -0.89 62.70
3 FEB 18 63.28 57.55 -6.46 -15.25 42.30 54.05 -2.95 54.60 69.76 -0.98 62.30
4 MAR 18 63.01 57.58 -6.05 -15.30 42.28 53.63 -2.95 54.63 69.30 -1.09 61.92
5 APR 18 62.76 57.51 -5.71 -15.00 42.51 53.90 -2.90 54.61 69.24 -1.25 61.51
6 MAY 18 62.47 57.32 -5.58 -15.25 42.07 53.31 -2.75 54.57 69.15 -1.38 61.09
7 JUN 18 62.26 57.06 -5.52 -15.35 41.71 52.82 -2.60 54.46 68.97 -1.39 60.87
8 JUL 18 61.99 56.87 -5.42 -15.25 41.62 52.68 -2.50 54.37 68.82 -1.47 60.52
9 AUG 18 61.47 56.44 -5.59 -15.40 41.04 51.93 -2.65 53.79 68.06 -1.55 59.92
10 SEP 18 61.81 56.05 -5.62 -15.55 40.50 51.23 -2.80 53.25 67.36 -1.63 60.18
11 OCT 18 60.96 55.76 -5.64 -16.00 39.76 50.28 -3.90 51.86 65.59 -1.69 59.27
12 NOV 18 60.46 55.25 -5.66 -16.20 39.05 49.37 -3.95 51.30 64.86 -1.82 58.64
* Traded WTI-Brent ICE swap matches delivery months.
Source: Bloomberg; Scotiabank GBM
42
44
46
48
50
52
54
56
58
60
1 2 3 6 9 12 18 24
$/b
bl
Forw ard Months
WTI
y/y m/m w/w 7-Nov-16
Source: Bloomberg
44
49
54
59
64
69
1 2 3 6 9 12 18 24
$/b
bl
Forw ard Months
Brent
y/y m/m w/w 7-Nov-16
Source: Bloomberg
54
55
56
57
58
59
60
61
62
63
64
65
Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18
$/b
bl
Global Futures Curve
NYMEX WTI
ICE Brent
DME Oman
Source: Bloomberg
38
43
48
53
58
63
Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18
$/b
bl
North American Futures Curve
NYMEX WTI
Canada Light Sweet
Western Canada Crude
Source: Bloomberg
12
FUEL FOR THOUGHT November 7, 2017
Refined Products
Prompt-Month and Forward Curves
10
12
14
16
18
20
22
24
Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17
$/b
bl
NY321 Crackspread
Source: Bloomberg; Scotiabank GBM
-
5
10
15
20
25
30
35
-
50
100
150
200
250
2015 2016 2017
Cra
ck
($/b
bl)
US
d/g
al.
NYH Gasoline
RBOB-WTI
NYH Gasoline
Source: Bloomberg
-
5
10
15
20
25
30
35
-
50
100
150
200
250
2015 2016 2017
Cra
ck
($/b
bl)
US
d/g
al.
NYH Distillate
ULSD-WTI
NYH ULSD
Source: Bloomberg
130
140
150
160
170
180
190
200
1 2 3 6 9 12 18 24
$/b
bl
Forw ard Months
Gasoline
y/y m/m w/w 7-Nov-16
Source: Bloomberg
140
150
160
170
180
190
200
1 2 3 6 9 12 18 24
$/b
bl
Forw ard Months
Distillate
y/y m/m w/w 7-Nov-16
Source: Bloomberg
Brent WTI MoGas Dist.
Month Contract $/bbl $/bbl USd/gal. USd/gal.
