Q2 – Analyst Themes of Quarterly Oil & Gas EarningsEY
Most companies reported strong earnings growth in the second quarter, but investors were disappointed. Expectations had risen in line with oil prices and profits, but cash flow generation of some companies fell short of consensus estimates.
The immediate outlook for key markets and sectors
Every month, Atradius brings you an up to the minute snapshot report on a range of export markets and key trade sectors. Our underwriters have a specialist view of the world economy – and the
industries that make that economy tick - that you won’t find in the general press coverage of events.
Even more importantly, our underwriters use their expertise and experience to look to the future. In each edition of Atradius Market Monitor you’ll find our outlook for a number of key market economies.
In this issue…
…we feature the following markets:
France – with a spotlight on the household appliances and dairy sectors
Austria – with a spotlight on the paper and timber sectors
Italy
Norway
Canada
New Zealand
Brazil
Japan
Special: Atradius Collections - Keep your cash flow healthy
Olivier Desbarres: Sterling: this lady's not for turningOlivier Desbarres
There are multiple factors behind Sterling’s collapse in the past fortnight to decade lows and the question remains whether these factors will reverse any time soon.
At the top of the pyramid of causes for Sterling’s demise, in my view, is not the UK’s large current account deficit or Bank of England (BoE) policy but the stance on EU membership which Prime Minister Theresa May has adopted.
So while Sterling’s greater competitiveness may eventually drive FX inflows into the UK and help Sterling to recover, financial markets and investors are likely to continue to take their cue from the British government near-term.
Simply put, if Theresa May continues down of the path of “Hard Brexit”, however ill-defined, Sterling is likely to remain under pressure.
However, history shows that while EU leaders have a tendency to drag their feet over key issues, they are able and willing to eventually find some kind of compromise.
Moreover, Theresa May will be subject to the will of her own Conservative Party – which on the whole supports membership of the UK or at least a softer form of exit from the EU – and of the people.
While the BoE would prefer a more stable currency and lower yields, there is probably little than it can (or should) do near-term beyond trying to reassure markets, investors and households.
EY Price Point: global oil and gas market outlook, Q2, April 2020EY
The first quarter of this year has seen some extraordinary events. As if chronic oversupply, prices stuck below sustainable levels, the looming energy transition, and investor pressure to decarbonize weren’t enough, our industry now faces a dramatic, but hopefully temporary, downturn in demand as a result of the ongoing COVID-19 outbreak.
The dramatic 55% fall in crude oil prices in the past year has brought clear benefits to oil importing nations, which include the US and most of the European Union (bar Norway) and Asia (bar Malaysia). Governments have been able to cut oil subsidies (e.g India, Indonesia and Egypt) and alleviate fiscal pressure, energy-intensive manufacturers’ input costs have shrunk and consumers are enjoying a tandem fall in petrol pump prices and heating bills.
EY Price Point: global oil and gas market outlook, Q2 | April 2022EY
The theme for this quarter is rearrangement. The loss, or potential loss, of Russian oil and gas supplies is forcing producers, refiners and traders to rethink the flow of crude oil and refined products from the wellhead to the gas pump in light of sanctions, potential sanctions and the risk of reputational damage. Countries, companies and consumers will all be searching for ways to adapt, and the outcome of the race to bring alternatives to market could alter the global energy landscape for years to come.
It is likely crude oil and LNG prices will remain elevated for some time. The process of diverting Russian oil through countries unwilling to sanction it will take time and there is little indication OPEC members are willing (or able) to increase production to make up for the loss of Russian crude. Spare capacity sat at 3.7 mbpd at the end of 2021, just above where it was in January 2020. Currently, sanctioned Venezuelan and Iranian production (about 3 mbpd below their peak) could fill the gap, but political and commercial obstacles remain. At today’s prices, US shale production is attractive, but the fastest the industry has been able to grow is between 1mbpd and 2mbpd per year. The LNG infrastructure was already stretched before the war in Ukraine and there is little prosect of finding new supplies soon.
As the largest buyer of Russian energy, Europe will be the epicenter. There is a deeply embedded bias there in favor for renewable energy, and the current crisis is certain to result in an all-out effort to accelerate the build-out of wind and solar power. The capacity to add new green energy is limited though by the project pipeline and supply chains for solar panels and wind turbines, and it is likely that much of the shortfall will be made up with the new LNG infrastructure.
