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					                                                          Wealth Management Research                              23 February 2011




US Equities Energy
                                                                                      Nicole Decker, analyst, UBS FS

Monthly - our take on the Middle                                                      nicole.decker@ubs.com, +1 212 713 4743



East                                                                                  WMR Energy Relative Ratings
                                                                                      Outperform List                         Price    Price
                                                                                      Company                       Ticker    (USD)   Target Industry Group
                                                                                      Halliburton                   HAL       46.60    52.00 Equipment & Svcs
                                                                                      Schlumberger                  SLB       92.91    97.00 Equipment & Svcs
  • Oil prices have been volatile, as events in the Middle East                       Transocean                    RIG       81.62    86.00 Equipment & Svcs
    continue to unfold. At USD 95/bbl, the price for West Texas                       Weatherford International     WFT       24.11    26.00 Equipment & Svcs

    Intermediate crude oil is at its highest level since October 2008.                Anadarko Petroleum            APC       77.85    83.00 Oil & Gas
                                                                                      Apache                        APA      117.07   134.00 Oil & Gas
  • While it is uncertain whether oil price strength will continue,                   Devon Energy                  DVN       87.46    92.00 Oil & Gas

    the recent upward pressure has been supportive for the stock                      ExxonMobil                    XOM       85.44    88.00 Oil & Gas
                                                                                      Hess                          HES       80.76    87.00 Oil & Gas
    prices of oil producers. For now, we maintain our preference                      Murphy Oil                    MUR       73.72    76.00 Oil & Gas
    for oil-levered producers over natural gas producers.
                                                                                      Underperform List                       Price    Price
  • Our favorite idea for investors looking to capture oil price                      Company                       Ticker    (USD)   Target Industry Group
    upside, while limiting operational exposure to the Middle East                    Rowan Cos                     RDC       39.59    37.00 Equipment & Svcs
                                                                                      ConocoPhillips                COP       76.61    73.00 Oil & Gas
    and North Africa, is Devon Energy (Outperform).                                   Sunoco                        SUN       42.91    39.00 Oil & Gas

  • Our High Conviction Calls are Halliburton, Hess Corp.,
                                                                                      Sector Bellwether Marketperform List    Price    Price
    Anadarko Petroleum, Schlumberger, and Devon Energy,                               Company                       Ticker    (USD)   Target Industry Group
    which are all rated Outperform.                                                   Chevron                       CVX      100.32    96.00 Oil & Gas
                                                                                      Marathon Oil                  MRO       47.71    46.00 Oil & Gas
                                                                                      Occidental Petroleum          OXY      102.14   104.00 Oil & Gas

WMR S&P Energy Sector Allocation                                                      Suncor Energy                 SU        45.51    42.00 Oil & Gas

Moderate Overweight
                                                                                      Source. UBS WMR, FactSet, prices as of 22 February
Oil prices have been volatile, as events in the Middle East continue to               2011
                                                                                      *Sector bellwethers are also on the Monitor List.
unfold. While the situation in Egypt appears improved, civil unrest has
                                                                                      Note: Companies in BOLD represent High Conviction
spread to other Middle Eastern nations, and concerns over a potential                 Calls. Please see the Appendix for definition.
disruption at production facilities and/or oil supply transportation
routes continue to escalate. At USD 95/bbl, the price for West Texas
Intermediate crude oil is at its highest level since October 2008. While
it is difficult to say how long oil price strength will continue, the
recent upward pressure has been supportive for the stock prices of
oil producers.

The primary risk to rapidly rising oil prices is the potential that higher
energy costs could slow worldwide economic growth. A decrease in
economic activity would reduce oil demand, which could cause oil
prices to collapse. Looking back at 2008, oil prices moved sharply
downward throughout the second half of the year, reaching USD 33/
bbl by mid-December, down over USD 100/bbl from the highs reached
in July 2008. We will be watchful for signs of economic stress if oil
prices continue to climb; and we would be particularly wary if West
Texas Intermediate were to reach USD 110/bbl.




This report has been prepared by UBS Financial Services Inc. (UBS FS). Analyst certification and required disclosures begin on page 18. UBS
does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have
a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making
their investment decision.
US Equities Energy



For now, we maintain our preference for oil-levered producers. Our              WMR Energy Monitor List
                                                                                Monitor Marketperform List                                        Price
favorite idea for investors looking to capture oil price upside, while
                                                                                Company                                           Ticker          (USD) Industry
limiting operational exposure to the Middle East and North Africa is            Chevron*                                          CVX         100.32 Oil & Gas
Devon Energy (Outperform).                                                      EOG Resources                                     EOG         108.32 Oil & Gas
                                                                                Marathon Oil*                                     MRO             47.71 Oil & Gas
Operational exposure is weighing on certain energy equities                     Noble Energy                                      NBL             88.71 Oil & Gas
We have seen downward pressure in the stock prices of oil producers             Occidental Petroleum*                             OXY         102.14 Oil & Gas

with operations located in Middle Eastern countries where protests              Suncor Energy*                                    SU              45.51 Oil & Gas
                                                                                Valero Energy                                     VLO             28.17 Oil & Gas
have occurred, on investor concerns that operations might be disrupt-
                                                                                Whiting Petroleum                                 WLL         123.91 Oil & Gas
ed. However, unless significant damage occurs at operating facilities,
our view is that long term fundamentals for these companies are un-             Source: UBS WMR, FactSet, as of 22 February 2011
changed by recent events.                                                       *These are sector bellwethers on the Monitor List.

In Egypt for instance, Apache (Outperform) is the largest produc-
er in the Western Desert. Approximately 20% of Apache’s produc-                 S&P 500 Energy sector performance
tion comes from Egypt, though no production disruptions have oc-                Total Return
curred. Apache’s stock price has declined 6.8% in the past month,               Energy
                                                                                                                          1 mo
                                                                                                                            8.3%
                                                                                                                                        3 mo
                                                                                                                                         22.3%
                                                                                                                                                     6 mo
                                                                                                                                                      43.8%
                                                                                                                                                                   12 mo
                                                                                                                                                                    36.8%
                                                                                                                                                                                    YTD
                                                                                                                                                                                    13.2%
compared to an 8.3% gain for the S&P Energy sector. However, the
                                                                                Industry
regime change in Egypt has calmed tensions, and we believe that                   Equipment & Svcs                           13.3          27.9           66.0            51.5        16.3
                                                                                  Oil & Gas                                   7.1          21.0           39.5            33.8        12.4
Apache is now poised to outperform as investors come back to the
name.                                                                           S&P 500                                     3.9%        12.8%        24.0%           23.8%           7.1%




The oil market has shifted focus onto Libya. Libya’s oil production and         Source: UBS WMR, FactSet, as of 22 February 2011
its significance in the world oil markets are more impactful than in
Egypt. Libya produces about 1.8% of the world’s supply, and the ma-
                                                                                S&P 500 Energy sector valuation data
jority of its oil is exported. Most of its production facilities are onshore,   NTM Price to earnings ratio relative to S&P 500
and therefore vulnerable to disruption.                                         1.1x


                                                                                1.0x
US companies operating in Libya include the partners in the 350,000
                                                                                0.9x
b/d Waha field, in which Hess (Outperform) has an 8% interest,                                                                             Average


and ConocoPhillips (Underperform), and Marathon Oil (Marketper-                 0.8x


form) each own a 16% interest. The remaining 60% is owned by the                0.7x


Libyan national oil company. Waha accounts for 6%, 3% and 12% of                0.6x
                                                                                   Jan-01   Jan-02    Jan-03   Jan-04    Jan-05   Jan-06   Jan-07    Jan-08      Jan-09    Jan-10    Jan-11
Hess’, ConocoPhillips’s, and Marathon’s production respectively. Oc-
cidental Petroleum (Marketperform) is also an onshore producer in               Source: UBS WMR, DataStream, as of 22 February 2011
Libya, with about 13,000 b/d of oil production, representing 2% of
its total. We would point out that Libya production is heavily taxed
by the government, and foreign producers do not earn big profits on             S&P 500 Energy sector earnings
Libyan production. A loss of production in Libya would impact earn-             Earnings momentum and growth
ings less significantly than the production numbers indicate.                                                           Earnings Momentum
                                                                                                                        '10 Estimate Changes
                                                                                                                                                          Earnings Growth
                                                                                                                                                      Y/Y % earnings changes
                                                                                                                         Last 3 mo Last 6 mo         2009      2010E     2011E
                                                                                Energy                                      10.2%     22.3%          -67.5%      56.0%    21.4%
If tensions continue or spread, oil services companies might also be
impacted, either from disruptions in current operations, or as explo-           Industry
                                                                                  Equipment & Svcs                           28.2          30.1           -2.6            25.9        23.7
ration and development activities slow due to operational risks. We               Oil & Gas                                   1.6           2.8           60.5            17.1        14.8

do not have operational data on a country-by-country level for oil ser-         S&P 500                                     9.2%        17.1%        16.1%           40.5%          15.6%

vices companies. We do know that Halliburton (Outperform) derives
17% of its revenues from the Middle East and Africa, while Schlum-              Source: UBS WMR, FactSet, as of 22 February 2011
berger (Outperform) and Weatherford International (Outperform)
derive 23% and 25% of their revenues from the region, respectively.




                                                                                                     Wealth Management Research 23 February 2011                                              2
US Equities Energy



The WTI/Brent price differential
One striking and unexpected development in the oil markets since
supply concerns have emerged is the wide price differential between
the US benchmark crude, West Texas Intermediate (WTI), and Euro-
pean-based Brent crude oil. Though the two crudes are of similar qual-
ity, Brent has traded at a premium as high as USD 17/bbl to WTI in the
past week. Price patterns in recent weeks suggest that Brent crude
may be emerging as the world’s benchmark crude oil, given that Brent
crude oil prices have risen far more sharply as supply concerns have
mounted.

WTI has long been viewed as a world benchmark crude, serving the
largest oil consuming nation – the US. Historically, Brent has traded at
a discount to WTI. Brent sold into the US was typically priced at WTI
minus transportation costs. Over time, Brent supplies have tightened
as North Sea fields are mature and in decline. Reduced supply, along
with stronger demand for the light crude in Asia, has caused a change
in the WTI/Brent price relationship, with Brent trading on par or at a
modest premium to WTI on many occasions over the past few years.

Another factor that may be holding back WTI prices relative to Brent is
a bottleneck in take-away capacity at the pricing hub for WTI at Cush-
ing, Oklahoma. With increased supplies being shipped into Cushing
from the Bakken and Canada, inventories in Cushing are brimming,
putting some downward pressure on the price. Until logistics issues
out of Cushing are resolved, which could take several years, Brent
could continue to trade a premium to WTI, in our view.