1 DEC 17 n.a. 57.16 180.90 192.61
2 JAN 18 63.59 57.39 178.50 193.04
3 FEB 18 63.28 57.55 178.21 192.86
4 MAR 18 63.01 57.58 179.44 192.25
5 APR 18 62.76 57.51 195.74 191.18
6 MAY 18 62.47 57.32 195.25 190.80
7 JUN 18 62.26 57.06 193.67 189.35
8 JUL 18 61.99 56.87 191.25 189.03
9 AUG 18 61.47 56.44 188.34 189.11
10 SEP 18 61.81 56.05 184.34 188.76
11 OCT 18 60.96 55.76 172.45 188.65
12 NOV 18 60.46 55.25 168.61 189.12
Source: B loomberg; Scotiabank GBM
13
FUEL FOR THOUGHT November 7, 2017
Natural Gas
Prompt-Month Market Price Performance
Price Previous Change (%)
Unit 7-Nov-17 Day Week Month Year D/D W/W M/M Y/Y D W M Y
Henry Hub $/mmBtu 3.12 3.13 2.90 2.86 2.82 (0.5%) 7.7% 8.9% 10.7%
ICE NBP GBp/therm 53.41 52.67 50.38 50.02 51.12 1.4% 6.0% 6.8% 4.5%
$/mmBtu 7.02 6.94 6.69 6.54 6.34 1.1% 4.8% 7.4% 10.7%
AECO C$/GJ 2.49 2.55 2.25 2.01 2.50 (2.4%) 10.7% 23.9% (0.4%)
$/mmBtu 2.05 2.12 1.84 1.69 1.97 (3.1%) 11.4% 21.2% 4.0%
Union Daw n $/mmBtu 3.26 3.22 2.97 2.82 3.18 1.2% 9.8% 15.5% 2.6%
TranscoZ6 $/mmBtu 4.12 4.13 2.72 3.04 3.79 (0.4%) 51.5% 35.5% 8.7%
TCO Appa. $/mmBtu 2.90 2.92 2.58 2.66 2.65 (0.5%) 12.7% 9.3% 9.7%
Tetco M3 $/mmBtu 3.33 3.23 3.09 2.24 2.62 3.2% 8.0% 48.6% 27.3%
Rockies $/mmBtu 2.95 2.96 2.68 2.43 2.72 (0.5%) 9.8% 21.4% 8.5%
PG&E Gate $/mmBtu 3.26 3.27 3.01 3.06 3.23 (0.5%) 8.2% 6.4% 1.0%
SoCal Gate $/mmBtu 3.49 3.51 3.15 2.59 2.98 (0.5%) 11.0% 35.0% 17.3%
Permian $/mmBtu 2.76 2.77 2.52 2.31 2.68 (0.6%) 9.3% 19.6% 2.8%
NGPL Trunk $/mmBtu 3.01 3.01 2.80 2.82 2.81 (0.3%) 7.5% 6.7% 6.8%
Source: Bloomberg prices; Scotiabank GBM
AECO/NOVA
$0.74 -0.09
$1.88 $2.08
+0.19 +0.03
Stanfield
$2.56 +0.09
$0.07 ($0.03) $2.05
-0.04 +0.03 +0.10 Dawn Algonquin
Malin $0.03 $2.82 -0.06 $2.73 +0.30
$2.63 +0.05 Opal/Rockies -0.07 TrnsCo Z6NY
$0.51 $2.59 +0.07 TrnsCo Leidy $2.56 +0.23
-0.10 Chicago $0.81 -0.25
$2.79 +0.01 Dom.South
($0.16) $1.88 $0.91 -0.24
PG&E CG $1.51 -0.09 +0.25
$3.14 -0.05 +1.04
($0.96)
-1.16
SoCal Border $0.07
$4.11 +1.11 $1.68 +0.01 ($0.14)
+1.13 +0.30 ($0.31)
+0.23
EP Permian
$2.43 -0.02
MAP LEGEND $0.44 Henry Hub
Daily average spot prices for the month of Oct-2017 -0.02 $2.87 -0.10
Trade Hub All trade hub prices are in USD/MMBtu.
$Price ∆Basis ∆ basis is the change in basis m/m.
$Diff Pipeline differential betw een trade hubs.
+/-∆ Change in differential betw een trade hubs m/m.