Q2 – Analyst Themes of Quarterly Oil & Gas EarningsEY
Most companies reported strong earnings growth in the second quarter, but investors were disappointed. Expectations had risen in line with oil prices and profits, but cash flow generation of some companies fell short of consensus estimates.
The immediate outlook for key markets and sectors
Every month, Atradius brings you an up to the minute snapshot report on a range of export markets and key trade sectors. Our underwriters have a specialist view of the world economy – and the
industries that make that economy tick - that you won’t find in the general press coverage of events.
Even more importantly, our underwriters use their expertise and experience to look to the future. In each edition of Atradius Market Monitor you’ll find our outlook for a number of key market economies.
In this issue…
…we feature the following markets:
France – with a spotlight on the household appliances and dairy sectors
Austria – with a spotlight on the paper and timber sectors
Italy
Norway
Canada
New Zealand
Brazil
Japan
Special: Atradius Collections - Keep your cash flow healthy
Olivier Desbarres: Sterling: this lady's not for turningOlivier Desbarres
There are multiple factors behind Sterling’s collapse in the past fortnight to decade lows and the question remains whether these factors will reverse any time soon.
At the top of the pyramid of causes for Sterling’s demise, in my view, is not the UK’s large current account deficit or Bank of England (BoE) policy but the stance on EU membership which Prime Minister Theresa May has adopted.
So while Sterling’s greater competitiveness may eventually drive FX inflows into the UK and help Sterling to recover, financial markets and investors are likely to continue to take their cue from the British government near-term.
Simply put, if Theresa May continues down of the path of “Hard Brexit”, however ill-defined, Sterling is likely to remain under pressure.
However, history shows that while EU leaders have a tendency to drag their feet over key issues, they are able and willing to eventually find some kind of compromise.
Moreover, Theresa May will be subject to the will of her own Conservative Party – which on the whole supports membership of the UK or at least a softer form of exit from the EU – and of the people.
While the BoE would prefer a more stable currency and lower yields, there is probably little than it can (or should) do near-term beyond trying to reassure markets, investors and households.
EY Price Point: global oil and gas market outlook, Q2, April 2020EY
The first quarter of this year has seen some extraordinary events. As if chronic oversupply, prices stuck below sustainable levels, the looming energy transition, and investor pressure to decarbonize weren’t enough, our industry now faces a dramatic, but hopefully temporary, downturn in demand as a result of the ongoing COVID-19 outbreak.
The dramatic 55% fall in crude oil prices in the past year has brought clear benefits to oil importing nations, which include the US and most of the European Union (bar Norway) and Asia (bar Malaysia). Governments have been able to cut oil subsidies (e.g India, Indonesia and Egypt) and alleviate fiscal pressure, energy-intensive manufacturers’ input costs have shrunk and consumers are enjoying a tandem fall in petrol pump prices and heating bills.
EY Price Point: global oil and gas market outlook, Q2 | April 2022EY
The theme for this quarter is rearrangement. The loss, or potential loss, of Russian oil and gas supplies is forcing producers, refiners and traders to rethink the flow of crude oil and refined products from the wellhead to the gas pump in light of sanctions, potential sanctions and the risk of reputational damage. Countries, companies and consumers will all be searching for ways to adapt, and the outcome of the race to bring alternatives to market could alter the global energy landscape for years to come.
It is likely crude oil and LNG prices will remain elevated for some time. The process of diverting Russian oil through countries unwilling to sanction it will take time and there is little indication OPEC members are willing (or able) to increase production to make up for the loss of Russian crude. Spare capacity sat at 3.7 mbpd at the end of 2021, just above where it was in January 2020. Currently, sanctioned Venezuelan and Iranian production (about 3 mbpd below their peak) could fill the gap, but political and commercial obstacles remain. At today’s prices, US shale production is attractive, but the fastest the industry has been able to grow is between 1mbpd and 2mbpd per year. The LNG infrastructure was already stretched before the war in Ukraine and there is little prosect of finding new supplies soon.
As the largest buyer of Russian energy, Europe will be the epicenter. There is a deeply embedded bias there in favor for renewable energy, and the current crisis is certain to result in an all-out effort to accelerate the build-out of wind and solar power. The capacity to add new green energy is limited though by the project pipeline and supply chains for solar panels and wind turbines, and it is likely that much of the shortfall will be made up with the new LNG infrastructure.