We expect the WTI/Brent price differential to narrow from current
wide levels in the near term, particularly as US refiners restart oper-
ations that are currently down for their spring maintenance. Howev-
er, we expect Brent to continue to be the more relevant indicator of
world oil market conditions.

The largest beneficiaries of the WTI price discount to Brent are inland
US refiners who process large quantities of WTI as feedstock, such as
Frontier Oil (not rated), Western Refining (not rated), Marathon
Oil, and ConocoPhillips. These refiners have seen their margins rise
sharply as the Brent premium has risen, as US refined products prices
have followed Brent crude prices. On the other hand, Sunoco (Un-
derperform), an east coast refiner that imports Brent and West African
crudes whose prices are linked to Brent, is relatively disadvantaged.




                                                                           Wealth Management Research 23 February 2011   3
US Equities Energy




WMR Energy Outperform List
Equipment & Services

Halliburton (HAL)                                                              High Conviction Call
Halliburton is a diversified services provider. It derives about 50-60%        Halliburton (HAL)                                                       Outperform
of its revenues outside of North America, though we expect the pro-            Halliburton provides products and services to the oil and gas industries. Its segments
                                                                               offer products and services to upstream oil and gas customers worldwide, ranging
portion to rise as the company continues to win major international            from the manufacturing of drill bits and other down hole and completion tools to
contracts. In late 2010, Halliburton introduced some new initiatives           pressure pumping services. Halliburton was established in 1919 and is
                                                                               headquartered in Houston, TX.
to optimize its already-strong competitive position. For instance, the
                                                                                                            WMR           Upside /        52 Week        52 Week
company looks to grow its deepwater revenue at 25% faster than the                   Price (USD)
                                                                                                            Target      (Downside)          High           Low
market by leveraging its technological expertise, through greater effi-                  46.60               52.00         12%             48.84          21.10

ciencies, and by providing exceptional service quality. Internationally,             Key Metrics
                                                                                                          Dividend      Enterprise         Total         Market
                                                                                                          Yield (%)     Value ($M)      Assets ($M)     Value ($M)
Halliburton looks particularly well positioned for margin expansion,
                                                                                                             0.75           44,239.6       18,297.0        43,757.7
as it aims to close the international margin gap that it has historically
                                                                               Consensus Forecasts (Fiscal Year End)          12/2010       12/2011E       12/2012E
achieved relative to industry leader, Schlumberger (Outperform). Hal-            Sales ($M)                                  17,973.0       21,262.4        23,730.9
liburton is the leader in North America, where it has a well-established         Net Income ($M)                              1,794.7        2,641.9         3,152.1
                                                                                 First Call GAAP EPS ($)                         1.97           2.90            3.46
franchise in unconventional gas exploration. With natural gas activity           Book Value per share ($)                       11.40          13.78           16.52
nearing a peak in North America, the company looks to offset a po-               P/E (x)                                         23.7           16.1            13.5
                                                                                 ROE (%)                                         18.1           22.7            22.5
tential decline in activity by capturing a greater share of drilling activi-
ty in liquids-rich gas plays and well as shale oil. These initiatives, com-    Consensus Rating Distribution                Buy             Hold           Sell
                                                                                                                             26              3              0
bined with the impending upcycle in the oil services industry, make
                                                                               Price Target Rationale
Halliburton our top pick among the oil services names.                         Our price target reflects 15.0x earnings and EV/EBITDA of 9.1x based on 2011E
                                                                               consensus, compared to oil services industry midcycle multiples of 22.0x and 8.9x,
                                                                               respectively. Risks to our price target include price swings in oil and gas due to
Approximately 17% of Halliburton's revenue is derived from the Mid-            disruptions from geopolitical, weather and/or terrorist activity; changes in fiscal
dle East and Africa. If tensions persist, Halliburton could see slower         terms by host nations; regulatory legislation; events affecting worldwide economic

than expected growth in these regions.                                         activity; operational mishaps and delays.



Schlumberger (SLB)                                                             Source: UBS WMR, FactSet, as of 22 February 2011
Schlumberger is the leading international diversified oil and gas ser-
vices provider. It is the largest service company in the world, and it
                                                                               High Conviction Call
has the largest international operations of the major oil services com-
                                                                               Schlumberger (SLB)                                                     Outperform
panies. Schlumberger derives approximately 75-80% of its revenues              Schlumberger is an oilfield services company that supplies technology, project
from outside of North America. Due to the company’s relatively large           management and information solutions for the oil and gas industry. The company's
                                                                               services include seismic surveys, drilling, wireline logging, well construction and
size, we do not expect it to achieve the same organic growth rate              completion, and project management. The company employs approximately 77,000
as its smaller peers, Halliburton and Weatherford. However, it is well         people representing over 140 nationalities and working in more than 80 countries.
                                                                               Schlumberger was founded in 1926 and is headquartered in Houston, TX.
positioned to benefit from increased investment activity in the inter-
national oil arena. Schlumberger has made several acquisitions that                  Price (USD)
                                                                                                           WMR
                                                                                                           Target
                                                                                                                         Upside /
                                                                                                                       (Downside)
                                                                                                                                         52 Week
                                                                                                                                           High
                                                                                                                                                        52 Week
                                                                                                                                                          Low
could enhance its position in the down-hole services arena, including                   92.91               97.00          4%             95.15          51.67

the recent acquisition of Smith International. Approximately 5% of                                        Dividend     Enterprise          Total        Market
                                                                                     Key Metrics
SLB's revenues are derived in the Gulf of Mexico, where the drilling                                      Yield (%)    Value ($M)       Assets ($M)    Value ($M)

moratorium was recently lifted.                                                                             1.05          120,685.3       51,767.0      129,348.9

                                                                               Consensus Forecasts (Fiscal Year End)        12/2010        12/2011E      12/2012E
                                                                                 Sales ($M)                                 27,447.0       38,451.0       44,336.8
Approximately 23% of Schlumberger's revenue is derived from the                  Net Income ($M)                             3,612.2         4,900.4       6,315.0
Middle East and Africa. If tensions persist, Schlumberger could see              First Call GAAP EPS ($)                        2.86            3.88          5.00
                                                                                 Book Value per share ($)                      24.59           25.44         28.53
slower than expected growth in these regions.                                    P/E (x)                                        32.5            23.9          18.6
                                                                                 ROE (%)                                        14.2            17.0          19.5

                                                                               Consensus Rating Distribution               Buy             Hold           Sell
                                                                                                                            22              5              0

                                                                               Price Target Rationale
                                                                               Our price target reflects 19.4x earnings and EV/EBITDA of 12.8x based on 2011E
                                                                               consensus, compared to oil services industry midcycle multiples of 22.0x and 8.9x,
                                                                               respectively, to which SLB typically trades at a premium. Risks to our price target
                                                                               include price swings in oil and gas due to disruptions from geopolitical, weather
                                                                               and/or terrorist activity; changes in fiscal terms by host nations; regulatory
                                                                               legislation; events affecting worldwide economic activity; operational mishaps and
                                                                               delays.



                                                                               Source: UBS WMR, FactSet, as of 22 February 2011

                                                                                              Wealth Management Research 23 February 2011                               4
US Equities Energy




WMR Energy Outperform List (continued)
Equipment & Services

Transocean (RIG)                                                              Transocean (RIG)                                                          Outperform
                                                                              Transocean's principal activity is to provide offshore contract drilling services for oil
Transocean is the largest offshore drilling contractor in the world, and      and gas wells. The Group provides the drilling rigs, related equipment and work
is the established leader in the deepwater drilling business. Its rig fleet   crews to its customers primarily on a day rate basis to drill offshore wells. It also
                                                                              provides services in technically demanding sectors of the offshore drilling business
includes 68 semi-submersibles and 65 jack-ups. Transocean's deep-             with particular focus on deepwater and harsh environment drilling services. The
water fleet is considered to be the most technologically advanced in          Group operates in the U.S., Gulf of Mexico, Trinidad, Canada, Brazil, North Europe,
                                                                              the Mediterranean, the Middle East, the Caspian Sea, West Africa, India and
the industry.                                                                 Australia.

                                                                                                            WMR           Upside /         52 Week         52 Week
Transocean was the owner and operator of the Deepwater Horizon,                      Price (USD)
                                                                                                            Target      (Downside)           High            Low
the rig that was lost in the recent accident in the Gulf of Mexico. The                 81.62                86.00          5%              92.67           41.88

rig was insured for USD 560 million and the company has recovered                   Key Metrics
                                                                                                          Dividend       Enterprise         Total          Market
                                                                                                          Yield (%)      Value ($M)      Assets ($M)      Value ($M)
the full amount from insurance. An investigation of the incident will                                        0.00            34,211.8        36,436.0       26,606.3
likely extend for months, and it remains unclear whether Transocean
                                                                              Consensus Forecasts (Fiscal Year End)           12/2009        12/2010E       12/2011E
will incur financial liabilities as a result of the accident.                   Sales ($M)                                   11,556.0          9,696.6      10,130.9
                                                                                Net Income ($M)                                3,656.2        1,958.1        2,112.2
                                                                                First Call GAAP EPS ($)                         11.39             6.10          6.58
Lifting of the drilling moratorium is a positive for Transocean, though         Book Value per share ($)                         63.66           67.41         71.72
it will take time for business to return to normal in the Gulf of Mexico.       P/E (x)                                            7.2            13.4          12.4
                                                                                ROE (%)                                           19.5             9.8           9.7
Transocean had 14 deepwater rigs operating in the Gulf of Mexico
at the time the moratorium was called. Meanwhile, lack of activity            Consensus Rating Distribution                  Buy             Hold            Sell
                                                                                                                             11               19              1
in the Gulf of Mexico has caused excess capacity in the worldwide
                                                                              Price Target Rationale
deepwater rig markets, creating a temporary headwind for drillers.            Our price target reflects 13.1x earnings and EV/EBITDA of 7.2x based on 2011E
                                                                              consensus, compared to drilling industry midcycle multiples of 12.0x and 6.0x,
                                                                              respectively. RIG stock was USD 92 before the GOM accident. Risks to our price
Separately, the company is working with the Swiss authorities for ap-         target include price swings in oil and gas due to disruptions from geopolitical,
proval to pay its first quarterly dividend, which it had expected to de-      weather and/or terrorist activity; changes in fiscal terms by host nations; regulatory

clare in July 2010. The payment is being delayed while the Swiss gov-         legislation; events affecting worldwide economic activity; operational mishaps and
                                                                              delays.
ernment reviews the claims and lawsuits against Transocean in the US
relating to the Macondo incident. We believe the delay is temporary,          Source: UBS WMR, FactSet, as of 22 February 2011
and that Transocean will initiate a dividend in 2011.
                                                                              Weatherford International (WFT)                                            Outperform
Weatherford International (WFT)                                               Weatherford International is an oilfield service company. It is a provider of
                                                                              equipment and services used in the drilling, evaluation, completion, production and
Weatherford is an international diversified service provider, with ap-        intervention of oil and natural gas wells. The company was founded in 1972 and is
proximately 65% of its revenues derived from outside of North Amer-           headquartered in Houston, TX.

