Energy 120530


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Energy 120530

  1. 1. Global StrategyEquity Research Asia Sector StrategyMay 30, 2012 O&G Weekly: Beijing feedbackS&P 2012 GDP ESTIMATES:  Potential product price cut in June? WTI, Brent and Dubai all fell betweenChina: 7.7%-8.2% 4% and 6% from May 9 - 29, higher than the 4% threshold required for theHong Kong: 2.5%-3.0% NDRC to declare a change in product prices in China, although we have yetIndia: 6.8%-7.3% to exceed the 22-working day period requirement in this case. Should oilIndonesia: 6.0%-6.5% prices remain at current levels, potentially we could see a cut in oil prices ofJapan: 1.5%-2.0% between CNY300/ton-CNY350/ton as early as the second week of June. WhileKorea: 2.8%-3.3% the State Council has a good opportunity to introduce further reform in theMalaysia: 4.4%-4.9% product pricing mechanism in China given weak crude oil prices, based onSingapore: 2.0%-2.5% our recent meetings in Beijing, we think this is unlikely in the short-term, asTaiwan: 2.3%-2.8% the government’s focus is likely to be on stability ahead of the Congress byThailand: 3.5%-4.0% end 2012.U.S.: 2.1%Eurozone: 0.0%  A more difficult 2Q12 for the integrateds? Even if we do not see a cut in refined product prices in June, we expect 2Q12 to be a more difficult quarter2012 INDEX TARGETS: for both PetroChina and Sinopec. May 9’s CNY330/ton and CNY310/ton cutS&P 500: 1,450 for gasoline and diesel comes at a time when the refiners are facing higher-S&P Euro 350: 1,170 priced April crude. Hence, we expect refining margin to be under pressureS&P Asia 50: 3,500 for 2Q12. Further, the chemical sector should also see bottomline pressure, as prices have weakened in May, after strengthening in April, following weak global export demand and also weaker Chinese economic growth prospects.  Natural gas reform is a long-term issue. Feedback from PetroChina indicate that the impact of the gas pricing trials announced in early 2012 is limited for the company, given it only supplies less than 2 bln cu m of gas to Guangdong and Guangxi, or less than 3% of its domestic production. WeEnergy think it unlikely that the gas pricing formula will be rolled out in one swoop; rather, we believe gas prices will be adjusted gradually on a province byOil & Gas province basis, with poorer provinces to see a slower rate of adjustment. In the meantime, we expect PetroChina may record losses in 2H12 for itsOverweight natural gas business as higher-priced imported gas increases. 1Q12 losses from the sale of imported gas amounted to CNY10.2 bln.  Offshore costs remain sticky. While onshore China’s lifting costs appear to be growing at a manageable, single-digit pace (especially in CNY terms), offshore per bbl lifting costs appear to remain sticky, with CNOOC LtdAhmad Abdul-Halim, CFA expecting 20%+ higher YoY for 2012, and it does not expect industry costs toEquity Analyst trend down in the near future, despite the weakness in oil prices. Sister company and rig owner COSL also confirmed this, and mentioned that labour costs are actually increasing, especially for its European operations.  Stay Overweight. We retain our Overweight call on the sector, and view the current weakness as a buying opportunity for a potentially stronger environment in 2H11. Our top pick remains CNOOC Ltd at 5-STARS (Strong Buy).