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Energy 120418

  1. 1. Global StrategyEquity Research China Oil & Gas Strategy Sector StrategyApril 18, 2012 Weekly Roundup: Demand inS&P 2012 GDP ESTIMATES: Question, YPF Fallout forChina: 7.7%-8.2%Hong Kong: 2.5%-3.0%India: 6.8%-7.3% CNOOC LtdIndonesia: 6.0%-6.5% Demand outlooks continue to be cut. The U.S. EIA’s Energy Outlook forJapan: 1.5%-2.0% April 2012 revealed a projected demand of 88.8 mbpd (+890 kbpd YoY), butKorea: 2.8%-3.3% this was a further downward revision of another 150 kbpd vs. March. TheMalaysia: 4.4%-4.9% cuts were due to lowered demand from OECD Europe and the U.S., offset bySingapore: 2.0%-2.5% higher demand from China and Asia. Preliminary data release from theTaiwan: 2.3%-2.8% International Energy Agency (IEA) also projected a +800 kbpd demandThailand: 3.5%-4.0% growth for 2012 (unchanged), while OPEC’s 2012 demand forecast was mostU.S.: 2.1% bullish, at +900 kbpd based on its April report. Supply growth at +1.8 mbpdEurozone: 0.0% based on EIA data should outpace demand, but this will offset the 0.7 mbpd- 0.8 mbpd excess demand in 2011 drawn down from inventories.2012 INDEX TARGETS:S&P 500: 1,450 CNOOC Ltd’s PL9 - 1 confirmed as “large oil field”. Discovered in 2010, the PL9-S&P Euro 350: 1,170 Penglai 9-1 field (PL9-1) was this week confirmed as a large oil field, after itS&P Asia 50: 3,500 produced some 700 bpd during testing. According to CNOOC Ltd, this field is among the largest of recent discoveries in Bohai Bay. PL9-1 is located some 40 km northeast of PL19-3, China’s largest offshore oilfield which was shut down following oil leaks last year. We expect full production at PL19-3 to resume in early 2H12 - according to operator ConocoPhillips’ April 5 statement, production has restarted at 40 kbpd under an “approved interim reservoir management plan”. In the midstEnergy of appraising PL9-1, CNOOC Ltd also made a discovery at the PL15-2 structure, 8 km south of PL9-1, which it expects to be a medium-sized oilOil & Gas field.Overweight YPF nationalization: Impact on CNOOC Ltd? After two months of unsuccessful government pressure to boost Argentine production, the Argentine government over the weekend proposed to take over a 51% stake in the Argentine producer YPF. The firm was previously 57% owned by Spanish energy firm Repsol YPF, which has claimed some USD10.5 bln in compensation for the appropriation of its assets.Ahmad Halim, CFA We expect some jitters on the market for CNOOC Ltd, given its 40% stake inEquity Analyst Argentine-based Pan American Energy (PAE), held via its 50:50 JV Bridas Corp. While there have been no reports on appropriation of PAE’s or other foreign producers’ assets so far (and indeed, the Argentine press has gone on record, citing unnamed government sources, to assure Petrobras that seizure of its Argentine assets is not being considered), we think the market will remain wary, given Argentina’s track record of asset appropriation since 2008.Standard & Poor’s This report is for information purposes and should not be considered a solicitation to buy or sell any security. Neither Standard & Poor’s nor any other party guarantees its accuracy or makes warranties regarding resultsEquity Research Services from its usage. Redistribution is prohibited without written permission. Copyright © 2012. All required30 Cecil Street d i s c l o s ur e s a nd an a l y st c er t if i c a t io n ap p e ar s o n t he la s t 3 p a g e s of t h i s r epo r t . A dd i t io n a l i nf or m a t io n i sPrudential Tower, 17th Floor a v a i l a b le on r eq u e st .Singapore, 049712