The global high yield bond markets have witnessed sentiment to risk-off mode. This has since been partially significant growth and diversification over the last few years aided by the extraordinary monetary policy accommodation provided by central banks across the world. The unprecedented liquidity made available at record low yields has thus led to a significant pick up in both primary market and secondary market activity in the asset class. Banking disintermediation in Europe and regulatory changes in the financial sector further contributed to the deepening and diversification of the high yield bond markets even as emerging market issuances entered the fray.
In this backdrop, Aranca’s special report – High Yield Bonds - The Rise of the Fallen – examines how liquidity concerns have increased with changing regulatory environment, rising capital requirements and declining risk appetite leading to decreasing bond inventories at both banks and other dealers even as corporate bond issuances are at an all-time high.
You’ll see from the reports in this edition of Market Monitor that, while there are tentative signs of
economic stabilisation, these are tempered by indicators that still advise caution for future trade.
Germany has recorded positive growth since the summer, but we still expect bank lending to
continue to decline. Spain, in contrast, records negative growth forecasts for the short- and mid-term,
but at least our indicators show that the high tide of payment defaults and insolvencies may finally
have peaked. In the UK, however, a turnaround in the rising insolvency trend is still not in sight, and
the troubled construction sector is forecast to continue to suffer into 2010. That said, the car
scrappage scheme, which started later than in many other countries, will provide some cushion for
the automotive sector in the coming six months.
Against this background, we continue to urge caution, not just when embarking on new trading
ventures, but also in trade with established customers. Essentially, businesses need to tread more
carefully in ALL their sales transactions – monitoring changes in the payment behaviour of current
customers and taking extra care in assessing the financial strength of new prospects.
In this issue…
…we feature the following markets:
United Kingdom – with a spotlight on the construction and automotive sectors
Mexico – with a spotlight on the retail and chemicals sectors
Germany
Spain
Denmark
Portugal
Czech Republic
Actionable trade ideas for stock market investors and traders seeking alpha by overlaying their portfolios with options, other derivatives, ETFs, and disciplined and applied Game Theory for hedge fund managers and other active fund managers worldwide.
Ryan Renicker, CFA
I wanted to pass along our 4th quarter Economic Insights piece that we have just put together. This is a 15 page chart book that reviews market performance and looks at the various events that will impact the markets in the coming months. Of particular note, I think you will find the correlation of the markets and the U.S. election interesting (page 8). We also point out a number of themes (on pages 4-5) that could affect all of our client portfolios. As always, we use a lot of graphs and pictures to try and paint a simple story.
June 2021 - Sonoro Gold - Equity Research ReportMomentumPR
SONORO GOLD CORP. is a TSX-Venture Exchange-listed junior exploration company with precious metals properties in Sonora State, Mexico. Management has extensive experience in the discovery and development of mineral deposits, including several within the region. The company is currently focused on developing a heap leach mining operation (HLMO) at its flagship Cerro Caliche gold concession where exploration confirmed a broadly mineralized low-sulphidation epithermal vein structure with multiple gold mineralized zones along trend and near surface
Greetings,
Attached FYI ( NewBase Special 08 February 2016 ) , from Hawk Energy Services Dubai . Daily energy news covering the MENA area and related worldwide energy news. In todays’ issue you will find news about:-
• Saudi, Venezuela oil ministers hold ‘successful’ talks on market
• China market electrifying for ‘green’ cars
• Crude oil edges up in holiday-constrained trade
• A Record Number of Investors Are Piling Into Oil
• As Big Oil companies shrinks, boards plot different paths out of crisis
• Loss-making oil fields unlikely to be shut willingly - Wood Mackenzie
we would appreciate your actions to send to all interested parties that you may wish. Also note that if you or your organization wish to include your own article or advert in our circulations, please send it to :-
khdmohd@hotmail.com or khdmohd@hawkenergy.net
Best Regards.
Khaled Al Awadi
Energy Consultant & NewBase Chairman - Senior Chief Editor
MS & BS Mechanical Engineering (HON), USA
Emarat member since 1990
ASME meme since 1995
Hawk Energy since 2010
Current World Trends Impacting Commercial Real Estate InvestorsRCrenian
There are always changing trends affecting the Canadian investor’s portfolio. With 2014 coming to an end, here are three of the biggest trends we think that will continue impacting investors in 2015.
