Energy 120522


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Energy 120522

  1. 1. Global StrategyEquity Research Asia Sector StrategyMay 22, 2012 O&G Weekly: Short-term weaknessS&P 2012 GDP ESTIMATES:  Crude prices weakened significantly in May. WTI, Brent and Dubai all fellChina: 7.7%-8.2% between 13% and 16% from their peaks in March, driven by weakerHong Kong: 2.5%-3.0% fundamentals, perceived easing of geopolitical tensions and a strengtheningIndia: 6.8%-7.3% USD. On the supply side, increased Saudi production and the lifting of SaudiIndonesia: 6.0%-6.5% export bottlenecks boosted OPEC supply to 31.6 mln (+1% MoM), but highJapan: 1.5%-2.0% seasonal refinery turnarounds and low direct crude burns in Saudi ArabiaKorea: 2.8%-3.3% lifted regional inventories. US crude inventories saw a 7.2 mln bbl build inMalaysia: 4.4%-4.9% April based on EIA data, due partly to stockpiling ahead of the SeawaySingapore: 2.0%-2.5% reversal but also due to strong US crude production from the BakkenTaiwan: 2.3%-2.8% formation. On the demand side, demand from emerging economies such asThailand: 3.5%-4.0% China weakened, with Platts data indicating apparent demand grew just 0.3%U.S.: 2.1% YoY in April, its slowest pace since June 2011.Eurozone: 0.0%  Expect a stronger 2H11. Despite the current market weakness, we retain our2012 INDEX TARGETS: view that 2H11 should see stronger prices, as inventory builds shouldS&P 500: 1,450 reverse on stronger crude oil refinery throughputs, higher Saudi direct crudeS&P Euro 350: 1,170 burns as the hot summer approaches, and the potential re-emergence of theS&P Asia 50: 3,500 nuclear impasse in Iran, with the next round of talks due tomorrow. Supply disruptions from the Sudan region (a major supplier of crude oil to Asian economies), as well as Syria and Yemen, will play a larger role in a potential uptick in prices as demand growth returns. Still, we see some risk to demand should the global economy continue to weaken, which will drive down demand for crude oil, especially should the main drivers (e.g. China) experience a hard landing.Energy  China cuts pump prices. The NDRC cut retail gasoline and diesel prices by CNY330/ton and CNY310/ton on May 9. We see the cuts as being negative forOil & Gas Sinopec (3-STARS) and to a lesser extent PetroChina (4-STARS), especially as it starts processing higher-priced March-April crudes (crude oil prices inOverweight China lag international benchmark prices by 1-2 months). Sustained weakness in international crude oil prices does increase the prospect of further pricing reform (e.g. by reducing the days used in the formula from 22 working days to possibly 10, to speed up price adjustments), which would be positive for the refiners, and in particular Sinopec. However, given our expectations of a stronger price environment in 2H11, we think furtherAhmad Abdul-Halim, CFA reform is unlikely in 2012, especially as the government is likely to beEquity Analyst focused on its 18 th Communist Party Congress in the autumn of 2012.  Stay Overweight; focus on upstream. We retain our Overweight call on the sector, and view the current weakness as a buying opportunity for a stronger environment in 2H11. We continue to favour the upstream-oriented PetroChina and CNOOC Ltd (5-STARS); while short-term crude price weakness may persist, lower inventories and a rebound in refinery throughput should bring average crude prices higher YoY and drive growth.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 disclosures and analyst certification appears on the last 3 pages of this report. Additional information isPrudential Tower, 17th Floor available on request.Singapore, 049712