ica. It is among the best positioned service companies to experience                 Price (USD)
                                                                                                            WMR            Upside /        52 Week         52 Week
international growth, in our view. Eastern Hemisphere expansion has                     24.11
                                                                                                            Target
                                                                                                             26.00
                                                                                                                         (Downside)
                                                                                                                             8%
                                                                                                                                             High
                                                                                                                                            26.25
                                                                                                                                                             Low
                                                                                                                                                            12.34
been a cornerstone of its business strategy. Implementation of this
                                                                                                          Dividend       Enterprise         Total          Market
strategy appears well underway. The company targets 75% of rev-                     Key Metrics
                                                                                                          Yield (%)      Value ($M)      Assets ($M)      Value ($M)
enues from outside of North America by 2013. These revenues are                                              0.00            24,499.1        19,614.8       19,017.6
expected to be derived from markets such as Iraq, Russia, Algeria,            Consensus Forecasts (Fiscal Year End)            12/2010       12/2011E        12/2012E
Brazil and Colombia. Weatherford is among the least exposed diver-              Sales ($M)                                    10,211.4       12,273.9        14,036.9
                                                                                Net Income ($M)                                  423.0          937.7         1,365.2
sified services companies to the Gulf of Mexico, where revenues are             First Call GAAP EPS ($)                           0.56           1.25            1.82
estimated to be less than 4% of the total.                                      Book Value per share ($)                         13.50          14.75           16.52
                                                                                P/E (x)                                           42.8           19.3            13.2
                                                                                ROE (%)                                            4.3            9.2            11.9
Weatherford continues to await a judgment regarding an investiga-
                                                                              Consensus Rating Distribution                  Buy             Hold             Sell
tion by the Department of Justice under the Foreign Corrupt Practices                                                         10              14               0
Act. The investigation is over two years old, and we believe a settle-        Price Target Rationale
ment would be a catalyst for upside in WFT shares, as uncertainties           Our price target reflects 14.3x earnings and EV/EBITDA of 8.9x based on 2011E
                                                                              consensus, compared to oil services industry midcycle multiples of 22.0x and 8.9x,
are removed.                                                                  respectively. Risks to our price target include price swings in oil and gas due to
                                                                              disruptions from geopolitical, weather and/or terrorist activity; changes in fiscal
Approximately 25% of Weatherford's revenue is derived from the                terms by host nations; regulatory legislation; events affecting worldwide economic
                                                                              activity; operational mishaps and delays.
Middle East and Africa. If tensions persist, Weatherford could see
slower than expected growth in these regions.                                 Source: UBS WMR, FactSet, as of 22 February 2011




                                                                                              Wealth Management Research 23 February 2011                                 5
US Equities Energy




WMR Energy Outperform List (continued)
Oil & Gas

Anadarko Petroleum (APC)                                                  High Conviction Call
Approximately 38% of Anadarko's production is oil. Anadarko has           Anadarko Petroleum (APC)                                                Outperform
been very successful in its exploration program. The company has          Anadarko Petroleum provides oil and gas exploration services. Anadarko operates
                                                                          through three operating segments: Oil and Gas Exploration & Production, Midstream
made several large discoveries in Ghana, Brazil, the Gulf of Mexico       and Marketing. Anadarko Petroleum is headquartered in The Woodlands, TX.
and Southeast Asia; and drilling continues in these regions. A deep                                    WMR           Upside /        52 Week         52 Week
                                                                                Price (USD)
inventory of discovered resources should support future growth. In                  77.85
                                                                                                       Target
                                                                                                        83.00
                                                                                                                   (Downside)
                                                                                                                       7%
                                                                                                                                       High
                                                                                                                                      82.30
                                                                                                                                                       Low
                                                                                                                                                      34.54
addition, Anadarko is a large stakeholder in the Haynesville, Mar-
                                                                                                     Dividend      Enterprise          Total         Market
cellus and Eagle Ford gas shale plays, which are located onshore                Key Metrics
                                                                                                     Yield (%)     Value ($M)       Assets ($M)     Value ($M)
US. Anadarko's production guidance is for 7-9% annual growth in                                         0.44           48,779.5       51,559.0        40,123.1

2010-2014.                                                                Consensus Forecasts (Fiscal Year End)          12/2010       12/2011E       12/2012E
                                                                            Sales ($M)                                  10,984.0       12,389.6       14,704.8
                                                                            Net Income ($M)                                904.5        1,143.1        1,660.0
Anadarko has a 25% interest in the Macondo field, where the Deep-           First Call GAAP EPS ($)                         1.82           2.30           3.34
water Horizon accident occurred. According to contractual terms,            Book Value per share ($)                       42.30          44.26          48.12
                                                                            P/E (x)                                         42.8           33.8           23.3
Anadarko is responsible for a share (25%) of clean-up costs. The total      ROE (%)                                          4.5            5.4            8.1
cost that it will be held accountable for is not yet known. However,      Consensus Rating Distribution                Buy             Hold            Sell
Anadarko's financial position is strong, having a liquidity position of                                                11               14              1

USD 8.7 billion as of the end of 2010. We believe the company is          Price Target Rationale
                                                                          Our price target reflects 24.9x earnings and EV/EBITDA of 6.7x based on 2011E
financially positioned to handle a worst-case scenario.                   consensus, compared to E&P industry midcycle multiples of 16.4x and 6.0x,
                                                                          respectively. APC has traded at a significant premium to midcycle, reflecting
                                                                          exceptional momentum in its exploration program. APC stock was USD 73.50
Anadarko had four rigs operating in the Gulf of Mexico prior to the       before the GOM accident, and it has made multiple discoveries since. Risks to our
moratorium, two drilling appraisals at Lucius and Heidelberg, and one     price target include price swings in oil and gas to disruptions from geopolitical,
                                                                          weather and/or terrorist activity; changes in fiscal terms by host nations; regulatory
drilling a prospect called Callisto. We expect activity to resume in      legislation; events affecting worldwide economic activity; operational mishaps and
2011.                                                                     delays.



Apache (APA)                                                              Source: UBS WMR, FactSet, as of 22 February 2011
About 50% of Apache’s production is oil, which is more than the av-
                                                                          Apache (APA)                                                              Outperform
erage independent E&P company. This makes Apache’s earnings more          Apache explores, develops and produces natural gas. Its production interests are
sensitive to changes in oil prices than other E&P companies. Apache       focused in the Gulf of Mexico, the Gulf Coast, the Permian Basin, the Anadarko
has an inventory of potential development projects that will provide      Basin and the Western Sedimentary Basin of Canada. Outside of North America it
                                                                          has exploration and production interests offshore and onshore Egypt, offshore
future growth, including projects in the Gulf of Mexico, Egypt, Aus-      Western Australia, in the North Sea offshore and United Kingdom. The company
tralia and Argentina. It has a substantial position in the Horn River     was founded in 1954 and is headquartered in Houston, TX.

Basin, a gas shale play in Canada, and a large legacy position in the            Price (USD)
                                                                                                        WMR           Upside /         52 Week         52 Week
                                                                                                        Target      (Downside)           High            Low
emerging Granite Wash play in Texas and Oklahoma. Exploration con-                 117.07               134.00         14%              127.73          81.94
tinues in Egypt, Australia and in the Gulf of Mexico.
                                                                                                      Dividend       Enterprise         Total          Market
                                                                                Key Metrics
                                                                                                      Yield (%)      Value ($M)      Assets ($M)      Value ($M)
In April 2010, Apache completed its acquisition of Mariner Energy for                                    0.50            50,035.1        43,425.0       43,754.6
USD 3.9 billion, which enhances its position in shallow water Gulf of     Consensus Forecasts (Fiscal Year End)           12/2010        12/2011E       12/2012E
Mexico, and in the Permian Basin. It also acquired USD 7 billion of         Sales ($M)                                   12,092.0        15,259.5       17,076.1
                                                                            Net Income ($M)                                3,209.5        3,931.1         4,390.6
assets from BP in the Permian Basin, Canada and Egypt. In addition,         First Call GAAP EPS ($)                           8.94          10.95           12.23
Apache has acquired Devon’s Gulf of Mexico shelf assets. We believe         Book Value per share ($)                         62.80          75.20           88.84
                                                                            P/E (x)                                           13.1           10.7             9.6
these assets are a good fit in Apache's portfolio and will enhance its      ROE (%)                                           11.7           15.7            16.2
future growth.
                                                                          Consensus Rating Distribution                  Buy             Hold            Sell
                                                                                                                          15              6               1
We believe Apache is among the most attractively valued E&P com-          Price Target Rationale
panies, trading at a relative discount to its peers.                      Our price target reflects 11.0x earnings and EV/EBITDA of 5.2x based on 2011E
                                                                          consensus, compared to E&P industry midcycle multiples of 16.4x and 6.0x,
                                                                          respectively. Historically, Apache has traded at a discount to the peer group, and
Apache stock has been negatively impacted by recent events in Egypt,      our price target reflects typical relative multiples. Risks to our price target include
where approximately 20% of its production is derived. However,            price swings in oil and gas due to disruptions from geopolitical, weather and/or
                                                                          terrorist activity; changes in fiscal terms by host nations; regulatory legislation;
protests have calmed, and we believe Apache stock could be poised         events affecting worldwide economic activity; operational mishaps and delays.
for outperformance as investors come back to the name.
                                                                          Source: UBS WMR, FactSet, as of 22 February 2011



                                                                                            Wealth Management Research 23 February 2011                             6
US Equities Energy




WMR Energy Outperform List (continued)
Oil & Gas

Devon Energy (DVN)                                                           High Conviction Call
Devon is a large-cap E&P company that is in the process of transform-        Devon Energy (DVN)                                                    Outperform
ing itself into a pure-play, high-growth onshore North America oil and       Devon Energy is an energy company engaged in oil and gas exploration,
                                                                             development and production. It also processes natural gas and transports oil, gas
gas producer. Devon has sold most of its offshore assets, including          and natural gas liquids. It owns oil and gas properties in the United States and
those in the Gulf of Mexico, Brazil, Azerbaijan and China. After-tax         Canada; having sold most of its assets in Azerbaijan, Brazil and China. It has
                                                                             marketing and midstream operations in North America, including pipelines, storage
proceeds of over USD 8 billion will be used to fund investment in            and treatment facilities and gas processing plants. It was founded in 1971 and is
onshore North America oil and gas production, debt reduction, and            headquartered in Oklahoma City, OK.

