Capex should support a longer-term recovery
UBS downgraded Cobalt International Energy (NYSE: CIE) from Buy to Neutral. Marathon Oil (NYSE: MRO) and RSP Permian (NYSE: RSPP) were also downgraded to Neutral. 2015 Brent/WTI forecasts were cut to $52.50/$49, and 2016 estimates were cut to $67.50/$62.50.
"We cut our 2015-16 Brent/WTI forecasts ($/Bbl) to $52.50/$49 & $67.50/$62.50 to reflect the much steeper than expected plunge in oil prices since our last update & continued short-term oversupply (~1.3 MMBbld in 2015E). However, we believe the sharp cuts to capex should support a longer-term recovery & have maintained our normalized forecasts of $90/$85," said analyst William A. Featherston.
"We reduced our 2015-16 US natural gas price forecasts ($/MMBtu) by $0.50 to $3.25/$3.75 on stronger than expected supply growth & a near-term need to rebalance ~2.5 Bcfd of oversupply in the market; we've lowered our normalized forecast to $4.50 (from $5.00), a price we believe is sufficient to incentivize supply to meet the material pick-up in demand growth post 2016," he continued.
"We're downgrading MRO, CIE, & RSPP to Neutral (from Buy). We are cautious on several names with wide FCF deficits, slowing growth profiles and rich relative valuations: COP, DVN, MUR, UPL, RRC, DNR & MHR. Top Buys are APC, CHK & EOG," he added.
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