Source: Bloomberg; Scotiabank GBM
14
FUEL FOR THOUGHT November 7, 2017
Natural Gas
Forward Curves
NYMEX AECO Basis AECO Basis Daw n Basis Chicago Basis Dom.S. Basis Sumas Basis
Month Contract ($/mmBtu) ($/mmBtu) (C$/GJ) ($/mmBtu) ($/mmBtu) ($/mmBtu) ($/mmBtu) ($/mmBtu)
1 Dec-17 2.86 1.69 (1.17) 2.01 (1.39) 2.82 (0.05) 2.74 (0.13) 2.02 (0.85) 2.49 (0.38)
2 Jan-18 3.05 1.90 (1.15) 2.25 (1.36) 3.09 0.04 2.99 (0.06) 2.51 (0.54) 3.07 0.02
3 Feb-18 3.17 1.99 (1.19) 2.36 (1.41) 3.22 0.05 3.20 0.03 2.70 (0.47) 3.09 (0.08)
4 Mar-18 3.18 1.98 (1.20) 2.35 (1.42) 3.24 0.06 3.21 0.03 2.75 (0.43) 2.86 (0.32)
5 Apr-18 3.14 1.93 (1.22) 2.29 (1.44) 3.19 0.05 3.04 (0.10) 2.67 (0.47) 2.54 (0.60)
6 May-18 2.91 1.63 (1.28) 1.93 (1.52) 2.83 (0.08) 2.67 (0.24) 2.46 (0.46) 1.90 (1.02)
7 Jun-18 2.89 1.57 (1.32) 1.87 (1.56) 2.67 (0.22) 2.60 (0.29) 2.39 (0.50) 1.83 (1.06)
8 Jul-18 2.92 1.56 (1.36) 1.85 (1.61) 2.67 (0.25) 2.60 (0.32) 2.41 (0.51) 1.83 (1.09)
9 Aug-18 2.95 1.55 (1.39) 1.84 (1.65) 2.67 (0.28) 2.65 (0.29) 2.41 (0.54) 2.17 (0.78)
10 Sep-18 2.95 1.57 (1.38) 1.86 (1.64) 2.67 (0.28) 2.66 (0.29) 2.38 (0.57) 2.19 (0.76)
11 Oct-18 2.93 1.56 (1.37) 1.85 (1.63) 2.64 (0.29) 2.61 (0.32) 2.23 (0.70) 2.16 (0.77)
12 Nov-18 2.96 1.59 (1.37) 1.88 (1.62) 2.67 (0.29) 2.64 (0.32) 2.29 (0.66) 2.13 (0.82)
Source: Bloomberg
2.60
2.80
3.00
3.20
3.40
1 2 3 6 9 12 18 24
$/M
MB
tu
Months
NYMEX Natural Gas (Henry Hub)
y/y
w/w
d/d
7-Nov-16
Source: Bloomberg
1.30
1.80
2.30
2.80
3.30
1 2 3 6 9 12 18 24 36
CA
D/G
J
Months
AECO Natural Gas
y/y
w/w
d/d
7-Nov-16
Source: Bloomberg
(2.00)
(1.80)
(1.60)
(1.40)
(1.20)
(1.00)
(0.80)
(0.60)
(0.40)
(0.20)
-
1.00
1.50
2.00
2.50
3.00
3.50
Spot 2 4 6 8 10 12
AEC
O B
asis
(U
SD
/mm
Btu
)
US
D/m
mB
tu &
CA
D/G
J
Months
NYMEX & AECO Forward Curves
Basis NYMEX AECO
Source: Bloomberg
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1995 2000 2005 2010 2015
AEC
O %
of N
YM
EX
in U
SD
AECO Flat Price as a % of NYMEX
Source: Bloomberg; Scotiabank GBM
15
Pertinent Data
GeoPark Limited (GPRK-N)
Valuation: Based on our risked NAV ($9.75/share) that also equates to 1.37x our 2P NAV.Key Risks: Commodity prices, exploration, project execution, political/regulatory. Gran Tierra Energy Inc. (GTE-T)
Valuation: Based on our risked NAV (C$5.20/share) that also equates to 6.3x 2018E debt-adjusted CF and 1.36x our 2P NAV.Key Risks: Commodity prices, exploration, project execution, political/regulatory Parex Resources Inc. (PXT-T)
Valuation: Based on our risked NAV ($22.31/share) that also equates to 7.6x 2017E debt-adjusted CF and 1.56x our 2P NAV.Key Risks: Commodity prices, exploration, project execution, political/regulatory. Petrobras (PBR-N)
Valuation: Based on our risked NAV ($11.56/share) that also equates to 1.39x our 2P NAV.Key Risks: Commodity prices, exploration, project execution, political/regulatory. Vermilion Energy Inc. (VET-T)
Valuation: 12.2x 2018E EV/DACFKey Risks: Crude oil and natural gas prices; foreign exchange rates; drilling programsuccess; political/regulatory.
November 7, 2017
16
Appendix A: Important Disclosures
Company Disclosures (see legend below)*
Gran Tierra Energy Inc. G, I, U, VS0223, VS0446Parex Resources Inc. VS0226Petrobras V126Vermilion Energy Inc. G, N1, U
We, Gavin Wylie, Michael Loewen and Patrick Bryden, certify that (1) the views expressed in this report in connection withsecurities or issuers that we analyze accurately reflect our personal views and (2) no part of our compensation was, is, or willbe directly or indirectly, related to the specific recommendations or views expressed by us in this report.
This research report was prepared by employees of Scotia Capital Inc. and/or its affiliates who have the title of Analyst.
All pricing of securities in reports is based on the closing price of the securities’ principal marketplace on the night before thepublication date, unless otherwise explicitly stated.