for a USD 3.5 billion share repurchase program announced in May                    Price (USD)
                                                                                                         WMR           Upside /       52 Week        52 Week
                                                                                                         Target      (Downside)         High           Low
2010. The company has added acreage in liquids-rich plays such as                     87.46               92.00          5%            90.10          58.58
Avalon Shale, Bone Spring, and Cana-Woodford in the US; as well as
                                                                                                       Dividend      Enterprise         Total        Market
Kirby-Pike, which is an add-on to its ongoing Jackfish oil development             Key Metrics
                                                                                                       Yield (%)     Value ($M)      Assets ($M)    Value ($M)
in Canada.                                                                                                0.73           41,333.9       32,927.0      38,102.4

                                                                             Consensus Forecasts (Fiscal Year End)        12/2010       12/2011E      12/2012E
Devon also has attractive acreage positions in key plays: Barnett, Hay-        Sales ($M)                                  9,940.0        9,640.5     11,202.3
                                                                               Net Income ($M)                             2,537.0        2,663.6       3,408.9
nesville, Granite Wash, and Horn River Basin in Canada. The compa-             First Call GAAP EPS ($)                        5.75           6.04          7.73
ny projects 8% growth in production in 2010 off of its adjusted (for           Book Value per share ($)                      44.62          48.62         55.58
                                                                               P/E (x)                                        15.2           14.5          11.3
asset sales) production base. Devon continues to trade at a discount-          ROE (%)                                        10.3           12.8          15.6
ed value to its pure play onshore peers. However, we believe Devon’s
                                                                             Consensus Rating Distribution               Buy            Hold           Sell
past performance track record and its financial strength leave it well-                                                   18             7              0
positioned to successfully execute its transition to a pure-play, high-      Price Target Rationale
growth onshore producer, which is a catalyst for closure of the value        Our price target reflects 11.9x earnings and EV/EBITDA of 6.7x based on 2011E
                                                                             consensus, compared to E&P industry midcycle multiples of 16.4x and 6.0x,
gap, in our view.                                                            respectively. Risks to our price target include price swings in oil and gas due to
                                                                             disruptions from geopolitical, weather and/or terrorist activity; changes in fiscal
                                                                             terms by host nations; regulatory legislation; events affecting worldwide economic
                                                                             activity; operational mishaps and delays.
ExxonMobil (XOM)
ExxonMobil is a large-cap integrated oil company. Its asset base is
                                                                             Source: UBS WMR, FactSet, as of 22 February 2011
among the largest and highest-quality in the peer group, in our view,
and it is among the lowest-cost operators. ExxonMobil has one of             ExxonMobil (XOM)                                                      Outperform
the strongest balance sheets in the Energy sector, with a debt-to-total      ExxonMobil explores and produces crude oil and natural gas, manufactures
                                                                             petroleum products and sells crude oil, gas and other petroleum products. It
capital ratio of 2%.                                                         operates as a petroleum and petrochemicals company. The company was founded
                                                                             in 1882 and is headquartered in Irving, TX.

ExxonMobil’s 2009-early-2010 operating performance had been neg-                                         WMR           Upside /       52 Week        52 Week
                                                                                   Price (USD)
atively impacted by lackluster oil and gas production growth and a                    85.44
                                                                                                         Target
                                                                                                          88.00
                                                                                                                     (Downside)
                                                                                                                         3%
                                                                                                                                        High
                                                                                                                                       85.11
                                                                                                                                                       Low
                                                                                                                                                      55.94
weak refining environment. However, ExxonMobil’s recent earnings
reports have shown improved refining, marketing and chemicals re-                  Key Metrics
                                                                                                       Dividend
                                                                                                       Yield (%)
                                                                                                                     Enterprise
                                                                                                                     Value ($M)
                                                                                                                                        Total
                                                                                                                                     Assets ($M)
                                                                                                                                                     Market
                                                                                                                                                    Value ($M)
sults, contributing to strong earnings results relative to the prior year.                                2.08          430,003.7     231,060.0      420,725.5
While refining and chemical industry fundamentals are less robust            Consensus Forecasts (Fiscal Year End)        12/2010      12/2011E        12/2012E
than they were at the peak of the cycle, we believe margins have               Sales ($M)                               383,221.0      460,470.5      499,170.7
                                                                               Net Income ($M)                           30,459.3       34,964.6       39,616.7
stabilized off their bottoms, allowing ExxonMobil to leverage the ef-          First Call GAAP EPS ($)                       6.22           7.14           8.09
ficiencies gained from its uniquely integrated refining and chemicals          Book Value per share ($)                     31.44          32.90          37.95
                                                                               P/E (x)                                       13.7           12.0           10.6
businesses. In the exploration and production unit, we project recent          ROE (%)                                       17.4           23.7           23.5
lack of production growth will be offset with peer-leading production
                                                                             Consensus Rating Distribution               Buy            Hold           Sell
growth. In 2010, ExxonMobil’s production rose over 13% from the                                                           5              11             1
prior year, with project start-ups in Qatar and the XTO assets making        Price Target Rationale
the largest contributions.                                                   Our price target reflects 10.9x earnings and EV/EBITDA of 5.4x based on 2011E
                                                                             consensus, compared to recent integrated oil industry multiples of 12.5x and 4.5x,
                                                                             respectively. Risks to our price target include price swings in oil and gas due to
We are raising our price target from USD 85 to USD 88 based on               disruptions from geopolitical, weather and/or terrorist activity; changes in fiscal

higher 2011 consensus estimates.                                             terms by host nations; regulatory legislation; events affecting worldwide economic
                                                                             activity; operational mishaps and delays.



                                                                             Source: UBS WMR, FactSet, as of 22 February 2011




                                                                                            Wealth Management Research 23 February 2011                            7
US Equities Energy




WMR Energy Outperform List (continued)
Oil & Gas

Hess (HES)                                                                  High Conviction Call
Hess is a mid-cap integrated oil company. Its earnings are among the        Hess (HES)                                                             Outperform
most sensitive to changes in oil prices, given that roughly 70% of its      Hess explores, produces, purchases, transports, and sells crude oil. It engages in the
                                                                            exploration, production, purchase, transportation and sale of crude oil and natural
production is oil. The company's exploration program includes poten-        gas. The company also refines and markets refined petroleum products, natural
tially high-impact prospects in Ghana, Australia, Indonesia, the Gulf       gas, and electricity. Hess operates in two segments, Exploration and Production and
                                                                            Marketing and Refining. The company is headquartered in New York, NY.
of Mexico and Libya. Hess has set a long-term goal of 3% annual oil
and gas production growth per year, though we expect growth to                    Price (USD)
                                                                                                         WMR           Upside /        52 Week        52 Week
                                                                                                         Target      (Downside)          High           Low
exceed that rate in 2011 and 2012.                                                    80.76               87.00          8%             86.12          48.70

                                                                                                       Dividend      Enterprise         Total         Market
Hess recently announced a dry hole at its third exploration well in               Key Metrics
                                                                                                       Yield (%)     Value ($M)      Assets ($M)     Value ($M)
Brazil’s offshore BM-S-22 block. However, exploration will continue                                       0.47           30,488.5       35,281.0        28,675.2

elsewhere. The company is the largest investor in the Bakken shale          Consensus Forecasts (Fiscal Year End)          12/2010       12/2011E       12/2012E
in North Dakota and Montana, where it has recently closed on two              Sales ($M)                                  34,613.0       38,450.1        43,247.9
                                                                              Net Income ($M)                              1,689.0         2,094.6        2,386.7
asset acquisitions that will boost the company's production profile in        First Call GAAP EPS ($)                         5.14            6.38           7.27
the play. It has also acquired a position in the Eagle Ford shale play in     Book Value per share ($)                       49.58           54.46          60.60
                                                                              P/E (x)                                         15.7            12.7           11.1
Texas, and more acreage is expected to be added in 2011.                      ROE (%)                                         11.1            12.0           11.7

                                                                            Consensus Rating Distribution                Buy             Hold           Sell
Murphy Oil (MUR)                                                                                                          8               6              1
Murphy is the smallest of the integrated oil companies. With oil rep-       Price Target Rationale
resenting about 80% of Murphy’s total production, its earnings are          Our price target reflects 12.0x earnings and EV/EBITDA of 4.6x based on 2011E
                                                                            consensus, compared to recent integrated oil industry multiples of 12.5x and 4.5x,
the most levered to oil prices in our coverage universe. Following a        respectively. Risks to our price target include price swings in oil and gas due to
successful exploration program in Malaysia in 2000-2005, Murphy             disruptions from geopolitical, weather and/or terrorist activity; changes in fiscal
                                                                            terms by host nations; regulatory legislation; events affecting worldwide economic
Oil aptly executed the development phase, allowing the company to           activity; operational mishaps and delays.
approximately double its production since 2007. New development
projects in the Gulf of Mexico, Congo, Malaysia and Canada support-         Source: UBS WMR, FactSet, as of 22 February 2011
ed production growth of 18% in 2010.

Murphy looks add to its project pipeline with a balanced drilling pro-
gram containing high-risk, potentially high-impact prospects and low-       Murphy Oil (MUR)                                                       Outperform
                                                                            Murphy Oil explores and produces crude oil, natural gas and natural gas liquids. Its
er-risk prospects. Recent exploration efforts have not panned out,          services include exploration, production, refining and marketing services. Murphy
with four dry wells in Congo and Suriname announced in January              Oil has operations in the United States, Ecuador, Malaysia, the Republic of Congo,
                                                                            the UK North Sea, and Canada. The company was founded in 1950 and is
2011. Among its lower risk prospects, in Canada, the Tupper gas field       headquartered in El Dorado, AR.
in British Columbia has begun to add production. Development activ-               Price (USD)
                                                                                                         WMR           Upside /        52 Week        52 Week
ity at its Eagle Ford shale acreage will begin in 2011.                               73.72
                                                                                                         Target
                                                                                                          76.00
                                                                                                                     (Downside)
                                                                                                                         3%
                                                                                                                                         High
                                                                                                                                        76.74
                                                                                                                                                        Low
                                                                                                                                                       48.14


In July 2010, Murphy announced its intention to exit refining, which              Key Metrics
                                                                                                       Dividend
                                                                                                       Yield (%)
                                                                                                                     Enterprise
                                                                                                                     Value ($M)
                                                                                                                                        Total
                                                                                                                                     Assets ($M)
                                                                                                                                                      Market
                                                                                                                                                     Value ($M)
will transform the company from an integrated oil to an E&P company.                                      1.49           14,171.3       12,756.4       14,212.1
E&P companies trade at higher multiples than integrated oils.               Consensus Forecasts (Fiscal Year End)         12/2010        12/2011E       12/2012E
                                                                              Sales ($M)                                  23,345.0        25,545.6       28,335.0
                                                                              Net Income ($M)                                797.7         1,074.0        1,334.7
                                                                              First Call GAAP EPS ($)                         4.13            5.56           6.91
                                                                              Book Value per share ($)                       42.34           46.48          56.78
                                                                              P/E (x)                                         17.8            13.3           10.7
                                                                              ROE (%)                                         10.3            12.5           14.4

                                                                            Consensus Rating Distribution                Buy             Hold           Sell
                                                                                                                          5               7              2

                                                                            Price Target Rationale
                                                                            Our price target reflects 11.0x earnings and EV/EBITDA of 4.6x based on 2011E
                                                                            consensus, compared to recent integrated oil industry multiples of 12.5x and 4.5x,
                                                                            respectively. Risks to our price target include price swings in oil and gas due to
                                                                            disruptions from geopolitical, weather and/or terrorist activity; changes in fiscal
                                                                            terms by host nations; regulatory legislation; events affecting worldwide economic
                                                                            activity; operational mishaps and delays.

