Initial Views on Capital Markets Day

Research evidence excerpt

Initial Views on Capital Markets Day

l in nature and is thus more exposed to market

fundamentals in the United States, Canada and Mexico.

The E&P industry has recently undergone a technological shift as unconventional drilling has

become more prevalent. Since unconventional drilling and fracturing are recent developments,

uncertainty concerning the regulation of these practices presents an investment risk. Increasing

regulation of offshore drilling activities also presents an investment risks in the wake of the BP

Macondo disaster.

In Canada the E&P industry is seasonal due to the spring break-up, which is when the ground

frost melts and local authorities restrict heavy equipment on the roads and highways. The

duration of spring break-up is weather dependant and it annually varies in duration.

Primary Investment Risks – Downstream

The refining market is highly cyclical, and the majority of companies’ earnings are on a spot

basis. Spreads between crude feedstock and product prices are highly volatile, and the

earnings outlook for the industry can change rapidly. Additionally, the refining industry is highly

regulated, and subject to unforeseen costs based on new legislation. The chemical business is

highly dependent to the global economic cycle.

Risks To The Price Target

Downside risks include (1) significant delays in major upstream projects that are critical

to attaining its oil/gas production growth targets, (2) project cost overruns as well as cost

pressures (opex, capex, royalty and taxes), (3) deterioration in commodity prices and the

margin environment, (4) any large scale acquisition that falls short of investor expectations,

and (5) lower value attributed to legacy oil & gas business. Upside risks include (1) improvement

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