All Equity Research Analysts report to the Head of Equity Research. The Head of Equity Research reports to the ManagingDirector and Co-Head, Global Capital Markets, who is not and does not report to the Head of the Investment BankingDepartment. Scotiabank, Global Banking and Markets has policies that are reasonably designed to prevent or control thesharing of material non-public information across internal information barriers, such as between Investment Banking andResearch.
The compensation of the research analyst who prepared this report is based on several factors, including but not limited to,the overall profitability of Scotiabank, Global Banking and Markets, and the revenues generated from its various departments,including investment banking, trading fees and other types of transactions. Furthermore, the research analyst’s compensationis charged as an expense to various Scotiabank, Global Banking and Markets departments, including investment banking.Research Analysts may not receive compensation from the companies they cover.
Non-U.S. analysts may not be associated persons of Scotia Capital (USA) Inc. and therefore may not be subject to FINRA Rule2241 restrictions on communications with subject company, public appearances and trading securities held by the analysts.
For Scotiabank, Global Banking and Markets Research analyst standards and disclosure policies, please visitgbm.scotiabank.com/disclosures.
Scotiabank, Global Banking and Markets Research, 40 King Street West, 33rd Floor, Toronto, Ontario, M5H 1H1.
Time of dissemination: November 07, 2017, 16:17 ET. Time of production: November 07, 2017, 16:14 ET. Note: Time ofdissemination is defined as the time at which the document was disseminated to clients. Time of production is defined as thetime at which the Supervisory Analyst approved the document.
*Legend
G Scotia Capital (USA) Inc. or its affiliates has managed or co-managed a public offering in the past 12 months.
I Scotia Capital (USA) Inc. or its affiliates has received compensation for investment banking services in the past 12months.
N1 Scotia Capital (USA) Inc. had an investment banking services client relationship during the past 12 months.
U Within the last 12 months, Scotia Capital Inc. and/or its affiliates have undertaken an underwriting liability with respectto equity or debt securities of, or have provided advice for a fee with respect to, this issuer.
V126 Scotia Capital (USA) Inc. has been retained as the financial advisor to Petrobras International Braspetro B.V., anaffiliate of Petróleo Brasileiro S.A. (Petrobras), with respect to the sale of its equity interest in Petrobras Oil & GasB.V. Scotia Capital (USA) Inc. is a subsidiary of The Bank of Nova Scotia. Scotia Capital (USA) Inc. is a broker-dealerregistered with the SEC and a member of FINRA, NYSE and SIPC.
VS0223 Research Analyst Gavin Wylie visited GTE's local office in Bogota in April 2013. No payment was received from theissuer for the travel-related expenses incurred by the Research Analyst to visit this site.
VS0226 Research Analyst Gavin Wylie visited PXT's local office in Bogota in April 2013. No payment was received from theissuer for the travel-related expenses incurred by the Research Analyst to visit this site.
VS0446 Research Analyst Gavin Wylie visited the Costayaco and Acordionero fields, producing and exploration assets,on January 31, 2017. Partial payment was received from the issuer for the travel-related expenses incurred by theResearch Analyst to visit this site.
November 7, 2017
17
Rating and Price Target History
Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18
10
9
8
7
6
5
4
3
2
Pric
e (U
SD
)
GeoPark Limited (GPRK-N) as of November 06, 2017 (in USD)
Ratings Legend: FS=Focus Stock; SO=Sector Outperform; SP=Sector Perform; SU=Sector Underperform; T=Tender; UR=Under Review; CS=Coverage Suspended; DC=Discontinued Coverage*Represents the value(s) that changed.
Source: Scotiabank GBM estimates/Scotia Howard Weil estimates; FactSet.
20-Nov-2014Price: 8.10Rating: SOTarget: 13.00
03-Dec-2014Price: 6.31Rating: SOTarget: 11.00*
21-Jan-2015Price: 4.52Rating: SOTarget: 9.25*
02-Feb-2015Price: 3.91Rating: SOTarget: 7.50*
24-Feb-2015Price: 4.27Rating: SOTarget: 8.00*
24-Mar-2015Price: 4.01Rating: SOTarget: 7.00*
29-Sep-2015Price: 3.06Rating: SOTarget: 6.50*
14-Dec-2015Price: 2.73Rating: SOTarget: 5.00*
11-Mar-2016Price: 2.70Rating: SOTarget: 4.50*
11-Jul-2016Price: 3.37Rating: SOTarget: 5.00*
15-Nov-2016Price: 4.45Rating: SOTarget: 5.50*
02-Dec-2016Price: 4.96Rating: SOTarget: 6.00*
14-Dec-2016Price: 4.71Rating: SOTarget: 6.25*
06-Feb-2017Price: 4.96Rating: SOTarget: 7.00*
08-Mar-2017Price: 6.18Rating: SOTarget: 8.00*
12-Jun-2017Price: 8.19Rating: SOTarget: 9.50*
13-Oct-2017Price: 9.16Rating: SOTarget: 10.00*
Powered by: BlueMatrix
Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18
7
6
5
4
3
2
Pric
e (C
AD
)
Gran Tierra Energy Inc. (GTE-T) as of November 06, 2017 (in CAD)
Ratings Legend: FS=Focus Stock; SO=Sector Outperform; SP=Sector Perform; SU=Sector Underperform; T=Tender; UR=Under Review; CS=Coverage Suspended; DC=Discontinued Coverage*Represents the value(s) that changed.