                                                                            Source: UBS WMR, FactSet, as of 22 February 2011




                                                                                           Wealth Management Research 23 February 2011                               8
US Equities Energy




WMR Energy Underperform List
Equipment & Services

Rowan Cos. (RDC)                                                         Rowan Cos (RDC)                                                    Underperform
                                                                         Rowan Companies provides international and domestic contract drilling services.
Rowan Cos. provides contract drilling services utilizing a fleet of 24   The Company also owns and operates a mini-steel mill, a manufacturing facility
jack-up rigs and 30 land rigs. Rowan’s fleet is of above-average qual-   that produces equipment for the mining, timber and transportation industries, and a
                                                                         marine construction division that has designed and built of all mobile offshore jack-
ity and utilization has remained high despite the drilling downturn in   up drilling rigs. Rowan Companies was founded in 1923 and is headquartered in
shallow water. Approximately 14 (58%) of Rowan's rigs are high-spec      Houston, TX.

quality. Meanwhile, the standard and commodity jack-up market has              Price (USD)
                                                                                                     WMR           Upside /        52 Week        52 Week
                                                                                                     Target      (Downside)          High           Low
been impacted by declining demand and growing supply. Excess ca-                   39.59              37.00         -7%             40.25          20.44
pacity could continue to subdue pricing in 2011, in our view. Within
                                                                                                    Dividend      Enterprise        Total         Market
Rowan's fleet, 42% are standard rigs.                                          Key Metrics
                                                                                                    Yield (%)     Value ($M)     Assets ($M)     Value ($M)
                                                                                                       0.00            5,261.8        5,210.7        5,010.9

We are raising our price target from USD 34 to USD 37 based on           Consensus Forecasts (Fiscal Year End)         12/2009       12/2010E       12/2011E
higher 2011 consensus estimates.                                           Sales ($M)                                  1,770.2        1,782.6        1,938.6
                                                                           Net Income ($M)                               338.5          276.0          241.9
                                                                           First Call GAAP EPS ($)                        2.98           2.43           2.13
                                                                           Book Value per share ($)                      27.40          29.77          31.33
                                                                           P/E (x)                                        13.3           16.3           18.6
                                                                           ROE (%)                                        11.7            8.1            7.1

                                                                         Consensus Rating Distribution                Buy            Hold           Sell
                                                                                                                       16             10             1

                                                                         Price Target Rationale
                                                                         Our price target reflects 17.4x earnings and EV/EBITDA of 7.7x based on 2011E
                                                                         consensus, compared to drilling industry midcycle multiples of 12.0x and 6.0x,
                                                                         respectively. Risks to our price target include price swings in oil and gas due to
                                                                         disruptions from geopolitical, weather and/or terrorist activity; changes in fiscal
                                                                         terms by host nations; regulatory legislation; events affecting worldwide economic
                                                                         activity; operational mishaps and delays.


                                                                         Source: UBS WMR, FactSet, as of 22 February 2011




                                                                                        Wealth Management Research 23 February 2011                              9
US Equities Energy




WMR Energy Underperform List (continued)
Oil & Gas

ConocoPhillips (COP)                                                       ConocoPhillips (COP)                                                Underperform
                                                                           ConocoPhillips explores, produces, refines, and wholesales oil and natural gas. It
ConocoPhillips is a large-cap integrated oil company. As a large gas       operates its business through the following segments: Exploration and Production,
producer in the United States, ConocoPhillips’ earnings have been          Midstream, Refining and Marketing, LUKOIL Investment, Chemicals and Emerging
                                                                           Businesses. The company was founded in 1875 and is headquartered in Houston,
negatively impacted by weak gas fundamentals. Its above-average ex-        TX.
posure to refining has been a drag on earnings as well. The compa-                                      WMR           Upside /        52 Week        52 Week
                                                                                 Price (USD)
ny is repositioning its strategy from “growth through acquisitions” to                                  Target      (Downside)          High           Low
                                                                                     76.61               73.00         -5%             76.72          47.15
organic growth. However, we believe it will take time to fill the or-
ganic growth pipeline. Near-term growth prospects are lacking, and               Key Metrics
                                                                                                      Dividend
                                                                                                      Yield (%)
                                                                                                                     Enterprise
                                                                                                                     Value ($M)
                                                                                                                                        Total
                                                                                                                                     Assets ($M)
                                                                                                                                                     Market
                                                                                                                                                    Value ($M)
we expect operational performance to lag its peers in the next year or                                   3.45          137,822.6       156,000.0      112,572.0
more. ConocoPhillips shares look attractively valued, but we see no        Consensus Forecasts (Fiscal Year End)          12/2010       12/2011E        12/2012E
near-term catalysts for closure of the value gap.                            Sales ($M)                                 193,389.8      198,120.2       226,241.3
                                                                             Net Income ($M)                              8,827.1       10,034.9        11,645.2
                                                                             First Call GAAP EPS ($)                         5.92           6.73            7.81
We are raising our price target from USD 68 to USD 73 based on               Book Value per share ($)                       46.54          48.06           53.36
higher 2011 consensus estimates.                                             P/E (x)                                         12.9           11.4             9.8
                                                                             ROE (%)                                          9.3           13.7            15.0

Sunoco (SUN)                                                               Consensus Rating Distribution                 Buy
                                                                                                                          6
                                                                                                                                        Hold
                                                                                                                                         8
                                                                                                                                                        Sell
                                                                                                                                                         3
Sunoco is an independent refiner, with operations focused in the east-
                                                                           Price Target Rationale
ern United States. It also has a large retail network; an interest in      Our price target reflects 9.4x earnings and EV/EBITDA of 4.7x based on 2011E
Sunoco Logistics, a pipeline and logistics MLP; a chemicals business;      consensus, compared to recent integrated oil industry multiples of 12.5x and 4.5x,
                                                                           respectively. ConocoPhillips typically trades at a discount to the peer group, which
and a coal and coke business. Most of the recent growth has come           we have factored into our price target. Risks to our price target include price swings
from logistics and coking. The refining business has been shrinking as     in oil and gas due to disruptions from geopolitical, weather and/or terrorist activity;
                                                                           changes in fiscal terms by host nations; regulatory legislation; events affecting
the company has closed one plant and sold another in the past year.        worldwide economic activity; operational mishaps and delays.
Still, Sunoco is thought of by investors as an independent refiner. Giv-
en our outlook for refining margins to remain weak, we expect earn-        Source: UBS WMR, FactSet, as of 22 February 2011
ings for independent refiners to remain below mid-cycle throughout
2010. Sunoco’s operations are disadvantaged relative to other refiners
in that it cannot process lower-quality, lower-cost crude oils. The cost   Sunoco (SUN)                                                        Underperform
                                                                           Sunoco refines and markets petroleum and petrochemical products. The company,
disadvantage is exacerbated in a high crude price environment. The         through its subsidiaries, engages in the manufacturing and marketing of various
unusual premium at which Brent trades to West Texas Intermediate           petroleum products, including fuels, lubricants and some petrochemicals in the
                                                                           United States. It also engages in the manufacture of chemicals with interests in
crude places Sunoco at a disadvantage relative to other US refiners.       logistics and coke making. Sunoco operates in five segments: Refining and Supply,
                                                                           Retail Marketing, Chemicals, Logistics and Coke. The company was founded in
                                                                           1886 and is headquartered in Philadelphia, PA.
In June 2010, Sunoco announced its intention to spin off its coal and
                                                                                                        WMR           Upside /        52 Week        52 Week
coke business, in a move to unlock value. We believe the action could            Price (USD)
                                                                                                        Target      (Downside)          High           Low
garner value recognition for its high-return coke business. However,                 42.91               39.00         -9%             44.44          25.74

we are concerned that the refining company could experience mul-                 Key Metrics
                                                                                                      Dividend       Enterprise         Total        Market
tiple compression, as Sunoco trades at premium multiples to other                                     Yield (%)      Value ($M)      Assets ($M)    Value ($M)
                                                                                                         1.37             6,859.1       13,364.0         5,275.3
pure-play refiners.
                                                                           Consensus Forecasts (Fiscal Year End)          12/2010       12/2011E       12/2012E
                                                                             Sales ($M)                                   37,489.0      34,716.5       33,871.9
                                                                             Net Income ($M)                                 215.3         241.8          314.0
                                                                             First Call GAAP EPS ($)                          1.79          2.01           2.61
                                                                             Book Value per share ($)                        24.47         26.00          27.89
                                                                             P/E (x)                                          24.0          21.3           16.4
                                                                             ROE (%)                                           7.7           6.2           10.1

                                                                           Consensus Rating Distribution                 Buy            Hold            Sell
                                                                                                                          2              10              4

                                                                           Price Target Rationale
                                                                           Our price target reflects 14.9x earnings and EV/EBITDA of 5.6x based on 2011E
                                                                           consensus, compared to refining industry midcycle multiples of 10.2x and 6.0x,
                                                                           respectively. Risks to our price target include price swings in oil and gas due to
                                                                           disruptions from geopolitical, weather and/or terrorist activity; changes in fiscal
                                                                           terms by host nations; regulatory legislation; events affecting worldwide economic
                                                                           activity; operational mishaps and delays.



