Energy 120606


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Energy 120606

  1. 1. Global StrategyEquity Research Asia Sector StrategyJune 6, 2012 O&G Weekly: An opportune time?2012 GDP ESTIMATES:  Oil prices continue to weaken. Crude oil had another bad week, with WTI,China: 7.7%-8.2% Brent and Dubai all losing between 4%-7% of their value over the last seven days. In total, all three benchmarks have fallen by more than 20% from theirHong Kong: 2.5%-3.0% peak in March. Short-term newsflow remain weak, with macroeconomic dataIndia: 6.8%-7.3% from the US and China depressing sentiment on crude oil. PhysicalIndonesia: 6.0%-6.5% fundamentals also look weak for 2012, with supply growth (mainly fromJapan: 1.5%-2.0% OPEC) outstripping demand growth by more than 1 mbpd, based on EIAKorea: 2.8%-3.3% projections (although much of this supply would go towards replenishingMalaysia: 4.4%-4.9% inventories drawn down substantially in 2011). The USD index has alsoSingapore: 2.0%-2.5% strengthened by more than 3% YTD, putting further pressure on crude oilTaiwan: 2.3%-2.8% prices.Thailand: 3.5%-4.0%U.S.: 1.8%  Putin visit to herald a (long-overdue) gas agreement? Russian PresidentEurozone: 0.4% Vladimir Putin begins a three-day visit to China today, and hopes are running high that China and the world’s leading natural gas producer will finally sign a gas sales agreement first proposed in a MoU in 2009. Recent2012 INDEX TARGETS: weakness in crude prices may give PetroChina more room to negotiate withS&P 500: 1,400 Gazprom, as Russia is likely to index its gas prices to crude oil. Still, withS&P Euro 350: 1,050 gas pricing reform still in its infancy in China (trials have only begun inS&P Asia 50: 3,500 Guangdong and Guangxi from early this year), we believe this would be a hurdle too far, in the short-term. Over the long-run, we believe China will push gas prices towards market pricing to encourage domestic investments and natural gas imports, which will be crucial to meet its energy needs.  Sinopec, CNOOC Ltd sniffing around TNK-BP stake? BP on Jun. 1 announced it had received approaches for its stake in troubled Russian JVEnergy TNK-BP, and has said that it intends to pursue the sale. Although no names were mentioned, market speculation is rife that both Sinopec and CNOOCOil & Gas Ltd are looking at the stake, especially with President Putin visiting China. We suspect that if this is the case, the acquisition may be undertaken by parent companies of either Sinopec or CNOOC Ltd, and later on injected inOverweight stages into the listed entity, given the potential value of USD30 bln for the stake would be one of the biggest ever undertaken by the Chinese energy players.  Another spill at PL19-3? Troubled offshore oil field PL19-3 was again in the limelight this week, with ConocoPhillips, the operator of the field,Ahmad Abdul-Halim, CFA announcing a small 0.6 ton oil leak during an oil transfer operation onEquity Analyst Sunday. The oil sheen was immediately cleaned up by 3 pm Monday, but we believe this will put more pressure on both ConocoPhillips and CNOOC Ltd to ramp up safety precautions ahead of a possible re-start of commercial production at China’s biggest offshore oil field to date, which we expect to happen by end 2012.  Tune out the noise; buy CNOOC Ltd on cheap valuations. We encourage investors to tune out the oil price noise and the drama in Europe, and focus on company fundamentals, which remain positive for our top pick CNOOC Ltd (trading at 6.8x 2012 EPS on CIQ data, vs. five-year average PE of 12.5x).