  2. 2. May 22, 2012 Global Strategy 2 Select Integrated Oil & Gas and E&P Price Performance and Key Capital IQ Consensus Ratios as at May 21, 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 Integrateds Exxon Mobil Corporation NYSE:XOM USD 82.04 383,633 -3.8% -5.2% 6.7% 9.9x 9.2x -6.5% 4.5% PetroChina Co. Ltd. SEHK:857 HKD 10.16 271,189 -10.9% -11.2% 2.3% 9.6x 9.0x 10.3% 3.8% Royal Dutch Shell plc LSE:RDSA GBP 19.84 201,908 -7.2% -13.9% -7.9% 6.8x 6.4x -10.3% 6.8% Chevron Corporation NYSE:CVX USD 99.69 196,656 -2.8% -8.0% 4.2% 7.4x 7.3x -1.9% 0.9% BP plc LSE:BP. GBP 3.96 118,770 -9.0% -20.5% -10.1% 5.8x 5.3x -18.7% 5.0% China Petroleum & Chemical Corp. SEHK:386 HKD 7.12 92,637 -14.2% -18.7% -11.1% 6.6x 6.1x 2.8% 11.4% ConocoPhillips NYSE:COP USD 51.77 65,466 -29.0% -29.9% -24.8% 7.0x 6.4x -27.1% 7.2% PTT Public Co. Ltd. SET:PTT THB 322.00 29,342 -9.0% -9.8% 8.4% 7.7x 6.9x 9.5% 15.9% Average -10.73% -14.66% -4.03% 7.6x 7.1x -5.2% 6.9% E&Ps CNOOC Ltd. SEHK:883 HKD 14.28 82,100 -12.1% -17.6% -0.7% 7.4x 7.4x -0.1% 0.5% Statoil ASA OB:STL NOK 139.10 74,293 -9.2% -9.0% -1.3% 7.7x 7.3x -27.4% 1.4% Suncor Energy Inc. TSX:SU CAD 27.40 41,825 -11.6% -21.1% -11.4% 7.9x 7.2x 21.3% 11.4% Anadarko Petroleum Corporation NYSE:APC USD 64.74 32,342 -9.7% -24.5% -14.5% 16.2x 12.1x NM 27.6% Apache Corp. NYSE:APA USD 82.72 32,330 -9.6% -24.8% -13.3% 6.8x 6.2x 5.7% 11.7% Woodside Petroleum Ltd. ASX:WPL AUD 30.99 25,157 -11.5% -13.8% -12.3% 13.2x 11.1x 28.3% 20.9% PTT E&P PCL SET:PTTEP THB 163.00 17,265 -7.1% -11.9% 3.2% 9.8x 8.0x 20.1% 23.9% Hess Corporation NYSE:HES USD 46.04 15,540 -16.4% -29.7% -21.3% 7.2x 5.9x 29.9% 23.0% Average -10.90% -19.05% -8.95% 9.5x 7.6x 11.1% 15.1% EV/EBITDA   PBV  ROE Gross Margin Div Yield Company Name FY2012 FY2013 FY2012 FY2013 FY2012 FY2013 FY2012 FY2013 FY2012 FY2013 Integrateds Exxon Mobil Corporation NYSE:XOM 4.4x 4.2x 2.3x 2.1x 22.6% 21.6% 42.70% 44.30% 2.55% 2.76% PetroChina Co. Ltd. SEHK:857 5.6x 5.3x 1.4x 1.3x 14.7% 14.6% 42.30% 47.05% 4.67% 5.00% Royal Dutch Shell plc LSE:RDSA 3.5x 3.3x 1.0x 0.9x 16.1% 15.3% 0.00% 0.00% 5.42% 5.61% Chevron Corporation NYSE:CVX 3.1x 3.1x 1.4x 1.3x 20.4% 18.5% 44.30% 45.90% 3.47% 3.62% BP plc LSE:BP. 3.3x 3.3x 1.0x 0.9x 17.5% 16.7% 18.80% 19.70% 5.21% 5.74% China Petroleum & Chemical Corp. SEHK:386 4.6x 4.1x 1.0x 0.9x 15.5% 14.8% 16.89% 19.47% 4.69% 5.03% ConocoPhillips NYSE:COP 3.7x 3.5x 1.1x 1.0x 13.3% 14.3% 27.30% 28.60% 5.17% 5.43% PTT Public Co. Ltd. SET:PTT 5.5x 4.9x 1.4x 1.2x 19.5% 19.3% 9.18% 10.04% 4.36% 4.83% Average 4.2x 4.0x 1.3x 1.2x 17.4% 16.9% 28.78% 30.72% 4.44% 4.75% E&Ps CNOOC Ltd. SEHK:883 3.6x 3.6x 1.7x 1.4x 24.6% 21.1% 62.67% 61.45% 4.23% 4.50% Statoil ASA OB:STL 1.8x 1.8x 1.4x 1.3x 19.4% 18.1% 47.55% 46.57% 4.85% 5.10% Suncor Energy Inc. TSX:SU 4.0x 3.7x 1.0x 0.8x 13.5% 12.5% 60.80% 62.60% 1.79% 1.97% Anadarko Petroleum Corporation NYSE:APC 4.7x 4.3x 1.5x 1.3x 10.6% 11.6% 71.30% 0.00% 0.56% 0.56% Apache Corp. NYSE:APA 3.1x 2.8x 1.0x 0.8x 15.5% 15.2% 79.30% 0.00% 0.79% 0.79% Woodside Petroleum Ltd. ASX:WPL 7.5x 6.5x 1.8x 1.6x 14.5% 16.0% 74.25% 74.30% 3.92% 4.54% PTT E&P PCL SET:PTTEP 4.5x 3.6x 2.2x 1.9x 24.5% 25.1% 52.78% 53.72% 3.96% 4.85% Hess Corporation NYSE:HES 2.9x 2.6x 0.7x 0.7x 11.2% 11.6% 31.60% 33.50% 0.90% 0.90% Average 4.0x 3.6x 1.4x 1.2x 16.7% 16.4% 60.03% 55.36% 2.63% 2.90% Source: S&P Capital IQ Standard & Poor’s Equity Research