                                                                           Source: UBS WMR, FactSet, as of 22 February 2011



                                                                                        Wealth Management Research 23 February 2011                                  10
US Equities Energy




WMR Energy Sector Bellwether Marketperform List
Oil & Gas

Chevron (CVX)                                                               Chevron (CVX)                                                        Marketperform
                                                                            Chevron is engaged in exploring, producing, manufacturing, marketing and
Chevron is a large-cap integrated oil company. It is one of the largest     transporting crude oil and natural gas. The company's chemical operations include
operators in the deepwater Gulf of Mexico, where it has a deep port-        manufacturing and marketing of commodity petrochemicals, plastics for industrial
                                                                            uses and fuel & lubricant oil additives. It transports crude oil, natural gas and
folio of discoveries and exploration prospects, which we believe will       petroleum products by pipeline, marine vessel, motor equipment and rail car. The
contribute to intermediate-term growth. The six-month drilling mora-        company was incorporated in 1926 and is headquartered in San Ramon, CA.

torium does not change our investment outlook for Chevron. We be-                  Price (USD)
                                                                                                         WMR           Upside /         52 Week        52 Week
                                                                                                         Target      (Downside)           High           Low
lieve Chevron shares offer good long-term value. Chevron’s produc-                   100.32               96.00         -4%              98.81          66.83
tion profile is “oiler” than its super-major peers, giving it a relative                                Dividend      Enterprise         Total         Market
                                                                                  Key Metrics
advantage in the current commodity price environment. However we                                        Yield (%)     Value ($M)      Assets ($M)     Value ($M)

believe operational momentum of the last two years will ease in the                                        2.92          195,702.2      184,769.0      198,666.9

coming year.                                                                Consensus Forecasts (Fiscal Year End)           12/2010      12/2011E       12/2012E
                                                                              Sales ($M)                                  204,928.0      240,405.7      276,202.8
                                                                              Net Income ($M)                              19,022.0       21,429.9       23,275.9
In February 2011, an Ecuadorean court ruled that Chevron pay USD              First Call GAAP EPS ($)                          9.48          10.68         11.60
8.6 billion in environmental damages to settle a lawsuit filed by the in-     Book Value per share ($)                        52.31          58.98          67.25
                                                                              P/E (x)                                          10.6            9.4            8.6
digenous tribes. Chevron has appealed, and we believe the case could          ROE (%)                                          10.9           19.5           19.0
go on for several more years. Meanwhile, Chevron has filed an inter-        Consensus Rating Distribution                 Buy             Hold            Sell
national arbitration claim, alleging that the Ecuadorean government                                                        10              5               0

has violated a prior settlement agreement (with Texaco). Chevron has        Price Target Rationale
                                                                            Our price target reflects 8.3x earnings and EV/EBITDA of 3.6x based on 2011E
also filed a civil claim under the Racketeering Influenced and Corrupt      consensus, compared to recent integrated oil industry multiples of 12.5x and 4.5x,
Organization Act (RICO) against several dozen parties in Ecuador al-        respectively. Risks to our price target include price swings in oil and gas due to

leging fraudulent activity in gathering evidence for the case. Favorable    disruptions from geopolitical, weather and/or terrorist activity; changes in fiscal
                                                                            terms by host nations; regulatory legislation; events affecting worldwide economic
rulings in these cases could lead to dismissal of the lawsuit against       activity; operational mishaps and delays.
Chevron. Chevron has no assets in Ecuador.
                                                                            Source: UBS WMR, FactSet, as of 22 February 2011
Marathon Oil (MRO)
Marathon Oil is an integrated oil company. However, in January 2011,
                                                                            Marathon Oil (MRO)                                                  Marketperform
the company announced that it will spin off its refining operation into     Marathon Oil engages in the worldwide exploration, production and marketing of
a separate company, effective 30 June 2011. The new refining com-           liquid hydrocarbons and natural gas; oil sands mining and bitumen upgrading in
                                                                            Canada; domestic refining, marketing and transportation of crude oil and petroleum
pany will be called Marathon Petroleum Company (MPC). Marathon              products; and worldwide marketing and transportation of products manufactured
Oil (MRO) will retain the oil and gas producing businesses, transform-      from natural gas, such as liquefied natural gas and methanol. The company was
                                                                            founded in 1887 and is headquartered in Houston, TX.
ing itself from an integrated oil company to an independent explo-
ration and production company. Shareholders will receive one share                Price (USD)
                                                                                                         WMR           Upside /        52 Week        52 Week
                                                                                                         Target      (Downside)          High           Low
of MPC for every two shares of MRO.                                                   47.71               46.00         -4%             50.56          28.41

                                                                                                       Dividend      Enterprise          Total        Market
We believe the split will generate value for shareholders as the market           Key Metrics
                                                                                                       Yield (%)     Value ($M)       Assets ($M)    Value ($M)
assigns trading multiples that are more consistent with those within                                      2.02           40,268.5        47,046.0      35,147.7

each of the new companies’ respective peer groups. As the most refin-       Consensus Forecasts (Fiscal Year End)          12/2010       12/2011E       12/2012E
                                                                              Sales ($M)                                  73,621.0        72,992.7       98,258.5
ing-levered integrated oil company, investors have viewed Marathon            Net Income ($M)                               2,598.8        3,374.9        3,830.6
as a refiner, and have assigned refining multiples to its stock. Re-          First Call GAAP EPS ($)                          3.65           4.74           5.38
                                                                              Book Value per share ($)                        35.03          38.68          42.16
fining is notoriously a low-margin business, and independent refin-           P/E (x)                                          13.1           10.1            8.9
ers typically trade at lower multiples than companies engaged in the          ROE (%)                                           5.3           12.7           13.7

higher-return exploration and production business. Marathon’s explo-        Consensus Rating Distribution                Buy             Hold           Sell
ration and production business has been chronically undervalued by                                                        7               10             1

the market in our view. That said, Marathon’s upstream growth is            Price Target Rationale
                                                                            Our price target reflects 8.6x earnings and EV/EBITDA of 3.8x based on 2011E
likely to lag the peer group in the coming year, and we believe full val-   consensus, compared to recent integrated oil industry multiples of 12.5x and 4.5x,
ue recognition will be more likely if the company is successful at for-     respectively. Historically, Marathon has traded at a discount to the integrated oil
                                                                            industry, reflecting its larger exposure to the low-margin refining business. Risks to
mulating strategies for a higher rate of growth and reserve additions.      our price target include price swings in oil and gas due to disruptions from
                                                                            geopolitical, weather and/or terrorist activity; changes in fiscal terms by host
                                                                            nations; regulatory legislation; events affecting worldwide economic activity;
                                                                            operational mishaps and delays.



                                                                            Source: UBS WMR, FactSet, as of 22 February 2011



                                                                                         Wealth Management Research 23 February 2011                                 11
US Equities Energy




WMR Energy Sector Bellwether Marketperform List (continued)
Oil & Gas

Occidental Petroleum (OXY)                                                  Occidental Petroleum (OXY)                                         Marketperform
                                                                            Occidental Petroleum is an international oil and gas exploration and production
Occidental is a large oil-levered E&P company known for its successful      company, as well as a major North American chemical manufacturer. It is the
“buy and exploit” strategy. Approximately 70% of its overall produc-        fourth-largest U.S. oil and gas company with more than 10,000 employees and
                                                                            20,000 contractors on four continents. Oxy's success is built on technical expertise,
tion is oil. Skilled at producing mature onshore reserves, Occidental’s     business acumen, strong partnerships and its proven ability to deliver superior
portfolio is anchored by a large base of low-risk oil and gas reserves in   results.

Texas and California. It is the largest oil producer in the Permian Basin         Price (USD)
                                                                                                        WMR           Upside /        52 Week        52 Week
                                                                                                        Target      (Downside)          High           Low
in Texas. In July 2009, Oxy announced a large oil and gas discovery                  102.14             104.00          2%             107.56         72.13
in Kern County, California. While the company is still assessing the
                                                                                                       Dividend      Enterprise         Total        Market
resource potential, it is projected to hold at least 350 mil boe. Only            Key Metrics
                                                                                                       Yield (%)     Value ($M)      Assets ($M)    Value ($M)
a small portion of its acreage has been explored, and estimates are                                      1.71            82,761.5       44,229.0      87,247.4

likely to rise as exploration activity ramps up. However, meaningful        Consensus Forecasts (Fiscal Year End)         12/2010       12/2011E      12/2012E
                                                                              Sales ($M)                                 19,045.0        20,802.7      25,372.8
production growth in California will be hampered by natural gas pro-          Net Income ($M)                              4,654.9        5,932.6       7,096.3
cessing capacity constraints. A new processing plant will be complet-         First Call GAAP EPS ($)                         5.72           7.29          8.72

ed in early 2012. Elsewhere, Oxy has a growing presence in the Middle         Book Value per share ($)
                                                                              P/E (x)
                                                                                                                             40.06
                                                                                                                              17.9
                                                                                                                                            44.94
                                                                                                                                             14.0
                                                                                                                                                         51.01
                                                                                                                                                           11.7
East (Qatar, Iraq, Oman, Bahrain, UAE) and Libya, where production is         ROE (%)                                         10.9           16.8          17.4
projected to rise from 286,000 boe/d now to 360,000 boe/d by 2014.          Consensus Rating Distribution                Buy            Hold           Sell
                                                                                                                          15             5              0

Suncor Energy (SU)                                                          Price Target Rationale

Suncor is an integrated oil company. Suncor recently completed its          Our price target reflects 11.9x earnings and EV/EBITDA of 6.3x based on 2011E
                                                                            consensus, compared to E&P industry midcycle multiples of 16.4x and 6.0x,
merger with Petro-Canada. The merger diversifies the company’s pro-         respectively. Risks to our price target include price swings in oil and gas due to

duction base, and is strategically beneficial in our view. Suncor es-       disruptions from geopolitical, weather and/or terrorist activity; changes in fiscal
                                                                            terms by host nations; regulatory legislation; events affecting worldwide economic
timates USD 300 million in annual cost savings and synergies, and           activity; operational mishaps and delays.
capital expenditures savings of USD 1 billion annually. Despite the
transaction’s long-term merits, 2010 will likely be spent on absorb-        Source: UBS WMR, FactSet, as of 22 February 2011
ing the new assets and determining core areas for future investment.
Meanwhile, Suncor shares trade at a premium to other integrated oils,
                                                                            Suncor Energy (SU)                                                 Marketperform
and we believe future benefits from the transaction may already be          Suncor Energy is Canada's premier integrated energy company focused on
embedded in the stock price.                                                developing one of the world's largest petroleum resource basins. The company's
                                                                            operations include oil sands development & upgrading, conventional and offshore
                                                                            oil & gas production, petroleum refining and product marketing under the Petro-
                                                                            Canada brand. It is mainly focused on developing Canada's Athabasca oil sands.
                                                                            Suncor has four wind power farms in operation with a total capacity of 147
                                                                            megawatts. It has operations in Canada and the United States.

