Goldman Sachs' Updated Outlook For E&Ps Based On $50 Oil Through 2020

Goldman Sachs readjusted ratings on several E&P stocks this week based on updated projections for OPEC productivity, shale efficiency, project startups and oil and gas prices.

Overall, Goldman maintains a Neutral rating on the E&P space.

Upgrades To Buy

Goldman prefers E&Ps with strong balance sheets and exposure to shale efficiency trends. Based on these two points, Goldman upgraded Continental Resources Inc CLR and Newfield Exploration Co NFX from Neutral to Buy.

In addition to the upgrades to Buy, Goldman upgraded Laredo Petroleum Inc LPI from Sell to Neutral based on its “improving Permian asset base” and strong operational execution.

Downgrades To Neutral

Goldman also chose to drop a handful of previously Buy-rated E&Ps down to a Neutral rating. Chesapeake Energy Corp CHK, Range Resources Corp RRC and Hess Corp HES were all downgraded to Neutral.

Downgrades To Sell

Goldman downgraded Murphy Oil Corp MUR from Neutral to Sell based on its exposure to less-efficient deepwater drilling. In addition, Goldman downgraded Gulfport Energy Corp GPOR from Neutral to Sell because the company’s growth rate can no longer justify the stock's premium valuation.

Sell Ratings Maintained

Finally, Goldman maintains its negative outlook for Occidental Petroleum Corp OXY, Halcon Resources Corp HK, Bill Barrett Corp BBG and Ultra Petroleum Corp UPL. “Among Sell-rated stocks, we see some combination of unattractive valuation, below peer-average asset quality, weaker balance sheets and/or high operating leverage to commodity prices,” analysts explain.

Goldman is projecting $60/bbl WTI crude oil prices by 2018 and $50/bbl crude oil prices by 2020.