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* Selected energy firms set to rally over next two years
* Total, Galp, Repsol shares to get most production boost
By Tricia Wright
LONDON, Aug 15 (Reuters) - The promise of production growthin offshore Brazilian and West African oilfields is luringinvestors to a select batch of European energy firms asgeopolitical uncertainty elsewhere weighs on the broader sector.
Portugal's Galp and Spain's Repsol, moreexposed than most to lucrative exploration zones deep underBrazil's seabed, as well as France's Total on Angolaexposure, are seen as the pick of the bunch as BP andRoyal Dutch Shell suffer from weak exploration results.
At a time of increased tension and conflict in Russia andthe Middle East, there are few clear signals elsewhere in theenergy sector: oil prices have fallen back to around $95-$100per barrel but are still historically high, while the energysector's dividend yield has helped it outperform this year.
Brazil is reckoned by analysts to be the biggest area ofproduction growth over the next few years outside of the UnitedStates, just as Angola is seen offering the best opportunity inAfrica.
Some of this is already reflected in company valuations,especially for Galp, which is trading at a forwardprice-to-earnings ratio of 30.75 versus a median of 12.47 for abasket of eight oil companies.
But there is a lot of promise: Galp's earnings per share inthe current quarter are forecast to jump 35.7 percentyear-on-year, according to top-rated analysts' expectationscompiled by Thomson Reuters, compared with the median forecastfor a contraction of 7.9 percent. A quick rise in earnings isseen bringing a drop in the ratio.
And as more new production comes on-stream, investorsbelieve energy firms offering growth will get more of a liftthan those seeing negative trends - especially after an alreadysolid 3 percent year-to-date rise for the European oil-and-gassector on the back of a reliable dividend cushion.
"What we have seen in the share price is mainly the impactof a better cash-flow trend ... We haven't really seen theimpact of better production trends (yet) because (they haven't)really materialised," said Fabrice Theveneau, head of equityresearch at Societe Generale Corporate & Investment Banking.
"It's going to be a story for this year and next."
BRAZIL UPLIFT
Part of what makes production growth appealing to investorsis that oil companies are also becoming more careful with theircash; after years of throwing huge sums at projects thatrepeatedly fail to bear fruit, majors are narrowing their focus.
Total, for example, has outperformed the sector in spite ofconcerns over its unsuccessful drilling strategy after sellingassets and reining back spending. The company has pledged ashift in strategy if its results are weak.
Repsol's sale of $4.3 billion in liquefied natural gasassets to Royal Dutch Shell, meanwhile, slashed the Spanishcompany's debt by around a third.
"The combination of more mature fields, bigger fields,longer-life fields and the capex discipline has all cometogether," Andrea Williams, fund manager at Royal London AssetManagement, said.
"As these production volumes come through - particularly inoffshore Brazil for Galp and Repsol - then I think the sectorcan continue to re-rate."
Like BP, Total has been hurt by its exposure to Russia, anddisruption in Libya could continue to dog Repsol. Theliabilities posed by the quest for oil do not stop here either.
There is always the danger of drilling a dry well,underscored by Galp's recent experience offshore Morocco.
And then companies run the risk of their assets being seized- as seen in the 2012 expropriation of Repsol's majority stakein Buenos Aires-based energy firm YPF by Argentina on the basisthat the Spanish company had not invested enough.
But overall, analysts at Santander reckon Galp, driven byits Brazil exposure, is looking at a compound annual growth rate(CAGR) of production at 53 percent over the next five years.
For Britain's BG Group they forecast a 14 percentCAGR uplift in the same period - primarily on Brazil, but alsoAustralia and the United States - and for Repsol, a 12 percentCAGR gain on Brazil, the United States, North Africa - assumingLibya is normal from next year - Peru, Trinidad and Russia.
For Total, Santander sees an 8.6 percent increase over theperiod on Angola, Australia, Nigeria, North America, Iraq,Kazakhstan, Russia and Venezuela.
"It just so happens that you've got in two or threedifferent very big regions ... coincidentally at the same timesome very big shifts from high potential to actual delivery,"Duncan Goodwin, head of global resources at Baring, said.
"I think there's opportunity here." (Additional reporting by Ron Bousso; Editing by Lionel Laurentand Dale Hudson)