                                                                                                        WMR           Upside /        52 Week        52 Week
                                                                                  Price (USD)
                                                                                                        Target      (Downside)          High           Low
                                                                                     45.51               42.00         -8%             45.63          27.65

                                                                                                       Dividend      Enterprise         Total        Market
                                                                                  Key Metrics
                                                                                                       Yield (%)     Value ($M)      Assets ($M)    Value ($M)
                                                                                                          0.87           82,036.4      70,561.1       70,461.4

                                                                            Consensus Forecasts (Fiscal Year End)        12/2010        12/2011E      12/2012E
                                                                              Sales ($M)                                 34,600.9        37,730.5      39,865.7
                                                                              Net Income ($M)                             2,676.9         3,733.2       4,545.4
                                                                              First Call GAAP EPS ($)                        1.71            2.39          2.91
                                                                              Book Value per share ($)                      23.57           26.03         29.45
                                                                              P/E (x)                                        26.6            19.0          15.6
                                                                              ROE (%)                                         7.7             8.7           9.4

                                                                            Consensus Rating Distribution               Buy             Hold           Sell
                                                                                                                        11               9              0

                                                                            Price Target Rationale
                                                                            Our price target reflects 14.4x earnings and EV/EBITDA of 7.9x based on 2011E
                                                                            consensus, compared to recent integrated oil industry multiples of 12.5x and 4.5x,
                                                                            respectively. Risks to our price target include price swings in oil and gas due to
                                                                            disruptions from geopolitical, weather and/or terrorist activity; changes in fiscal
                                                                            terms by host nations; regulatory legislation; events affecting worldwide economic
                                                                            activity; operational mishaps and delays.



                                                                            Source: UBS WMR, FactSet, as of 22 February 2011



                                                                                         Wealth Management Research 23 February 2011                                12
US Equities Energy




Investment Thesis Summary - Equipment & Services
UBS WMR Energy: Equipment & Services - Sector Outperform List
Company                     Ticker   Investment Thesis Summary
                                     Halliburton is well-positioned to benefit from increased exploration and development spending by producers in 2011,
Halliburton                 HAL
                                     particularly in the international oil markets.
                                     Schlumberger is the leading diversified oil and gas services provider. It has the largest international operations and excellent
Schlumberger                SLB
                                     exposure to high-margin and high-growth markets.
                                     Transocean has the largest deepwater fleet among the drillers. We believe capacity in the deepwater markets will be tight as demand
Transocean                  RIG
                                     for drilling service picks up in 2011 and 2012.
                                     Weatherford is executing a plan for growth that focuses on its international operations. We project Weatherford to post the highest
Weatherford International   WFT
                                     international growth rate among its peers in 2011 and 2012.


UBS WMR Energy: Equipment & Services - Sector Underperform List
Company                     Ticker   Investment Thesis Summary
                                     Rowan provides offshore drilling services though a fleet predominantly made up of jack-up and land rigs. Day rates appear vulnerable
Rowan Cos                   RDC
                                     due to poor natural gas fundamentals. We see overcapacity in the standard jack-up market.


Source: UBS WMR, as of 22 February 2011
Note: Companies in BOLD represent High Conviction Calls. Please see the Appendix for definition.




                                                                                                                  Wealth Management Research 23 February 2011               13
US Equities Energy




Investment Thesis Summary - Oil & Gas
UBS WMR Energy: Oil & Gas - Sector Outperform List
Company                     Ticker   Investment Thesis Summary
                                     Anadarko has a balanced portfolio of oil and gas production, and a high-impact exploration program. Drilling activity is
Anadarko Petroleum          APC      ongoingin West Africa, Brazil, the Gulf of Mexico and Southeast Asia. Its West Africa program provides the most catalyst for
                                     upside as discoveries there have been sizable.
                                     Apache has a diversified asset base, with an inventory of discoveries and exploration prospects to help fuel future growth. It has higher-
Apache                      APA
                                     than-average exposure to oil compared with other E&P companies. We believe it is relatively attractively valued.
                                     Devon has a balanced portfolio of oil and gas assets, a strong inventory of development prospects, and appears attractively
Devon Energy                DVN      valued relative to other E&P companies. The company's initiative to transform itself to a pure play North America onshore
                                     producer could lead to multiple expansion.
                                     ExxonMobil is an industry leader on most financial and operating measures. Its asset base is among the largest and highest-quality in
ExxonMobil                  XOM
                                     the peer group, and it is among the lowest-cost operators. ExxonMobil has one of the strongest balance sheets in the Energy sector.

                                     Hess earnings are among the most sensitive to changes in oil prices, and should benefit from strong oil prices. We believe the
Hess                        HES
                                     shares are attractively valued. Drilling success in Libya, Australia, Indonesia and West Africa could be positive catalysts.
                                     Murphy has gained momentum on its exploration program, adding resources in the Gulf of Mexico, Malaysia and Republic of Congo
Murphy Oil                  MUR
                                     this year. Exploration in Suriname and Indonesia could provide an upside catalyst.


UBS WMR Energy: Oil & Gas - Sector Underperform List
Company                     Ticker   Investment Thesis Summary
ConocoPhillips              COP      Near-term growth prospects for ConocoPhillips are not evident, and we believe operational performance could lag its peers.
                                     Sunoco is an independent refiner. We believe refining fundamentals in the US remain poor. In addition, Sunoco's refineries are
Sunoco                      SUN
                                     incapable of processing low-quality crudes, so margins are squeezed when oil prices are high.


UBS WMR Energy: Oil & Gas - Sector Marketperform List
Company                     Ticker   Investment Thesis Summary
                                     Chevron is one of the largest operators in the deepwater Gulf of Mexico, which we believe will add value over the long term. Chevron
Chevron                     CVX
                                     is more levered to oil than other large-cap integrated oils; however, we project recent operating momentum to slow.
EOG Resources               EOG      Based on new production guidance, we believe the stock is fairly valued at current levels.
                                     Marathon Oil is in the process of spinning off its refining business into a separate company, a move that has potential to unlock
Marathon Oil                MRO
                                     additional value; though more clarity on strategic direction is needed.
                                     Though production growth could experience a lull from 2010 through 2012, we believe Noble's shift to longer-term projects is a
Noble Energy                NBL
                                     positive for long-term investors.
Occidental Petroleum        OXY      OXY is a skilled onshore producer, and has a broad base of low-risk assets. Its new California field will fuel growth.
                                     Suncor is predominantly an oil sands producer and refiner. While its earnings will benefit from a recovery in oil prices, its recent
Suncor Energy               SU
                                     merger with Petro-Canada could be a near-term drag on earnings while operations are absorbed.
Valero Energy               VLO      Valero is the largest of the independent refiners, exacerbating its exposure to the currently weak refining environment.
                                     Investors should take profits on recent exploration success and oil price strength. A pullback in oil prices might provide another
Whiting Petroleum           WLL
                                     attractive entry point.


Source: UBS WMR, as of 22 February 2011
Note: Companies in BOLD represent High Conviction Calls. Please see the Appendix for definition.




                                                                                                                       Wealth Management Research 23 February 2011                14
US Equities Energy




Sector financial highlights and performance - Equipment & Services
                                                             Consensus P/E                                 Consensus EPS growth
                                     % Sector
          Company             Ticker Market Dividend         LTM       NTM       Price to    Price to     2009      2010E     2011E
                                      Value   Yield                               Sales       Book
S&P 500 Energy                                      1.7%      15.6x     12.7x         1.3x         2.3x   -67.5%     56.0%     21.4%


S&P 500 Equipment & Services                        0.5%      25.8x     20.9x         3.2x         3.1x    -2.6%     25.9%     23.7%
Outperform
  Halliburton                  HAL          2.8       0.7      22.9       16.1         2.1          3.9     53.9       47.2       19.3
  Schlumberger                 SLB          8.3       1.1      31.7       23.7         3.8          3.9       9.6      35.7       28.9
  Transocean                   RIG          N/A       0.0      13.6       12.5         2.3          1.2     -20.5     -46.4        7.9
  Weatherford International    WFT          N/A       0.0      39.1       19.3         1.7          1.8     12.8      >100        45.6
Underperform
  Rowan Cos                    RDC          0.3       0.0      16.5       17.2         1.5          1.2     -26.6     -18.5     -12.3
Other S&P 500 Equipment & Services (not rated)
  Baker Hughes                 BHI          2.0       0.8      31.1       18.6         1.6          2.1     35.5       82.0       25.1
  Cameron International        CAM          0.9       0.0      24.0       20.7         2.0          3.0       1.7      14.5       26.0
  Diamond Offshore Drilling    DO           0.7       0.7      11.2       12.4         2.8          2.7     -30.6     -11.8       -7.1
  FMC Technologies              FTI         0.7       0.0      31.1       26.6         2.6          9.0       2.1      15.0       22.8
  Helmerich & Payne             HP          0.4       0.4      20.1       15.7         2.3          2.1     -19.9      50.0        8.0
  Nabors Industries            NBR          0.5       0.0      25.1       15.9         1.6          1.3     -20.2      65.0       32.9
  National Oilwell Varco       NOV          2.2       0.5      19.6       19.0         2.3          2.0       5.1       1.5       21.4
  Noble Corp                    NE          0.7       1.3      14.3       16.3         3.2          1.4     -52.7     -23.8       67.0

Source: UBS WMR, as of 22 February 2011
Note: Companies in BOLD represent High Conviction Calls. Please see the Appendix for definition.




