London, April 2010

In this report, Credit Insights review 1Q10 actual macro indicators and consensus earnings expectations, and we present our first look at 2011 commodity price assumptions and earnings and cash flow expectations. In this report, we review 1Q10 actual macro indicators and consensus earnings expectations, and we present our first look at 2011 commodity price assumptions and earnings and cash flow expectations.

We expect 1Q10 earnings to be mixed across the sector on a sequential and annual basis, with the unlevered Integrateds and E&Ps posting QoQ and YoY growth, the Refiners posting QoQ improvements and YoY declines while remaining in the red, and the Services and Drillers posting mixed QoQ results and decisively lower YoY results.

We expect the major themes in the upcoming 1Q10 earnings season to be, among the producer groups, the outlook for natural gas prices and shale play developments, oilfield service pricing trends, and hedging strategies for the remainder of the year and 2011.  Among the Refiners, we expect to hear about liquidity enhancement measures, including updated capital plans, asset sale/closure targets and utilization plans, and among the Services and Drillers, pricing trends and the outlook for jackup and deepwater markets.

We are maintaining our 2010 crude and natural gas price assumptions of $75/ bbl and $5.00/mcf and our expectations for a 10% annual rebound in refining margins.  For 2011, we are introducing an initial commodity price deck of $85/bbl for oil, $5.75/mcf for natural gas and a 10% increase in refining margins.  Our 2011 price deck should drive 20-50% annual earnings growth across the sector.

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