  2. 2. April 18, 2012 Global Strat egy Iran upping the ante. Iran’s oil minister Rostam Ghassemi claimed at an oil & gas conference in Tehran that Iran is not facing any restrictions in selling 2 its crude oil because of international sanctions and Saudi Arabia cannot replace Iranian oil in the longer term because it is already pumping at full capacity. We believe much of this is tough talk, as we expect the sanctions on Iran to have already had an impact on Iranian exports, judging by comments from the CFO of China’s Sinopec Shanghai PetroChemicals that it has yet to process any Iranian crude this year, from 10% of its throughput last year. Further, we note that Saudi production had increased to 10 mbpd in December 2011 in response to potential supply disruptions, but given the large projected supply growth in 2012 and lackluster demand outlook, we think the Saudis are happy with current price levels, and will cut supply if the demand outlook worsens, as they did by 200 kbpd in January and February 2012. Preferred picks We continue to have an Over weight stance on the sector, picks. Overweight with a particular bias for the upstream-focused players e.g. PetroChina and CNOOC Ltd, both ranked 4-STARS (Buy). Standard & Poor’s Equity Research
  3. 3. April 18, 2012 Global Strat egy 3 Select Integrated Oil & Gas and E&P Performance and Key Capital IQ Consensus Ratios as at April 17, 2012 Price Performance PER (x) PAT Growth Market Trading Cap (USD Company Name CIQ Ticker Ccy Share Price mln) 1 Mth 3 Mths 6 Mths FY2012 FY2013 FY2012 FY2013 Integrated O&G Exxon Mobil Corporation NYSE:XOM USD 85.45 401,825 -1.1% -0.3% 10.3% 10.2x 9.6x -5.2% 6.7% PetroChina Co. Ltd. SEHK:857 HKD 11.04 281,450 -3.0% -1.6% 13.6% 10.6x 9.9x 19.6% 4.2% Royal Dutch Shell plc LSE:RDSA GBP 21.66 221,500 -4.1% -5.0% -1.2% 7.5x 7.3x -11.3% 4.4% Chevron Corporation NYSE:CVX USD 103.62 204,408 -6.0% -2.9% 5.1% 7.8x 7.6x -2.1% -0.5% BP plc LSE:BP. GBP 4.53 136,973 -7.7% -6.1% 6.3% 6.5x 6.2x -18.6% 3.6% China Petroleum & Chemical Corp. SEHK:386 HKD 8.20 98,052 -8.9% -9.8% 12.0% 7.3x 6.7x 12.5% 6.1% ConocoPhillips NYSE:COP USD 74.26 95,030 -3.8% 4.9% 8.7% 8.4x 8.0x -11.4% 6.7% PTT Public Co. Ltd. SET:PTT THB 335.00 31,052 -5.4% 1.5% 11.7% 8.2x 7.4x 10.9% 13.2% Average -4.99% -2.41% 8.31% 8.3x 7.8x -0.7% 5.5% Exploration & Production (E&P) CNOOC Ltd. SEHK:883 HKD 15.56 89,532 -7.0% -0.4% 13.4% 8.1x 8.1x -0.7% -0.7% Statoil ASA OB:STL NOK 153.90 85,391 -4.0% 2.6% 12.2% 8.8x 8.2x -30.6% 4.0% Suncor Energy Inc. TSX:SU CAD 31.43 49,712 -4.5% -5.4% 5.6% 9.2x 8.6x 21.9% 13.6% Anadarko Petroleum Corporation NYSE:APC USD 73.75 37,287 -12.9% -6.9% -0.9% 18.4x 14.3x NM 34.0% Apache Corp. NYSE:APA USD 94.55 36,350 -13.2% -0.1% 7.5% 7.5x 6.7x 11.7% 14.0% Woodside Petroleum Ltd. ASX:WPL AUD 33.98 29,155 -3.5% 1.0% -3.9% 14.7x 12.6x 23.8% 20.8% Hess Corporation NYSE:HES USD 55.57 18,756 -11.2% -3.2% -2.2% 8.1x 7.0x 36.9% 25.2% PTT Exploration & Production PCL SET:PTTEP THB 173.00 18,639 -0.6% -2.0% 11.6% 10.6x 8.8x 21.3% 19.3% Average -7.11% -1.79% 5.41% 9.6x 8.6x 12.0% 16.3% EV/EBITDA PBV ROE Gross Margin Div Yield Company Name FY2012 FY2013 FY2012 FY2013 FY2012 FY2013 FY2012 FY2013 FY2012 FY2013 Integrated O&G Exxon Mobil Corporation NYSE:XOM 4.5x 4.3x 2.4x 2.1x 22.7% 21.6% 42.70% 44.30% 2.32% 2.45% PetroChina Co. Ltd. SEHK:857 5.6x 5.3x 1.5x 1.4x 14.6% 14.6% 37.40% 47.05% 4.30% 4.63% Royal Dutch Shell plc LSE:RDSA 3.9x 3.7x 1.2x 1.0x 15.7% 15.1% 17.80% 18.40% 4.89% 5.07% Chevron Corporation NYSE:CVX 3.2x 3.2x 1.5x 1.3x 20.4% 18.6% 44.30% 45.90% 3.19% 3.36% BP plc LSE:BP. 3.8x 3.6x 1.1x 1.0x 17.9% 17.0% 18.80% 19.70% 4.45% 4.92% China Petroleum & Chemical Corp. SEHK:386 4.6x 4.2x 1.1x 1.0x 16.2% 15.3% 16.89% 17.28% 4.09% 4.41% ConocoPhillips NYSE:COP 3.8x 3.7x 1.4x 1.3x 16.9% 16.2% 27.30% 28.60% 3.70% 3.96% PTT Public Co. Ltd. SET:PTT 5.7x 5.1x 1.5x 1.3x 19.6% 19.4% 9.42% 10.28% 4.15% 4.58% Average 4.4x 4.1x 1.5x 1.3x 18.0% 17.2% 26.83% 28.94% 3.89% 4.17% Exploration & Production (E&P) CNOOC Ltd. SEHK:883 4.0x 4.0x 1.8x 1.6x 24.6% 21.1% 62.67% 61.45% 3.91% 4.04% Statoil ASA OB:STL 2.2x 2.1x 1.6x 1.4x 18.7% 18.0% 47.28% 45.87% 4.41% 4.63% Suncor Energy Inc. TSX:SU 4.8x 4.3x 1.1x 1.0x 13.5% 12.8% 60.80% 62.60% 1.45% 1.53% Anadarko Petroleum Corporation NYSE:APC 5.6x 4.9x 1.8x 1.6x 10.3% 12.3% 71.30% 0.00% 0.49% 0.49% Apache Corp. NYSE:APA 3.2x 3.0x 1.1x 1.0x 15.7% 15.3% 79.30% 0.00% 0.69% 0.70% Woodside Petroleum Ltd. ASX:WPL 8.7x 7.2x 2.1x 1.8x 14.6% 16.4% 68.90% 68.90% 3.49% 3.94% Hess Corporation NYSE:HES 3.2x 2.8x 0.9x 0.8x 11.4% 11.4% 36.30% 37.60% 0.75% 0.75% PTT Exploration & Production PCL SET:PTTEP 4.8x 4.0x 2.4x 2.0x 23.9% 24.4% 50.37% 51.00% 3.62% 4.41% Average 4.6x 4.0x 1.6x 1.4x 16.6% 16.4% 59.61% 54.57% 2.35% 2.56% Source: S&P Capital IQ Standard & Poor’s Equity Research