Source: Scotiabank GBM estimates/Scotia Howard Weil estimates; FactSet.
07-Nov-2014Price: 5.23Rating: SOTarget: 11.00
03-Dec-2014Price: 4.23Rating: SOTarget: 9.00*
21-Jan-2015Price: 2.99Rating: SP*Target: 6.50*
02-Feb-2015Price: 2.92Rating: SPTarget: 5.25*
03-Mar-2015Price: 3.24Rating: SPTarget: 5.00*
29-Sep-2015Price: 2.96Rating: SPTarget: 4.50*
14-Dec-2015Price: 2.78Rating: SPTarget: 4.25*
17-Dec-2015Price: 3.03Rating: SO*Target: 4.50*
11-Jul-2016Price: 3.81Rating: SOTarget: 5.25*
07-Nov-2016Price: 3.86Rating: SOTarget: 5.50*
14-Dec-2016Price: 3.80Rating: SOTarget: 6.00*
29-Jun-2017Price: 2.84Rating: SOTarget: 5.50*
Powered by: BlueMatrix
November 7, 2017
18
Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18
18
16
14
12
10
8
6
4
2
Pric
e (U
SD
)
Petrobras (PBR-N) as of November 06, 2017 (in USD)
Ratings Legend: FS=Focus Stock; SO=Sector Outperform; SP=Sector Perform; SU=Sector Underperform; T=Tender; UR=Under Review; CS=Coverage Suspended; DC=Discontinued Coverage*Represents the value(s) that changed.
Source: Scotiabank GBM estimates/Scotia Howard Weil estimates; FactSet.
14-Nov-2016Price: 9.57Rating: I:SPTarget: 12.50
14-Dec-2016Price: 10.40Rating: SPTarget: 13.00*
27-Mar-2017Price: 9.16Rating: SPTarget: 12.50*
29-Jun-2017Price: 7.87Rating: SPTarget: 12.00*
Powered by: BlueMatrix
Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18
20
18
16
14
12
10
8
6
4
Pric
e (C
AD
)
Parex Resources Inc. (PXT-T) as of November 06, 2017 (in CAD)
Ratings Legend: FS=Focus Stock; SO=Sector Outperform; SP=Sector Perform; SU=Sector Underperform; T=Tender; UR=Under Review; CS=Coverage Suspended; DC=Discontinued Coverage*Represents the value(s) that changed.
Source: Scotiabank GBM estimates/Scotia Howard Weil estimates; FactSet.
03-Dec-2014Price: 7.78Rating: SOTarget: 15.00
09-Jan-2015Price: 6.52Rating: SOTarget: 14.00*
02-Feb-2015Price: 7.46Rating: SOTarget: 11.50*
11-Feb-2015Price: 8.39Rating: SOTarget: 12.50*
12-May-2015Price: 10.17Rating: SOTarget: 13.00*
05-Aug-2015Price: 8.46Rating: SOTarget: 13.50*
14-Dec-2015Price: 9.87Rating: SOTarget: 13.00*
04-Feb-2016Price: 9.19Rating: SOTarget: 13.50*
09-Feb-2016Price: 8.80Rating: SOTarget: 13.00*
09-Mar-2016Price: 10.52Rating: SOTarget: 13.50*
11-May-2016Price: 13.19Rating: SOTarget: 14.50*
11-Jul-2016Price: 13.10Rating: SOTarget: 16.00*
11-Nov-2016Price: 15.66Rating: SOTarget: 17.50*
14-Dec-2016Price: 16.70Rating: SOTarget: 19.00*
07-Feb-2017Price: 16.06Rating: FS*Target: 23.00*
07-Apr-2017Price: 17.56Rating: FSTarget: 24.00*
29-Jun-2017Price: 14.74Rating: FSTarget: 23.00*
Powered by: BlueMatrix
Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18
70
65
60
55
50
45
40
35
30
Pric
e (C
AD
)
Vermilion Energy Inc. (VET-T) as of November 06, 2017 (in CAD)
Ratings Legend: FS=Focus Stock; SO=Sector Outperform; SP=Sector Perform; SU=Sector Underperform; T=Tender; UR=Under Review; CS=Coverage Suspended; DC=Discontinued Coverage*Represents the value(s) that changed.
