EFTA01385333.pdf

3 January 2018 HY Corporate Credit HY Multi Sector,Media. Cable & Satellite underperformance - QEP and SN have been impacted by some weak well results (and some weather) while LPI has seen a significant inflation in capex budget with minimal impact on production. For one oily player, CRZO, the guidance is largely unchanged from start of the year. Moving to the gassy names, the performance is mildly negative - RRC's current production guidance is 3% below original target while GPOR's capex budget is up 10% (minimal production uplift). Only AR outperforms marginally (+3% increase in production for 3V0 capex increase). Looking at performance by quality categories, we see a broad-based outperformance among both Higher Quality and Lower Quality Oily names. The High Quality Oily credits have demonstrated solid operating momentum (6-14% increase in growth targets). While this reflects the top quality of their core assets, this is already factored in. We see the outperformance of the Low Quality Oily group as more impactful given relative credit upside - all names have lowered their capex (by 4-16%) while maintaining or increasing production guidance (except SN, the sole underperformer in the group). Along with this, some of these companies have also brought down their opex cost structure meaningfully (EPE, MEG, DNR). Overall, it reflects solid improvement in their admittedly high cost structures and drives down FCF breakeven oil price, which we see as a key metric for this group (discussed below). Among the Mid Quality names, the performance has been mixed - WPX and WLL have done well while names like OEP and LPI have disappointed. 'Figure 20: Oily E&P names - FY 17 production and capex guidance changes since start of year %Change In Guidance (PF Acquisitions Total Production (Mboo/d) Cl Production MI booM) Cspex($M) B Eivestitures) Total 04 San of year Direct Start ce year Current Start of year Current Froducton Froductnn Capex ligher Quality FANG 69 78 NA Ni 803 875 14% NA 9% CLR 225 240 NA NA 1960 1950 7% NA 0% Npx 0, 144 152 58 61 1120 1225 6% 6% 9% FE 65 68 46 48 1075 1075 4% 1% 0% Mid Quality VAX 108 112 54 61 945 1030 3% 12% 5% Su 114 '22 13 38 825 875 2% ' 0% LA 57 56 NA 26 530 630 2% NA 19% CP.80 49 54 32 35 555 555 2% ' 1% CEP 163 146 59 54 975 1075 .3% ' .8% 10% OAS 68 se 53 51 035 820 -3% -3% 2% W.I. 125 118 NA NA 1100 960 .4% ' NA .14% Lower Quality SSG 17 19 11 12 270 280 12% 9% -4% EFE 79 83 47 47 880 575 5% 0% -15% CaiR 60 61 NA NA 320 270 1% NA -16% ),EC, ' 81 81 NA NA 590 510 0% NA -14% SN 80 70 30 23 450 538 -12% ' 19% (1) Represents domestic producton Celt./ odnates positae revs.ons (2) Cepa( n Crnadan dots odcates noso9ve revrsons • tricates numbers adjusted for A8D ',Orates largely neutral rrpact to gudarce levels Sane Convey drat Deurrite jut Page 58 Deutsche Bank Securities Inc. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0086617 CONFIDENTIAL SDNY_GM_00232801 EFTA01385333