  4. 4. April 18 , 2012 Global Strat egy S&P Capital IQ Equity Research – S&P Capital IQ Equity Research U.S. includesGlossary Standard & Poor’s Investment Advisory Services LLC; Standard & Poor’s Equity Research Services Europe includes Standard & Poor’s LLC- London; Standard & 4 Poor’s Equity Research Services Asia includes McGraw-Hill Financial Singapore Pte.S&P STARS - Since January 1, 1987, S&P Capital IQ Equity Research has ranked a Limited’s offices in Singapore, Standard & Poor’s Investment Advisory Servicesuniverse of U.S. common stocks, ADRs (American Depositary Receipts), and ADSs (HK) Limited in Hong Kong, Standard & Poor’s Malaysia Sdn Bhd, and Standard &(American Depositary Shares) based on a given equity’s potential for future Poor’s Information Services (Australia) Pty Ltd.performance. Similarly, S&P Capital IQ Equity Research has used STARS® Abbreviations Used in S&P Capital IQ Equity Research Reportsmethodology to rank Asian and European equities since June 30, 2002. Under CAGR- Compound Annual Growth Rateproprietary STARS (STock Appreciation Ranking System), S&P equity analysts rank CAPEX- Capital Expendituresequities according to their individual forecast of an equity’s future total return CY- Calendar Yearpotential versus the expected total return of a relevant benchmark (e.g., a regional DCF- Discounted Cash Flowindex (S&P Asia 50 Index, S&P Europe 350® Index or S&P 500® Index)), based on a EBIT- Earnings Before Interest and Taxes12-month time horizon. STARS was designed to meet the needs of investors looking EBITDA- Earnings Before Interest, Taxes, Depreciation and Amortizationto put their investment decisions in perspective. Data used to assist in determining EPS- Earnings Per Sharethe STARS ranking may be the result of the analyst’s own models as well as internal EV- Enterprise Valueproprietary models resulting from dynamic data inputs. FCF- Free Cash FlowS&P Quality Rankings (also known as S&P Earnings & Dividend Rankings Rankings)- FFO- Funds From OperationsGrowth and stability of earnings and dividends are deemed key elements in FY- Fiscal Yearestablishing S&P’s earnings and dividend rankings for common stocks, which are P/E- Price/Earningsdesigned to capsulize the nature of this record in a single symbol. It should be noted, PEG Ratio- P/E-to-Growth Ratiohowever, that the process also takes into consideration certain adjustments and PV- Present Valuemodifications deemed desirable in establishing such rankings. The final score for R&D- Research & Developmenteach stock is measured against a scoring matrix determined by analysis of the scores ROE- Return on Equityof a large and representative sample of stocks. The range of scores in the array of ROI- Return on Investmentthis sample has been aligned with the following ladder of rankings: ROIC- Return on Invested Capital ROA- Return on AssetsA+ Highest B+ Average C Lowest SG&A- Selling, General & Administrative ExpensesA High B Below Average D In Reorganization WACC- Weighted Average Cost of CapitalA- Above Average B- Lower NR Not Ranked Dividends on American Depository Receipts (ADRs) and American DepositoryS&P Issuer Credit Rating - A Standard & Poor’s Issuer Credit Rating is a current Shares (ADSs) are net of taxes (paid in the country of origin).opinion of an obligor’s overall financial capacity (its creditworthiness) to pay itsfinancial obligations. This opinion focuses on the obligor’s capacity and willingnessto meet its financial commitments as they come due. It does not apply to any specificfinancial obligation, as it does not take into account