Source: Scotiabank GBM estimates/Scotia Howard Weil estimates; FactSet.
03-Dec-2014Price: 51.99Rating: SOTarget: 75.00
02-Feb-2015Price: 57.42Rating: SOTarget: 67.50*
29-Sep-2015Price: 42.25Rating: SOTarget: 62.50*
14-Dec-2015Price: 33.81Rating: SOTarget: 60.00*
11-Mar-2016Price: 40.53Rating: SOTarget: 57.50*
16-May-2016Price: 43.09Rating: SOTarget: 52.50*
08-Aug-2016Price: 46.86Rating: SOTarget: 56.50*
14-Dec-2016Price: 57.57Rating: SOTarget: 62.50*
29-Jun-2017Price: 41.02Rating: SOTarget: 55.00*
28-Sep-2017Price: 44.76Rating: SOTarget: 52.50*
Powered by: BlueMatrix
November 7, 2017
19
Definition of Scotiabank, Global Banking and Markets Equity Research RatingsWe have a four-tiered rating system, with ratings of Focus Stock, Sector Outperform, Sector Perform, and SectorUnderperform. Each analyst assigns a rating that is relative to his or her coverage universe or an index identified by the analystthat includes, but is not limited to, stocks covered by the analyst.
The rating assigned to each security covered in this report is based on the Scotiabank, Global Banking and Markets researchanalyst’s 12-month view on the security. Analysts may sometimes express to traders, salespeople and certain clients theirshorter-term views on these securities that differ from their 12-month view due to several factors, including but not limited to theinherent volatility of the marketplace.Ratings
Focus Stock (FS)The stock represents an analyst’s best idea(s); stocks in thiscategory are expected to significantly outperform the average12-month total return of the analyst’s coverage universe or anindex identified by the analyst that includes, but is not limited to,stocks covered by the analyst.
Sector Outperform (SO)The stock is expected to outperform the average 12-month totalreturn of the analyst’s coverage universe or an index identifiedby the analyst that includes, but is not limited to, stocks coveredby the analyst.
Sector Perform (SP)The stock is expected to perform approximately in line withthe average 12-month total return of the analyst’s coverageuniverse or an index identified by the analyst that includes, butis not limited to, stocks covered by the analyst.
Sector Underperform (SU)The stock is expected to underperform the average 12-monthtotal return of the analyst’s coverage universe or an indexidentified by the analyst that includes, but is not limited to,stocks covered by the analyst.
Other RatingsTender – Investors are guided to tender to the termsof the takeover offer.
Under Review – The rating has been temporarilyplaced under review, until sufficient information hasbeen received and assessed by the analyst.
Risk RankingAs of June 22, 2015, Scotiabank, Global Bankingand Markets discontinued its Low, Medium, and Highrisk rankings. The Speculative risk ranking reflectsexceptionally high financial and/or operational risk,exceptionally low predictability of financial results,and exceptionally high stock volatility. The Directorof Research and the Supervisory Analyst jointlymake the final determination of the Speculative riskranking.
Scotiabank, Global Banking and Markets Equity Research Ratings Distribution*
Distribution by Ratings and Equity and Equity-Related Financings*
47.4% 47.2%
5.4%
43.4% 35.8% 12.0%Sector Outperform Sector Perform Sector
Underperform
0%
20%
40%
60%
* As of October 31, 2017. Source: Scotiabank GBM.
Percentage of companies covered byScotiabank, Global Banking and Markets EquityResearch within each rating category.
Percentage of companies within each ratingcategory for which Scotiabank, Global Bankingand Markets has undertaken an underwritingliability or has provided advice for a fee withinthe last 12 months.
For the purposes of the ratings distribution disclosure FINRA requires members who use a ratings system with termsdifferent than “buy,” “hold/neutral” and “sell,” to equate their own ratings into these categories. Our Focus Stock,Sector Outperform, Sector Perform, and Sector Underperform ratings are based on the criteria above, but for thispurpose could be equated to strong buy, buy, neutral and sell ratings, respectively.