The global high yield bond markets have witnessed sentiment to risk-off mode. This has since been partially significant growth and diversification over the last few years aided by the extraordinary monetary policy accommodation provided by central banks across the world. The unprecedented liquidity made available at record low yields has thus led to a significant pick up in both primary market and secondary market activity in the asset class. Banking disintermediation in Europe and regulatory changes in the financial sector further contributed to the deepening and diversification of the high yield bond markets even as emerging market issuances entered the fray.
In this backdrop, Aranca’s special report – High Yield Bonds - The Rise of the Fallen – examines how liquidity concerns have increased with changing regulatory environment, rising capital requirements and declining risk appetite leading to decreasing bond inventories at both banks and other dealers even as corporate bond issuances are at an all-time high.
You’ll see from the reports in this edition of Market Monitor that, while there are tentative signs of
economic stabilisation, these are tempered by indicators that still advise caution for future trade.
Germany has recorded positive growth since the summer, but we still expect bank lending to
continue to decline. Spain, in contrast, records negative growth forecasts for the short- and mid-term,
but at least our indicators show that the high tide of payment defaults and insolvencies may finally
have peaked. In the UK, however, a turnaround in the rising insolvency trend is still not in sight, and
the troubled construction sector is forecast to continue to suffer into 2010. That said, the car
scrappage scheme, which started later than in many other countries, will provide some cushion for
the automotive sector in the coming six months.
Against this background, we continue to urge caution, not just when embarking on new trading
ventures, but also in trade with established customers. Essentially, businesses need to tread more
carefully in ALL their sales transactions – monitoring changes in the payment behaviour of current
customers and taking extra care in assessing the financial strength of new prospects.
In this issue…
…we feature the following markets:
United Kingdom – with a spotlight on the construction and automotive sectors
Mexico – with a spotlight on the retail and chemicals sectors
Germany
Spain
Denmark
Portugal
Czech Republic
Actionable trade ideas for stock market investors and traders seeking alpha by overlaying their portfolios with options, other derivatives, ETFs, and disciplined and applied Game Theory for hedge fund managers and other active fund managers worldwide.
Ryan Renicker, CFA
I wanted to pass along our 4th quarter Economic Insights piece that we have just put together. This is a 15 page chart book that reviews market performance and looks at the various events that will impact the markets in the coming months. Of particular note, I think you will find the correlation of the markets and the U.S. election interesting (page 8). We also point out a number of themes (on pages 4-5) that could affect all of our client portfolios. As always, we use a lot of graphs and pictures to try and paint a simple story.
June 2021 - Sonoro Gold - Equity Research ReportMomentumPR
SONORO GOLD CORP. is a TSX-Venture Exchange-listed junior exploration company with precious metals properties in Sonora State, Mexico. Management has extensive experience in the discovery and development of mineral deposits, including several within the region. The company is currently focused on developing a heap leach mining operation (HLMO) at its flagship Cerro Caliche gold concession where exploration confirmed a broadly mineralized low-sulphidation epithermal vein structure with multiple gold mineralized zones along trend and near surface
Greetings,
Attached FYI ( NewBase Special 08 February 2016 ) , from Hawk Energy Services Dubai . Daily energy news covering the MENA area and related worldwide energy news. In todays’ issue you will find news about:-
• Saudi, Venezuela oil ministers hold ‘successful’ talks on market
• China market electrifying for ‘green’ cars
• Crude oil edges up in holiday-constrained trade
• A Record Number of Investors Are Piling Into Oil
• As Big Oil companies shrinks, boards plot different paths out of crisis
• Loss-making oil fields unlikely to be shut willingly - Wood Mackenzie
we would appreciate your actions to send to all interested parties that you may wish. Also note that if you or your organization wish to include your own article or advert in our circulations, please send it to :-
khdmohd@hotmail.com or khdmohd@hawkenergy.net
Best Regards.
Khaled Al Awadi
Energy Consultant & NewBase Chairman - Senior Chief Editor
MS & BS Mechanical Engineering (HON), USA
Emarat member since 1990
ASME meme since 1995
Hawk Energy since 2010
Current World Trends Impacting Commercial Real Estate InvestorsRCrenian
There are always changing trends affecting the Canadian investor’s portfolio. With 2014 coming to an end, here are three of the biggest trends we think that will continue impacting investors in 2015.
The business cycle, the global financial crisis and the future of oil markets are currently the three most popular topics of discussion. Since the start of the recession, the international media has been quick to bring many new theories and revelations, brilliant in their simplicity, to light. Hope is the mother of invention, and amidst the crisis they cannot be disproved. However, in two or three years time, 99% of this verbal chaff will have been blown away and only serious analytical work will remain.
