The oil & gas sector goes through long, c.30-year investment cycles, which we split into three distinct phases: Expansion, Contraction and Restraint. These long-cycle dynamics are driven by the market\u2019s risk premium on long-term oil prices, which tends to expand when there is a perception of long-term abundance of oil resources and contract at times of perceived tightness, driving the industry\u2019s long-cycle investments. The phases of the cycle can be clearly identified by trends in fixed asset investments, as companies respond to changes in the long-term oil price risk premium by increasing or curtailing investment in long-term capacity. The Expansion phases (1973-1980 and 2003-2013) are characterised by a perceived long-term shortage of capacity, driving rising investment and new entrants, funded by broadly available debt and equity financing. This leads to cost inflation, which tends to accelerate 2-4 yrs into the cycle, as suppliers face increasing demand from a broader range of clients and raise prices, while efficiency and productivity deteriorate. This is the phase that our commodities team defines as \u2018Investment\u2019, as the industry gets funding to invest in new frontier areas to create new hubs of future production growth. Expansion phases tend to end with Contraction phases, as rising prices eventually bring about increased energy efficiency, while new supply from projects sanctioned in the upcycle comes online. Contraction phases are characterised by a collapse in both short-cycle and long-cycle investments, a rebasing lower of costs and industry consolidation. Contraction phases end when the market clears excess inventories. If the tighter physical market is married with a sense of abundance of long-term capacity, the industry enters the Restraint phase, with disciplined investments, further industry consolidation, structural cost deflation and a backwardated futures curve, as last seen in 1987-2002. We believe the sector is currently entering a new Restraint phase of the investment cycle. This is the phase that our commodities team defines as \u2018Exploitation\u2019, as the industry exploits the hubs and the technological advancements achieved in the \u2018Investment\u2019 phase, maximising returns and development efficiency. Investment, cost inflation and time spreads linked in each phase There is a clear relationship between investment, cost inflation and oil timespreads in the three phases of the investment cycle. The Expansion phase is characterised by a perceived future supply shortage, widely available financing for both short-cycle and long-cycle investments (rising capex), generating a well supplied physical market (contango) and a fragmented industry with low barriers to entry, leading to an overheated supply chain (cost inflation). In the Contraction phase, the long-term supply wave hits and the entire futures curve collapses, maintaining the contango shape, while all activity stalls and costs re-set lower. Once the physical market tightens, but the perception of future supply abundance persists, the sector enters the Restraint phase \u2014 moderate investment keeps the physical market tight, while long-cycle investment consolidates in the hands of a few large companies that can self-finance the new investments; the curve flips into backwardation, and while investment levels pick up from the lows, long-cycle development costs remain mildly deflationary. Big Oils perform best in Restraint; Oil Services and E&Ps in Expansion Big Oils returns improve rapidly at the beginning of the Expansion phase, but very quickly deteriorate as cost inflation kicks in. The Restraint phase, instead, sees a slow, consistent improvement in returns, led by an oligopolistic market structure, better management of the supply chain and advantaged resource access. In the Restraint phase of the 90s, Big Oils (the \u2018Seven Sisters\u2019) outperformed the global market by 6% (TSR - annual average), with the European Big Oils performing stronger than the US counterparts and E&Ps and Services showing a mixed set of performance. E&Ps and Services in contrast performed very strongly in the Expansion phase, when Big Oils tend to lag the market and the broader sector. The age of \u2018Restraint\u2019 is the Golden Age for Big Oils. We would caution that the E&P space has changed the most since the 1990s, especially in the USA, and therefore historical analysis may be less relevant than for Big Oils. Big Oils have consistently offered higher dividend yields vs the market, but the gap tends to widen in the Expansion and Contraction phases and narrow in the Restraint period. Similarly, European Big Oils have consistently had higher dividend yields than their US counterparts, but the gap has widened substantially in the last Contraction phase (2013 onwards); we believe this premium yield, which is now well above the historical average, will narrow over time, as the European Big Oils are now going back to dividend growth, fully funded by growing free cash flow and buybacks reducing the share count, after increasing it through scrip dividends in the \u2018Contraction\u2019 phase.