November 7, 2017
20
General Disclosures
This report has been prepared by analysts who are employed by the Research Department of Scotiabank, Global Bankingand Markets. Scotiabank, Global Banking and Markets Research produces research reports under a single marketing identityreferred to as “globally branded research” under U.S. rules. This research is produced on a single global research platform withone set of rules which meet the most stringent standards set by regulators in the various jurisdictions in which the researchreports are produced. In addition, the analysts who produce the research reports, regardless of location, are subject to one setof policies designed to meet the most stringent rules established by regulators in the various jurisdictions where the researchreports are produced.
The frequency of reports is determined by the analyst on a case-by-case basis, driven by external market factors and issuerannouncements. Analysts will endeavour to review and publish such estimates and recommendations as soon as possibleafter the release of material information by the issuer or the occurrence of other relevant events. This will typically involve, at aminimum, a summary of quarterly earnings releases.
Scotia Capital Inc. ("SCI"), as principal, and Alberta Investment Management Corporation ("AIMCo"), on behalf of certain of itsclients, have each agreed to sell 2,750,000 common shares ("Common Shares") of TMX Group Limited ("TMX") representingan aggregate of approximately 9.9% of the issued and outstanding Common Shares of TMX as of October 2, 2017. TheCommon Shares are being sold by SCI and AIMCo by way of a trade carried out under exemptive relief from certain provisionsof the Universal Market Integrity Rules granted by the Investment Industry Regulatory Organization of Canada at a gross priceof $67.00 per Common Share. After giving effect to the trade, SCI and AIMCo will each hold less than 5% of the issued andoutstanding Common Shares of TMX and will no longer be entitled to appoint nominees to the board of directors of TMX.
This report is provided to you for informational purposes only. This report is not, and is not to be construed as, an offer to sell orsolicitation of an offer to buy any securities and/or commodity futures contracts.
The securities mentioned in this report may neither be suitable for all investors nor eligible for sale in some jurisdictions wherethe report is distributed.
The information and opinions contained herein have been compiled or arrived at from sources believed reliable, however,Scotiabank, Global Banking and Markets makes no representation or warranty, express or implied, as to their accuracy orcompleteness.
Scotiabank, Global Banking and Markets has policies designed to make best efforts to ensure that the information contained inthis report is current as of the date of this report, unless otherwise specified.
Any prices that are stated in this report are for informational purposes only. Scotiabank, Global Banking and Markets makes norepresentation that any transaction may be or could have been effected at those prices.
Any opinions expressed herein are those of the author(s) and are subject to change without notice and may differ or be contraryfrom the opinions expressed by other departments of Scotiabank, Global Banking and Markets or any of its affiliates.
Neither Scotiabank, Global Banking and Markets nor its affiliates accepts any liability whatsoever for any direct or consequentialloss arising from any use of this report or its contents.
Equity research reports published by Scotiabank, Global Banking and Markets are available electronically via: Bloomberg,Thomson Financial/First Call - Research Direct, Reuters, Capital IQ, and FactSet. Institutional clients with questions regardingdistribution of equity research or who wish to access the proprietary model used to produce this report should contactScotiabank at 1-800-208-7666. A list of all investment recommendations in any financial instrument or issuer that have beendisseminated during the preceding 12 months is available at the following location: gbm.scotiabank.com/disclosures
This report and all the information, opinions, and conclusions contained in it are protected by copyright. This report may not bereproduced in whole or in part, or referred to in any manner whatsoever, nor may the information, opinions, and conclusionscontained in it be referred to without the prior express consent of Scotiabank, Global Banking and Markets.
Additional Disclosures
Canada: This report is distributed by Scotia Capital Inc., a subsidiary of The Bank of Nova Scotia.
Chile: This report is distributed by Scotia Corredora de Bolsa Chile S.A., a subsidiary of The Bank of Nova Scotia.
Colombia: This report is distributed in Colombia by Banco Colpatria Multibanca Colpatria S.A. as authorized by theSuperintendencia Financiera de Colombia to The Bank of Nova Scotia (“Scotiabank”) by Resolution 058 of 2014 and toScotia Capital Inc. by Resolution 0226 of 2015. Said Resolutions authorize Scotiabank and Scotia Capital Inc. to promote andadvertise their products and services through Banco Colpatria Multibanca Colpatria S.A. This report is prepared by analystsemployed by The Bank of Nova Scotia and certain of its affiliates including Scotia Capital Inc.