Authored by: Leonid Grigoriev
Published in 2010
Mercer Capital's Value Focus: Energy Industry | Q1 2020 | Region Focus: Eagle...Mercer Capital
Mercer Capital's Energy Industry newsletter provides perspective on valuation issues. Each newsletter also typically includes macroeconomic trends, industry trends, and guideline public company metrics.
Quarterly analyst themes of oil and gas earnings, Q1 2022EY
Financial questions continued to attract the most attention of the analyst community, with major focus on how companies will respond to the war in Ukraine, elevated commodity prices and improved cash flows. Strategic questions focused on how the changing geopolitical environment will affect capital allocation in the short and long term. Operationally, all eyes were on the capacity of companies to step up asset utilization and bring new projects to market quickly. Explore the latest EY quarterly analysts themes.
EY Price Point: global oil and gas market outlookEY
The theme for this quarter is reprieve. Crude prices rose steadily throughout 1Q19 as OPEC+ reigned in production to counteract the impact of North American production growth. What lies ahead is uncertain, but downward pressures loom over the marketplace.
EY Price Point: global oil and gas market outlook (Q4, October 2020)EY
Oil and gas prices have recovered steadily from their lows and are relatively stable, but that stability is supported by the combination of purposeful withholding of production by oil-producing countries and economic stress on upstream independents. Oil prices closed the quarter roughly where they started it, while refining spreads were down slightly. LNG spreads were substantially higher at the end of Q3 than they were at the beginning of the quarter but are still roughly half of what is generally thought of as sustainable.
Going forward, the market will be looking closely at how the economy and demand respond to new developments with respect to a potential COVID-19 vaccine and the US election.
The theme for this quarter is apprehension. In September, the US Federal Reserve announced a third 75 basis point increase in the federal funds rate. In the aftermath, the two-year treasury rate reached the highest level since before the 2008 financial crisis and the spread between two and ten-year rates went below negative 50basis points for the first time since the early eighties. Equity markets have begun to price in the likelihood of a recession and, if history is any indication, the impact on oil markets could be profound.
Executive summary for "Tesla versus ExxonMobil - who's right?"Simon Thompson
Here's the executive summary for Rethink Energy's definitive global forecast about EVs (Electric Vehicles) and eMobility, showing how and where 1.6 billion EVs will be over the next 30 years.
The report argues how the decline of oil consumption will be more rapid as is perceived by many; to the point where as early as 2031 prices of sub-$25 a barrel will render oil production financially unviable.
The key factors of Europe, China and Tesla – the Europeans setting laws making ICE (Internal Combustion Engine) vehicles illegal in new cars after 2035 - has led to EV penetrations well over 20% of new car sales in 2021.
It has meant that the acceptance of EV uptake has gone into overdrive. Not even a year ago, there were still industry forecasts predicting that anywhere up to two-thirds of all vehicles would be ICE by 2050.
How will opportunities for EV manufacturers (like Tesla) and EV infrastructure suppliers emerge? Where will be the most lucrative markets for electricity producers? And is the oil industry having its last hurrah? Will companies like ExxonMobil be reduced to extracting as much money from its assets in the next 6 or 7 years as possible before losing investor confidence?
The answers to these questions, and more can be found in the Rethink Energy EV forecast to 2050: Tesla versus ExxonMobil – who’s right?
Over 39 pages, accompanied with graphs, charts and data in an accompanying spreadsheet, it consists of:
1) A country by country survey of EV take-up from now till 2050, factoring in economic and legislative conditions;
2) The path leading to how 460 million charging points will be required by 2050;
3) The reasoning behind Rethink’s EV numbers and why they’re higher than the likes of Bloomberg, WoodMac and S&P (some of whom have changed course 3 times in the last year).
More details at
https://rethinkresearch.biz/reports-category/rethink-energy-research/
Mercer Capital's Value Focus: Energy Industry | Q3 2021 | Segment: BakkenMercer Capital
Mercer Capital's Energy Industry newsletter provides perspective on valuation issues. Each newsletter also typically includes a macroeconomic trends, industry trends, and guideline public company metrics.
