Energy Prospectus

Raymond James Energy Stat of the Week - January 4, 2016

For the past few years, we have definitely not been energy bulls, with below-consensus price forecasts on each of Brent, WTI and
Henry Hub. And, over the past five years, energy stocks have not just underperformed but massively underperformed the broader
market. We think that will change in 2016 as global oil fundamentals are now looking very bullish.

Look for oil prices to bottom in the first half of 2016 and firm in the second half. Since there is an approximately 90% correlation
between oil prices and energy stocks, it is really important for energy investors to get oil prices directionally right. For the past three
and a half years, our oil model has suggested the “right” oil price to balance global oil supply and demand is a mid-$60s average. We
still believe that is the right balancing point (plus or minus $5). While oil prices hovered above $100, we were naturally bearish.
With WTI now in the $30s and the 2016 futures strip near $40, current oil prices are way too low. In fact, the lower oil goes nearterm,
the higher it will likely overshoot the true balancing point in late 2016 and 2017. Given the lower-than-expected oil prices to
start the year, we are modestly lowering our 2016 WTI forecast from $55 to $50 but keeping our long-term price deck at $70.

U.S. gas market looks terrible in 2016. Like oil, the U.S. gas market has been structurally oversupplied for years. We expect the glut
to persist in 2016 – even taking into account a modest reduction in associated gas from liquids-rich resource plays. We are lowering
our 2016 Henry Hub forecast from $2.35 to $2.00 (our third cut since August) and our long-term price deck from $2.75 to $2.50.

After their meltdown, some energy stocks are poised for recovery – but timing is critical. We don’t need to rehash just how
dreadful energy stocks were in 2015: energy was the worst sector in the S&P 500, having underperformed for five years in a row.
While exact timing is impossible, we think that energy, on the whole, will substantially outperform in 2016. Focus on U.S. land rather
than offshore and international-levered companies.

If you'd like a copy of the Raymond James report, send me an e-mail: dmsteffens@comcast.net.

"For the first time in four years, our oil model looks very bullish: 2016 WTI average of $50, rising to $75 in 2017, settling at $70.
For three and a half years, we told anyone who’d listen that the combination of surging U.S. oil supply and anemic global oil demand
was a recipe for disaster in a $100 global oil market. Our math said for years that the right price to balance the market is between
$60 and $75. We still believe that. For the first two years of our bearish call (2012 through mid-2014), stubbornly high $100-plus oil
(and many of our clients) gave our negative outlook the middle finger as various supply disruptions offset and hid massive U.S.
supply growth. Over the past 18 months, however, the oil market has come to embrace our concerns (and then some) as oil prices
have now fallen well below what we view as a long-term equilibrium level. As before, “the solution to low oil prices is low oil
prices.” While it may take a couple of quarters to play out, we see clear evidence that global oil demand is already responding, and
global oil supply is poised to slow enough to leave the market substantially undersupplied by the end of 2016, lasting through 2018."