November 7, 2017
21
Hong Kong: This report is distributed by The Bank of Nova Scotia Hong Kong Branch, which is authorized by the Securitiesand Future Commission to conduct Type 1, Type 4 and Type 6 regulated activities and regulated by the Hong Kong MonetaryAuthority.
Japan: This report is provided simply as advice and investment decisions shall be made at each investor’s own risk. ScotiaSecurities Asia Limited and any of its affiliates shall not provide compensation for any loss incurred by the reader.
Mexico: The information contained in this report is for informational purposes only and is not intended to influence the decisionof the addressee in any way whatsoever with respect to an investment in a certain type of security, financial instrument,commodity, futures contract, issuer, or market, and is not to be construed as an offer to sell or a solicitation of an offer to buyany securities or commodities futures contracts. Scotiabank Inverlat Casa de Bolsa, S.A. de C.V. is not responsible for theoutcome of any investment performed based on the contents of this research report.
Peru: This report is distributed by Scotia Sociedad Agente de Bolsa S.A., a subsidiary of The Bank of Nova Scotia.
Singapore: For investors in the Republic of Singapore, this document is provided via an arrangement with BNS Asia Limitedpursuant to Regulation 32C of the Financial Advisers Regulations. The material contained in this document is intended solelyfor accredited, expert or institutional investors, as defined under the Securities and Futures Act (Chapter 289 of Singapore).If there are any matters arising from, or in connection with this material, please contact BNS Asia, located at 1 Raffles Quay,#20-01 North Tower, One Raffles Quay, Singapore 048583, telephone: +65 6305 8388. This document is intended for generalcirculation only and any recommendation that may be contained in this document concerning an investment product doesnot take into account the specific investment objectives, financial situation, or particular needs of any particular person, andadvice should be sought from a financial adviser based in Singapore regarding the suitability of the investment product,taking into account the specific investment objectives, financial situation, or particular needs of any person in receipt of therecommendation, before the person makes a commitment to purchase the investment product.
United Kingdom and the rest of the European Economic Area: Except as otherwise specified herein, this report is distributed byScotiabank Europe plc, a subsidiary of The Bank of Nova Scotia. Scotiabank Europe plc complies with all requirements underthe EU Market Abuse Regulation concerning investment recommendations.
United States: This report is distributed by Scotia Capital (USA) Inc., a subsidiary of Scotia Capital Inc., and a registered U.S.broker-dealer. All transactions by a U.S. investor of securities mentioned in this report must be effected through Scotia Capital(USA) Inc.
Non-U.S. investors wishing to effect a transaction in the securities discussed in this report should contact a Scotiabank, GlobalBanking and Markets entity in their local jurisdiction unless governing law permits otherwise.
™ Trademark of The Bank of Nova Scotia. Used under license, where applicable. Scotiabank, together with "Global Bankingand Markets," is a marketing name for the global corporate and investment banking and capital markets businesses of TheBank of Nova Scotia and certain of its affiliates in the countries where they operate, including Scotia Capital Inc., Scotia Capital(USA) Inc., Scotiabanc Inc., Citadel Hill Advisors L.L.C., The Bank of Nova Scotia Trust Company of New York, ScotiabankEurope plc, Scotiabank (Ireland) Designated Activity Company, Scotiabank Inverlat S.A., Institución de Banca Múltiple, ScotiaInverlat Casa de Bolsa S.A. de C.V., Scotia Inverlat Derivados S.A. de C.V. – all members of the Scotiabank Group andauthorized users of the mark. The Bank of Nova Scotia is incorporated in Canada with limited liability. Scotia Capital Inc. isa member of the Canadian Investor Protection Fund and regulated by the Investment Industry Regulatory Organization ofCanada. Scotia Capital (USA) Inc. is a broker-dealer registered with the SEC and is a member of FINRA, NYSE, NFA andSIPC. Scotiabank Europe plc is authorized by the Prudential Regulation Authority and regulated by the Financial ConductAuthority and the Prudential Regulation Authority. Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V., andScotia Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.
© The Bank of Nova Scotia 2017
This report and all the information, opinions, and conclusions contained in it are protected by copyright. This report may not bereproduced in whole or in part, or referred to in any manner whatsoever, nor may the information, opinions, and conclusionscontained in it be referred to without prior express consent.
November 7, 2017
22
™ Trademark of The Bank of Nova Scotia. Used under license, where applicable. Scotiabank, together with “Global Bankingand Markets,” is a marketing name for the global corporate and investment banking and capital markets businesses of TheBank of Nova Scotia and certain of its affiliates in the countries where they operate, including Scotia Capital Inc. Scotia CapitalInc. is a Member of the Canadian Investor Protection Fund.