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 30, 2012 Global Strategy 2 Select Integrated Oil & Gas and E&P Price Performance and Key Capital IQ Consensus Ratios as at May 30, 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 81.93 383,118 -4.8% -5.3% 6.5% 9.9x 9.2x -6.5% 4.5% PetroChina Co. Ltd. SEHK:857 HKD 10.28 272,754 -11.7% -12.4% 6.5% 9.8x 9.1x 18.2% 6.1% Royal Dutch Shell plc LSE:RDSA GBP 20.15 203,491 -7.9% -11.9% -5.9% 6.9x 6.4x -9.4% 6.6% Chevron Corporation NYSE:CVX USD 100.24 197,741 -5.6% -8.1% 2.9% 7.5x 7.3x -1.9% 0.9% BP plc LSE:BP. GBP 4.07 121,019 -8.8% -17.4% -7.3% 6.0x 5.6x -19.2% 5.0% China Petroleum & Chemical Corp. SEHK:386 HKD 7.18 90,574 -12.4% -19.2% -10.5% 6.7x 6.1x 1.2% 13.2% ConocoPhillips NYSE:COP USD 53.27 67,363 -26.0% -30.4% -21.8% 7.2x 6.6x -27.1% 7.2% PTT Public Co. Ltd. SET:PTT THB 313.00 28,207 -9.0% -13.8% 4.3% 7.4x 6.7x 11.4% 14.2% Average -10.79% -14.82% -3.15% 7.7x 7.1x -4.2% 7.2% E&Ps CNOOC Ltd. SEHK:883 HKD 14.72 84,646 -9.6% -17.3% 4.4% 7.5x 7.5x 0.3% 0.3% Statoil ASA OB:STL NOK 140.10 74,177 -8.4% -12.4% -2.2% 7.7x 7.4x -27.2% 1.0% Suncor Energy Inc. TSX:SU CAD 29.19 44,482 -7.7% -18.1% -0.5% 8.4x 7.4x 21.9% 16.1% Apache Corp. NYSE:APA USD 84.04 32,846 -11.5% -22.1% -9.6% 6.9x 6.3x 5.5% 11.8% Anadarko Petroleum Corporation NYSE:APC USD 64.45 32,197 -12.7% -23.4% -16.0% 16.1x 12.1x NM 27.6% Woodside Petroleum Ltd. ASX:WPL AUD 32.48 26,356 -5.7% -12.8% -2.6% 13.7x 11.5x 31.0% 20.8% PTT E&P PCL SET:PTTEP THB 157.00 16,445 -10.3% -14.9% 1.0% 9.3x 7.6x 22.6% 23.8% Hess Corporation NYSE:HES USD 47.42 16,006 -8.0% -27.0% -17.4% 7.4x 6.1x 29.3% 22.6% Average -9.23% -18.49% -5.38% 9.6x 7.7x 11.9% 15.5% 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% 2.56% 2.76% PetroChina Co. Ltd. SEHK:857 5.7x 5.3x 1.4x 1.3x 14.6% 14.6% 42.30% 47.05% 4.54% 4.94% Royal Dutch Shell plc LSE:RDSA 3.5x 3.3x 1.0x 0.9x 16.1% 15.3% N/A N/A 5.38% 5.58% Chevron Corporation NYSE:CVX 3.1x 3.1x 1.4x 1.3x 20.4% 18.5% 44.30% 45.90% 3.49% 3.62% BP plc LSE:BP. 3.4x 3.4x 1.0x 0.9x 17.4% 16.7% 18.80% 19.70% 5.04% 5.55% China Petroleum & Chemical Corp. SEHK:386 4.5x 4.1x 1.0x 0.9x 15.2% 14.8% 16.89% 19.47% 4.63% 5.06% ConocoPhillips NYSE:COP 3.8x 3.6x 1.1x 1.0x 13.3% 14.3% 27.30% 28.60% 5.02% 5.27% PTT Public Co. Ltd. SET:PTT 5.3x 4.8x 1.4x 1.2x 19.8% 19.3% 9.23% 10.19% 4.41% 5.01% Average 4.2x 4.0x 1.3x 1.2x 17.4% 16.9% 28.79% 30.74% 4.38% 4.72% E&Ps CNOOC Ltd. SEHK:883 3.7x 3.7x 1.7x 1.5x 24.7% 21.0% 62.67% 61.45% 4.09% 4.34% Statoil ASA OB:STL 1.8x 1.8x 1.4x 1.3x 19.4% 18.0% 47.38% 46.07% 4.85% 5.06% Suncor Energy Inc. TSX:SU 4.3x 3.8x 1.0x 0.9x 13.3% 13.8% 60.80% 62.60% 1.68% 1.85% Apache Corp. NYSE:APA 3.1x 2.9x 1.0x 0.9x 15.7% 15.2% 79.30% N/A 0.78% 0.78% Anadarko Petroleum Corporation NYSE:APC 4.7x 4.3x 1.5x 1.3x 10.6% 11.6% 71.30% N/A 0.56% 0.56% Woodside Petroleum Ltd. ASX:WPL 7.8x 6.7x 1.8x 1.7x 14.8% 15.6% 74.25% 74.30% 3.80% 4.38% PTT E&P PCL SET:PTTEP 4.3x 3.5x 2.1x 1.8x 24.9% 25.4% 53.26% 54.44% 4.17% 5.10% Hess Corporation NYSE:HES 2.9x 2.6x 0.8x 0.7x 11.2% 11.6% 31.60% 33.50% 0.88% 0.88% Average 4.1x 3.7x 1.4x 1.2x 16.8% 16.5% 60.07% 55.39% 2.60% 2.87% Source: S&P Capital IQ Standard & P oo r’s Equ ity Research
  3. 3. May 30, 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 Equ ity Research
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