New base energy news issue 915 dated 25 august 2016Khaled Al Awadi
Greetings,
Attached FYI (NewBase 25 August 2016 ) , from Hawk Energy Services Dubai . Daily energy news covering the MENA area and related worldwide energy news. In today’s issue you will find news about:-
• LNG IN THE NEW OIL PRICE ERA, By Morten Frisch
• Saudi Arabia Holds China Market Share Lead on Record Oil Output
• China Oil Giants Unmoved by Bull Rally After Worst-Ever Earnings
• Norway's Oil Investments To Fall Again In 2017
• Kenya: Work Begins on 2D Seismic Survey in Wajir Kenya
• Kenya: First Kenyan Oil Due by March 2017; Exports to Follow
• Oil prices fall as market focus returns to global supply overhang
• As Japan and South Korea import less LNG, other Asian countries begin to import more
we would appreciate your actions to send to all interested parties that you may wish. Also note that if you or your organization wish to include your own article or advert in our circulations, please send it to :-
khdmohd@hotmail.com or khdmohd@hawkenergy.net
Best Regards.
Khaled Al Awadi
Energy Consultant & NewBase Chairman - Senior Chief Editor
MS & BS Mechanical Engineering (HON), USA
Emarat member since 1990
ASME meme since 1995
Hawk Energy since 2010
1. Equilor Investment Ltd. Tel: (36 1) 430 3980 equilor@equilor.hu Member of the Budapest, Warsaw
1037 Budapest, Montevideo 2/C Fax: (36 1) 430 3981 www.equilor.hu
http://equilor.blog.hu
and Prague Stock Exchanges 6
EQUILOR RESEARCH 01/09/2016
OIL AND GAS – INDUSTRY NOTE
Oil prices are expected to appreciate into a $50-60 per barrel price range next year.
Strategy shifts implied, all integrated companies are implying cost-cutting schemes and
lowering capex.
The future of oil might not be oil at many companies, as major players start to shift towards
gas based operations.
Shale producers in the US, Shell and Eni in Europe and MOL is highlighted to have potential
despite the low oil price.
Oil price has appreciated from its all-time minimum at the beginning of the year, and now trading
in the 40-50 region as the supply pressure has weakened. The two major output interruptions,
that had a positive effect on the prices, were the Canadian wildfires and the military operations
in Nigeria. The two combined account for a 3.75 MMBOEPD output loss, the Nigerian daily
production levels decreased by more than 50% due to the interruptions. In addition, the
nomination of the new Saud Arabian oil minister had a slight positive effect on the prices; however
the output targets of the country were left intact. Output actually reached record levels lately,
which was the main force pushing prices back. In order to see a significant upward shift in the
prices, we should wait for an OPEC output limit announcement. The board of the organizations is
meeting twice more this year. First, at an informal meeting in Algiers between Sept. 26-28 and
then at an OPEC general meeting in Vienna on 30th Nov. However, the internal conflicts can
significantly delay any kind of agreement among the member countries, therefore the meeting in
September is not expected to bring any major improvements.
In terms of the future, even market participants have various expectations. The only agreed fact
is the slow appreciation of prices, which all parties look forward to. They all expect prices to
stabilize over the upcoming period although the price at which this happens is not clear yet. As
per Table I below, companies expect a $50-60/barrel price however their strategies enable most
of them to operate confidently under lower prices as well. Note that due to the rising prices the
additional supply sources might result in a lower than expected equilibrium oil price.
Monika Kiss
Head of research
(+36) 1 808 9212
monika.kiss@equilor.hu
David Farkas
Analyst Intern
farkas.david94@gmail.com
Oil price
2. Equilor Investment Ltd. Tel: (36 1) 430 3980 equilor@equilor.hu Member of the Budapest, Warsaw
1037 Budapest, Montevideo 2/C Fax: (36 1) 430 3981 www.equilor.hu
http://equilor.blog.hu
and Prague Stock Exchanges 7
Source: Bloomberg
The oil price slump resulted in serious strategy changes among integrated companies.
Investments among the industry fell by 30% in 2015, and if this year concludes similarly, it would
be the first time investment falls for two consecutive years. All major companies are focusing on
cost cutting, which results in the industry wide upgrade of assets instead of the construction of
new ones. This is also the reason why OPEC’s move to weaken American shale suppliers seemed
to fail for the first sight. As you can see on the graph above, the BAKEOIL index represents the
falling number of working US oil rigs, while the rising US output is shown by the CROMUS index
(light blue line represents crude oil price). It is clear that the remaining upgraded rigs could keep
up the growing output which only started to fall as prices continued to decrease as well.
