Macro Outlook from Morgan Stanley - Aug 10

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dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Macro Outlook from Morgan Stanley - Aug 10

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Oil & Gas | Devin McDermott
MS Research Analyst Devin McDermott highlights that the sector posted another solid quarter with
management t eams messaging continued capital discipline, supporting further increases in shareholder
returns. Outside of the majors such as CVX (EW, $190 PT) and XOM (OW, $106 PT), which rallied sharply
after posting record results, several in- line updates were sold w hile companies that traded well vs peers
generally announced material increases to shareholder returns such as COP (OW, $117 PT) and MUR (EW,
$49 PT) were positive outliers on this front last week. Devin notes that aggregate FCF generation for his
coverage rose from ~$35 B in 1Q to ~$60 B in 2Q, setting yet another record. Consistent with his expectations
into the quarter, companies largely maintained discipline on growth but many adjusted spending to reflect
inflationary trends. Between 1Q & 2Q earnings, > 80% of Devin’s E&P coverage has now raised capex
guidance, with an average increase of ~9%. With the recent introduction of the Inflation Reduction Act (IRA),
one of the proposals is a 15% AMT (alternative minimum tax). Devin notes that this would limit the ability
of companies to use historically generated NOLs (net operating losses) to fully offset cash taxes – something
which was topical through earnings season.
Dan Steffens
Energy Prospectus Group
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