  3. 3. May 22, 2012 Global Strategy 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 McGraw-Hill Financial Research Europe Limited 3 trading as Standard & Poor’s; Standard & Poor’s Equity Research Services AsiaS&P STARS - Since January 1, 1987, S&P Capital IQ Equity Research has ranked a includes McGraw-Hill Financial Singapore Pte. Limited’s offices in Singapore,universe of U.S. common stocks, ADRs (American Depositary Receipts), and ADSs Standard & Poor’s Investment Advisory Services (HK) Limited in Hong Kong,(American Depositary Shares) based on a given equity’s potential for future Standard & Poor’s Malaysia Sdn Bhd, and Standard & Poor’s Information Servicesperformance. Similarly, S&P Capital IQ Equity Research has used STARS® (Australia) Pty Ltd.methodology to rank Asian and European equities since June 30, 2002. Under Abbreviations Used in S&P Capital IQ Equity Research Reportsproprietary STARS (STock Appreciation Ranking System), S&P equity analysts rank CAGR- Compound Annual Growth Rateequities according to their individual forecast of an equity’s future total return CAPEX- Capital Expenditurespotential versus the expected total return of a relevant benchmark (e.g., a regional CY- Calendar Yearindex (S&P Asia 50 Index, S&P Europe 350® Index or S&P 500® Index)), based on a DCF- Discounted Cash Flow12-month time horizon. STARS was designed to meet the needs of investors looking EBIT- Earnings Before Interest and Taxesto put their investment decisions in perspective. Data used to assist in determining EBITDA- Earnings Before Interest, Taxes, Depreciation and Amortizationthe STARS ranking may be the result of the analyst’s own models as well as internal EPS- Earnings Per Shareproprietary models resulting from dynamic data inputs. EV- Enterprise ValueS&P Quality Rankings (also known as S&P Earnings & Dividend Rankings)- FCF- Free Cash FlowGrowth and stability of earnings and dividends are deemed key elements in FFO- Funds From Operationsestablishing S&P’s earnings and dividend rankings for common stocks, which are FY- Fiscal Yeardesigned to capsulize the nature of this record in a single symbol. It should be noted, P/E- Price/Earningshowever, that the process also takes into consideration certain adjustments and PEG Ratio- P/E-to-Growth Ratiomodifications deemed desirable in establishing such rankings. The final score for PV- Present Valueeach stock is measured against a scoring matrix determined by analysis of the scores R&D- Research & Developmentof a large and representative sample of stocks. The range of scores in the array of ROE- Return on Equitythis sample has been aligned with the following ladder of rankings: ROI- Return on Investment ROIC- Return on Invested CapitalA+ Highest B+ Average C Lowest ROA- Return on AssetsA High B Below Average D In Reorganization SG&A- Selling, General & Administrative ExpensesA- Above Average B- Lower NR Not Ranked WACC- Weighted Average Cost of CapitalS&P Issuer Credit Rating - A Standard & Poor’s Issuer Credit Rating is a current Dividends on American Depository Receipts (ADRs) and American Depositoryopinion of an obligor’s overall financial capacity (its creditworthiness) to pay its