                                                                                             Wealth Management Research 23 February 2011   15
US Equities Energy




Sector financial highlights and performance - Oil & Gas
                                                       Consensus P/E                              Consensus EPS growth
                                     % Sector
            Company           Ticker Market Dividend   LTM      NTM      Price to    Price to    2009      2010E     2011E
                                      Value   Yield                       Sales       Book
S&P 500 Energy                                  1.7%    15.6x    12.7x        1.3x        2.3x   -67.5%     56.0%     21.4%


S&P 500 Oil & Gas                               0.1%    14.9x    12.6x        1.1x        2.3x   60.5%      17.1%     14.8%
Outperform
  Anadarko Petroleum          APC        2.6     0.4     43.0     32.9         3.5         1.9     >100       26.4       45.2
  Apache                      APA        2.8     0.5     13.1     10.9         3.5         1.9     59.9       22.5       11.7
  Devon Energy                DVN        2.4     0.7     15.2     14.1         3.8         2.0     42.0        5.0       28.0
  ExxonMobil                  XOM       26.9     2.1     13.3     11.7         0.9         2.7     55.1       14.8       13.3
  Hess                        HES        1.8     0.5     16.0     13.0         0.7         1.8     >100       24.0       13.9
  Murphy Oil                  MUR        0.9     1.5     17.2     13.3         0.6         1.6     33.2       34.6       24.3
Underperform
  ConocoPhillips              COP        7.2     3.4     12.7     11.2         0.6         1.6     65.4       13.7       16.0
  Sunoco                      SUN        0.3     1.4     24.2     21.3         0.1         1.8     >100       12.3       29.9
Monitor Marketperform
  Chevron                     CVX       12.7     2.9     10.2      9.0         1.0         1.9     80.9       12.7        8.6
  EOG Resources               EOG        1.8     0.6     74.8     29.6         6.4         2.7     -61.3     >100        62.5
  Marathon Oil                MRO        2.3     2.0     13.1     10.5         0.4         1.4     >100       29.9       13.5
  Noble Energy                 NBL       1.0     0.8     20.9     18.9         5.2         2.3     25.2        5.5       33.3
  Occidental Petroleum        OXY        5.6     1.7     18.1     14.4         4.2         2.5     51.3       27.4       19.6
  Suncor Energy                SU        N/A     0.9     24.8     17.7         2.0         1.8     80.4       39.5       21.8
  Valero Energy               VLO        1.1     0.7     16.8     11.1         0.2         0.9     >100       61.1       16.5
  Whiting Petroleum           WLL        N/A     0.0     21.3     14.8         3.9         3.0     -93.6     >100        51.8
Other S&P 500 Oil & Gas (not rated)
  Cabot Oil & Gas             COG        0.3     0.3     44.4     88.1         5.1         2.3     -25.5     -41.3     -68.3
  Chesapeake Energy           CHK        1.3     1.0     10.5     11.5         2.1         1.6     15.7       -1.0       -9.2
  Consol Energy               CNX        0.7     0.9     19.5     15.1         2.1         3.1     -22.7      23.2       57.7
  Denbury Resources           DNR        0.6     0.0     36.8     27.0         4.2         1.9     -54.5     -17.1       50.0
  El Paso                      EP        0.8     0.2     17.6     16.6         1.5         3.6      -1.5     -23.3        7.1
  EQT Corp                    EQT        0.5     1.8     29.6     24.7         4.9         2.3       1.9      16.6       30.6
  Massey Energy               MEE        0.4     0.4     N/M      16.7         1.7         3.4    <-100      >100        48.8
  Newfield Exploration         NFX       0.6     0.0     15.2     14.5         5.1         3.0     -12.5       4.7       20.9
  Peabody Energy              BTU        1.1     0.5     19.8     12.9         2.5         3.8     58.9       59.7       26.1
  Pioneer Natural Resources   PXD        0.7     0.1     51.0     30.1         5.5         2.7     >100       72.3       49.8
  QEP Resources               QEP        0.4     0.2     28.0     25.3        N/M          2.4     >100        9.8        5.0
  Range Resources             RRC        0.5     0.3     84.6     46.7         9.2         3.1     -41.6     -47.1       80.0
  Southwestern Energy         SWN        0.8     0.0     21.2     21.3         7.7         4.8      -7.3      13.8       -6.9
  Spectra Energy               SE        1.1     4.0     16.5     15.1         3.3         2.1     33.1        8.3        8.2
  Tesoro                      TSO        0.2     0.0     N/M      12.8         0.1         0.9     48.6      >100        19.4
  Williams Cos                WMB        1.1     1.6     23.5     21.5         1.5         2.2     36.2        3.1       25.0


Source: UBS WMR, as of 22 February 2011
Note: Companies in BOLD represent High Conviction Calls. Please see the Appendix for definition.




                                                                                                    Wealth Management Research 23 February 2011   16
US Equities Energy




UBS WMR US equity sector and industry group allocation (%)
                                                                                                   2
                                                                                  Tactical Deviation
                                     S&P 500 Benchmark          Numeric                              Symbol                        Current
                                                  1                                                                                          3
                                         Allocation      Previous     Current          Previous                    Current        Allocation
Consumer Discretionary                      10.5           -2.0         -2.0         Underweight                Underweight           8.5
   Auto & Components                         0.9           +1.0         +1.0     Moderate Overweight        Moderate Overweight       1.9
   Consumer Services                         1.8           +0.0         +0.0            Neutral                    Neutral            1.8
   Media                                     3.1           +0.0         +0.0            Neutral                    Neutral            3.1
   Retailing                                 3.6           -2.0         -2.0          Underweight                Underweight          1.6
   Consumer, Durables & Apparel              1.1           -1.0         -1.0     Moderate Underweight     Moderate Underweight        0.1
Consumer Staples                            10.3           +2.0         +2.0          Overweight                 Overweight          12.3
   Food, Beverage & Tobacco                  5.7           +1.0         +1.0     Moderate Overweight        Moderate Overweight       6.7
   Food & Staple Retailing                   2.3           +0.0         +0.0            Neutral                    Neutral            2.3
   Household & Personal Products             2.4           +1.0         +1.0     Moderate Overweight        Moderate Overweight       3.4
Energy                                      12.3           +1.0         +1.0    Moderate Overweight       Moderate Overweight        13.3
Financials                                  16.1           +0.0         +0.0            Neutral                    Neutral           16.1
   Banks                                     3.1           +0.0         +0.0            Neutral                    Neutral            3.1
   Diversified Financials                    7.7           +1.0         +1.0     Moderate Overweight        Moderate Overweight       8.7
   Insurance                                 3.8           +0.0         +0.0            Neutral                    Neutral            3.8
   Real Estate                               1.5           -1.0         -1.0     Moderate Underweight     Moderate Underweight        0.5
Health Care                                 10.9           -1.0         -1.0    Moderate Underweight     Moderate Underweight         9.9
   HC Equipment & Services                   3.7           +0.0         +0.0            Neutral                    Neutral            3.7
   Pharmaceuticals & Biotechnology           7.2           -1.0         -1.0     Moderate Underweight     Moderate Underweight        6.2
Industrials                                 11.0           +1.0         +1.0    Moderate Overweight       Moderate Overweight        12.0
   Capital Goods                             8.4           +0.0         +0.0            Neutral                    Neutral            8.4
   Commercial Services & Supplies            0.6           +0.0         +0.0            Neutral                    Neutral            0.6
   Transportation                            2.0           +1.0         +1.0     Moderate Overweight        Moderate Overweight       3.0
Information Technology                      19.1           +2.5         +2.5      Strong Overweight          Strong Overweight       21.6
   Software & Services                       9.0           +1.0         +1.0     Moderate Overweight        Moderate Overweight      10.0
   Technology Hardware & Equipment           7.5           +1.5         +1.5          Overweight                 Overweight           9.0
   Semiconductors                            2.6           +0.0         +0.0            Neutral                    Neutral            2.6
Materials                                    3.7           -1.0         +0.0    Moderate Underweight               Neutral            3.7
Telecom                                      2.9           -2.5         -2.5     Strong Underweight         Strong Underweight        0.4
Utilities                                    3.3           +0.0         -1.0            Neutral          Moderate Underweight         2.3


Source: UBS WMR, as of 22 February 2011
The overweight and underweight recommendations represent tactical deviations that can be applied to any appropriate benchmark portfolio
allocation. They reflect WMR’s short- to medium-term assessment of market opportunities and risks in the respective asset classes and market
segments. For more information, please read the most recent US Investment Strategy Guide. The benchmark allocation, as well as the tactical
deviations, are intended to be applicable to the US equity portion of a portfolio across investor risk profiles.
1 The benchmark allocation is base on S&P 500 weights
2 See "Deviations from Benchmark Allocations" in the Appendix of the Investment Strategy Guide for an explanation regarding the interpretation
of the suggested tactical deviations from benchmark. The “current” column refers to the tactical deviation that applies as of the date of this
publication. The “previous” column refers to the tactical deviation that was in place at the date of the previous edition of the Investment
Strategy Guide or the last Investment Strategy Guide Update. The "current" column refers to the tactical deviation that applies as of the date of
this publication. The "previous" column refers to the tactical deviation that was in place at the date of the previous edition of the US Investment
Strategy Guide.
3 The current allocation column is the sum of the S&P 500 benchmark allocation and the WMR tactical deviation columns.




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Appendix

Analyst certification
Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with
respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his
or her personal views about those securities or issuers; and (2) no part of his or her compensation was, is, or will be, directly
or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report.
Stock recommendation system:
Analysts provide a relative rating, which is based on the stock’s total return potential against the total estimated return
of the appropriate sector benchmark over the next 12 months.
Industry sector relative stock view system
Outperform (OUT)         Expected to outperform the sector benchmark over the next 12 months.
Marketperform (MKT) Expected to perform in line with the sector benchmark over the next 12 months.
Underperform (UND) Expected to underperform the sector benchmark over the next 12 months.
Under review
Upon special events that require further analysis, the stock rating may be flagged as “Under review” by the analyst.
Suspended
An outperform or underperform rating may be suspended when the stock's performance materially diverges from the
performance of its respective benchmark.
Restricted
Issuing of research on a company by WMR can be restricted due to legal, regulatory, contractual or best business practice
obligations which are normally caused by UBS Investment Bank’s involvement in an investment banking transaction in
regard to the concerned company.
Sector bellwethers, or stocks that are of high importance or relevance to the sector, that are not placed on either the
outperform or underperform list (i.e., are not expected to either outperform or underperform the sector benchmark) will
be classified as marketperform. Additionally, when stocks that are not deemed to be of high importance or relevance
to the sector are not expected to outperform or underperform the sector benchmark, they will simply be removed from
the lists and will not be assigned a WMR rating.
High Conviction Calls
Sector analysts are required to have at least one "high conviction" outperform or underperform call for each sector they
cover. Analysts have discretion over the selection of a recommendation as high conviction and the grounds for selection
(e.g., greatest upside/downside to price target, most/least compelling investment case, etc.). The basis for each high
conviction call is set forth in any research report identifying a recommendation as such.

Terms and Abbreviations
Term / Abbreviation   Description / Definition                   Term / Abbreviation   Description / Definition
A                     actual i.e. 2010A                          bp or bps             Basis point or basis points (100 bps = 1
                                                                                       percentage point)
E                     expected i.e. 2011E                        p.a.                  Per annum (per year)
Shares o/s            Shares outstanding                         WMR                   UBS Wealth Management Research




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Appendix
Disclaimer
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a solicitation of an offer, to buy or sell any investment or other specific product. It does not constitute a personal recommendation or take
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contained herein is based on numerous assumptions. Different assumptions could result in materially different results. Other than disclosures
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Management Research (UBS WMR) is written by Wealth Management & Swiss Bank and Wealth Management Americas. UBS Investment
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© 2011. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.


                                                                                                     Wealth Management Research 23 February 2011             19
US Equities Energy


Appendix
UBS FS and/or its affiliates trade as principal in the fixed income securities discussed in this report.




                                                                                                   Wealth Management Research 23 February 2011   20

				
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