the nature of and provisions of Disclosures/Disclaimers Disclosures/Disclaimersthe obligation, its standing in bankruptcy or liquidation, statutory preferences, or thelegality and enforceability of the obligation. In addition, it does not take into accountthe creditworthiness of the guarantors, insurers, or other forms of creditenhancement on the obligation. Required Disclosures In contrast to the qualitative STARS recommendations covered in this report, whichS&P Capital IQ EPS Estimates – S&P Capital IQ earnings per share (EPS) estimates are determined and assigned by S&P Capital IQ equity analysts, S&P’s quantitativereflect analyst projections of future EPS from continuing operations, and generally evaluations are derived from S&P’s proprietary Fair Value quantitative model. Inexclude various items that are viewed as special, non-recurring, or extraordinary. particular, the Fair Value Ranking methodology is a relative ranking methodology,Also, S&P Capital IQ EPS estimates reflect either forecasts of S&P Capital IQ equity whereas the STARS methodology is not. Because the Fair Value model and theanalysts; or, the consensus (average) EPS estimate, which are independently STARS methodology reflect different criteria, assumptions and analytical methods,compiled by Capital IQ, a data provider to S&P Capital IQ Equity Research. Among quantitative evaluations may at times differ from (or even contradict) an equitythe items typically excluded from EPS estimates are asset sale gains; impairment, analyst’s STARS recommendations. As a quantitative model, Fair Value relies onrestructuring or merger-related charges; legal and insurance settlements; in process history and consensus estimates and does not introduce an element of subjectivityresearch and development expenses; gains or losses on the extinguishment of debt; as can be the case with equity analysts in assigning STARS recommendations.the cumulative effect of accounting changes; and earnings related to operations thathave been classified by the company as discontinued. The inclusion of some items,such as stock option expense and recurring types of other charges, may vary, and S&P Global STARS Distributiondepend on such factors as industry practice, analyst judgment, and the extent to In North Americawhich some types of data is disclosed by companies. As of March 31, 2012, research analysts at S&P Capital IQ Equity Research North America recommended 34.5% of issuers with buy recommendations, 57.9% withS&P Core Earnings – S&P Capital IQ Core Earnings is a uniform methodology for hold recommendations and 7.6% with sell recommendations.adjusting operating earnings by focusing on a companys after-tax earningsgenerated from its principal businesses. Included in the S&P Capital IQ definition are In Europeemployee stock option grant expenses, pension costs, restructuring charges from As of March 31, 2012, research analysts at S&P Capital IQ Equity Research Europeongoing operations, write-downs of depreciable or amortizable operating assets, recommended 30.1% of issuers with buy recommendations, 49.4% with holdpurchased research and development, M&A related expenses and unrealized recommendations and 20.5% with sell recommendations.gains/losses from hedging activities. Excluded from the definition are pension gains,impairment of goodwill charges, gains or losses from asset sales, reversal of prior- In Asiayear charges and provision from litigation or insurance settlements. As of March 31, 2012, research analysts at S&P Capital IQ Equity Research AsiaS&P 12 Month Target Price – The S&P S&P Capital IQ equity analyst’s projection of recommended 35.9% of issuers with buy recommendations, 54.3% with holdthe market price a given security will command 12 months hence, based on a recommendations and 9.8% with sell recommendations.combination of intrinsic, relative, and private market valuation metrics, including S&PFair Value. Standard & Poor’s Equity Research
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