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. June 6, 2012 Global Strategy 2 Select Integrated Oil & Gas and E&P Price Performance and Key Capital IQ Consensus Ratios as at June 05, 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 77.60 362,870 -8.2% -10.8% -3.5% 9.5x 8.8x -6.5% 4.5% PetroChina Co. Ltd. SEHK:857 HKD 9.65 263,468 -14.9% -15.6% -4.3% 9.2x 8.6x 17.6% 6.4% Royal Dutch Shell plc LSE:RDSA GBP 19.84 197,321 -7.4% -12.8% -12.1% 6.6x 6.3x -7.8% 6.7% Chevron Corporation NYSE:CVX USD 96.49 190,343 -7.0% -11.7% -6.2% 7.2x 7.1x -1.9% 0.9% BP plc LSE:BP. GBP 4.02 117,542 -4.8% -20.3% -13.8% 5.9x 5.4x -18.7% 4.7% China Petroleum & Chemical Corp. SEHK:386 HKD 6.80 86,195 -16.8% -22.3% -17.7% 6.4x 5.9x 0.7% 15.8% ConocoPhillips NYSE:COP USD 51.87 65,593 -2.4% -33.1% -28.8% 7.2x 6.6x -28.2% 5.7% PTT Public Co. Ltd. SET:PTT THB 303.00 27,392 -14.2% -15.4% -5.3% 7.2x 6.5x 11.6% 13.9% Average -9.46% -17.76% -11.45% 7.4x 6.9x -4.1% 7.3% E&Ps CNOOC Ltd. SEHK:883 HKD 13.28 76,414 -19.7% -23.1% -13.8% 6.8x 6.8x -0.3% 0.3% Statoil ASA OB:STL NOK 134.70 70,192 -9.6% -15.5% -9.7% 7.5x 7.1x -27.4% 1.9% Suncor Energy Inc. TSX:SU CAD 28.30 42,434 -6.3% -18.7% -9.2% 8.2x 7.2x 24.2% 15.7% Apache Corp. NYSE:APA USD 81.15 31,716 -8.9% -24.1% -16.3% 6.7x 6.1x 4.7% 12.2% Anadarko Petroleum Corporation NYSE:APC USD 58.86 29,405 -14.7% -29.2% -28.0% 14.8x 11.2x NM 33.3% Woodside Petroleum Ltd. ASX:WPL AUD 32.03 25,702 -9.5% -11.1% -6.3% 12.9x 11.0x 36.1% 20.0% PTT E&P Public Company Limited SET:PTTEP THB 155.00 16,287 -11.9% -15.3% -6.6% 9.2x 7.5x 23.4% 23.3% Hess Corporation NYSE:HES USD 43.01 14,517 -15.6% -33.5% -29.2% 6.8x 5.7x 29.6% 22.3% Average -12.02% -21.33% -14.88% 9.1x 7.3x 12.9% 16.1% 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 4.2x 4.0x 2.2x 2.0x 22.6% 21.6% 42.70% 44.30% 2.70% 2.91% PetroChina Co. Ltd. SEHK:857 5.6x 5.2x 1.3x 1.2x 14.6% 14.6% 42.30% 47.05% 4.81% 5.24% Royal Dutch Shell plc LSE:RDSA 3.4x 3.2x 1.0x 0.9x 16.1% 15.3% N/A N/A 5.57% 5.76% Chevron Corporation NYSE:CVX 3.0x 3.0x 1.4x 1.2x 20.4% 18.5% 44.30% 45.90% 3.63% 3.77% BP plc LSE:BP. 3.3x 3.3x 0.9x 0.8x 17.3% 16.8% 18.80% 19.70% 5.16% 5.65% China Petroleum & Chemical Corp. SEHK:386 4.4x 3.9x 0.9x 0.8x 15.2% 14.8% 16.89% 19.47% 4.86% 5.31% ConocoPhillips NYSE:COP 3.8x 3.6x 1.1x 1.0x 13.2% 14.4% 47.70% 49.70% 5.18% 5.39% PTT Public Co. Ltd. SET:PTT 5.2x 4.7x 1.3x 1.2x 19.8% 19.3% 9.24% 10.08% 4.56% 5.17% Average 4.1x 3.9x 1.3x 1.1x 17.4% 16.9% 31.70% 33.74% 4.56% 4.90% E&Ps CNOOC Ltd. SEHK:883 3.3x 3.3x 1.6x 1.4x 24.7% 21.0% 62.67% 61.45% 4.50% 3.3x Statoil ASA OB:STL 1.8x 1.8x 1.4x 1.2x 19.4% 18.0% 47.38% 46.07% 5.06% 1.8x Suncor Energy Inc. TSX:SU 4.2x 3.7x 1.0x 0.9x 13.3% 13.8% 60.80% 62.60% 1.73% 4.2x Apache Corp. NYSE:APA 3.0x 2.8x 1.0x 0.8x 15.7% 15.2% 79.30% N/A 0.81% 3.0x Anadarko Petroleum Corporation NYSE:APC 4.5x 4.0x 1.3x 1.2x 10.6% 11.6% 71.30% N/A 0.62% 4.5x Woodside Petroleum Ltd. ASX:WPL 7.4x 6.4x 1.7x 1.6x 14.9% 15.4% 76.70% 76.50% 4.02% 7.4x PTT E&P Public Company Limited SET:PTTEP 4.3x 3.4x 2.1x 1.8x 24.9% 25.4% 53.26% 54.44% 4.22% 4.3x Hess Corporation NYSE:HES 2.7x 2.4x 0.7x 0.6x 11.2% 11.6% 32.20% 33.90% 0.97% 2.7x Average 3.9x 3.5x 1.3x 1.2x 16.8% 16.5% 60.45% 55.83% 2.74% 3.9x Source: S&P Capital IQ Standard & Poor’s Equity Research
  3. 3. June 6, 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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