Shares (ADSs) are net of taxes (paid in the country of origin).financial 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 ofthe obligation, its standing in bankruptcy or liquidation, statutory preferences, or the Disclosures/Disclaimerslegality 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 DisclosuresS&P Capital IQ EPS Estimates – S&P Capital IQ earnings per share (EPS) estimates In contrast to the qualitative STARS recommendations covered in this report, whichreflect analyst projections of future EPS from continuing operations, and generally are determined and assigned by S&P Capital IQ equity analysts, S&P’s quantitativeexclude various items that are viewed as special, non-recurring, or extraordinary. evaluations are derived from S&P’s proprietary Fair Value quantitative model. InAlso, S&P Capital IQ EPS estimates reflect either forecasts of S&P Capital IQ equity particular, the Fair Value Ranking methodology is a relative ranking methodology,analysts; or, the consensus (average) EPS estimate, which are independently whereas the STARS methodology is not. Because the Fair Value model and thecompiled by Capital IQ, a data provider to S&P Capital IQ Equity Research. Among STARS methodology reflect different criteria, assumptions and analytical methods,the items typically excluded from EPS estimates are asset sale gains; impairment, quantitative evaluations may at times differ from (or even contradict) an equityrestructuring or merger-related charges; legal and insurance settlements; in process analyst’s STARS recommendations. As a quantitative model, Fair Value relies onresearch and development expenses; gains or losses on the extinguishment of debt; history and consensus estimates and does not introduce an element of subjectivitythe cumulative effect of accounting changes; and earnings related to operations that as can be the case with equity analysts in assigning STARS recommendations.have 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, anddepend on such factors as industry practice, analyst judgment, and the extent to S&P Global STARS Distributionwhich some types of data is disclosed by companies. In North America As of March 31, 2012, research analysts at S&P Capital IQ Equity Research NorthS&P Core Earnings – S&P Capital IQ Core Earnings is a uniform methodology for America recommended 34.5% of issuers with buy recommendations, 57.9% withadjusting operating earnings by focusing on a companys after-tax earnings hold recommendations and 7.6% with sell recommendations.generated 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 Asia As of March 31, 2012, research analysts at S&P Capital IQ Equity Research Asiayear charges and provision from litigation or insurance settlements. recommended 35.9% of issuers with buy recommendations, 54.3% with hold recommendations and 9.8% with sell recommendations.S&P 12 Month Target Price – The S&P Capital IQ equity analyst’s projection of themarket price a given security will command 12 months hence, based on a Globallycombination of intrinsic, relative, and private market valuation metrics, including S&P As of March 31, 2012, research analysts at S&P Capital IQ Equity Research globally recommended 34.0% of issuers with buy recommendations, 56.3% with holdFair Value. recommendations and 9.7% with sell recommendations. Standard & Poor’s Equity Research
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