These processes impacted smaller firms significantly more heavily; many hedge positions got
exercised and free cash flow reserves have dropped significantly. These drawbacks are also
dangerous from an M&A point of view, as they can become potential targets for bigger
companies, serving as ‘cheap’ growth options. However, there seems to be no acquisition wave
in sight as credit ratings for big companies have also suffered from the oil price decrease and
number of desirable companies on the market is limited. The rebound in investments is expected
to happen under a $65-75/barrel oil price scenario. Many shale producers are likely to switch their
plants back on at this level, and companies running on break-even would also be able to report
growing earnings. In addition this would increase the trust of credit providers in the industry,
resulting in new funds for revving up investments.
Therefore the first potential companies showing growth are expected to be the shale producers
of the US, who are more flexible with switching their plants on and off as the prices change. Well
known integrated companies cannot cope with these flexibility levels, therefore their growth rate
cannot be directly compared. The table below shows data for major companies among the oil and
gas industry in addition to significant shale producers (under the line).
Changing environment
Growth potential
3. Equilor Investment Ltd. Tel: (36 1) 430 3980 equilor@equilor.hu Member of the Budapest, Warsaw
1037 Budapest, Montevideo 2/C Fax: (36 1) 430 3981 www.equilor.hu
http://equilor.blog.hu
and Prague Stock Exchanges 8
Table I. – Oil and Gas Industry – Year to Date (Share prices as of 31.08.2016.)
Company Country
Current
share
price
Share
price
change
YoY (%)
Bloomberg
consensus
target price
Net
debt
/
EBIT
DA
2015
Adj. EPS
YoY %
change
2016 Adj.
EPS YoY
change
(forecast)
Oil price
exp.
MOL HU 17330 21,57 18 152 HUF 0,74
+
158,13
+ 22,80%
OMV AU 25,12 - 3,62 23,40 EUR
26,8
0
+ 1,09 - 44,53%
40 USD
(2016)
PKN PL 65 - 3,63 69,97 PLN 1,16 – + 30,40%
Shell NL 1942 22,94 1960,50 GBp
1,1
4
-
52,73
- 41,40%
60 USD
(2017)
Eni IT 13,54 - 2,17 15,45 EUR 3,23 - 91,04 + 56,30%
50-55
USD
(2017)
Exxon
Mobil
US 87,14 11,21 90,30 USD 1,13 - 49,34 - 28,60%
BP UK 33,86 7,74 460,48 GBp 3,92 - 50,91 - 36,80%
60 USD
(2017)
Chevron US 100,58 11,46 111,84 USD 1,57 - 68,63 - 59,40%
Total FR 42,75 3,60 47,36 EUR 1,46 - 5,59 - 30,26%
Repsol ES 12,04 21,64 12,33 EUR
25,4
3
+ 4,48 - 25,60%
Continental
Resources
US 47,96 107,75 51,59 USD 4,67 – - 152,7%
72 USD
(2016)
Pioneer
Natural
Resources
US 179,05 42,53 202,98 USD 2,01 – - 74,70%
55 USD
(2018)
Diamondba
ck Energy
US 95,25 41,03 107,33 USD – - 19,20 - 42,80%
Industry
average
1,30 -51,0 -29,6%
50-60
USD
The expectations towards the shale industry can also be verified with the figure below. The
relative performance analysis clearly places the shale producers to the best upright position. The
only company on the right half over the line is Pioneer Natural Resources, which is one of the
many independent US producers. Integrated companies tend to lag behind, however Shell and Eni
are able to show over average EBITDA growth expectations while having technically the same
EV/EBITDA rate as their peers. Interestingly these two companies happen to have the best
outlooks for their gas based departments about which you can read our analysis below. In the CEE
region MOL is clearly taking a more defensive position, while their financials are reported to
remain strong. PKN however has some major issues, and is not expected to be able to continue
growing without external support. According to the latest news the Polish government is going to
buy a large sum of the shares in order to help out the company.
4. Equilor Investment Ltd. Tel: (36 1) 430 3980 equilor@equilor.hu Member of the Budapest, Warsaw
1037 Budapest, Montevideo 2/C Fax: (36 1) 430 3981 www.equilor.hu
http://equilor.blog.hu
and Prague Stock Exchanges 9
Many companies have failed to cope with the conditions. In the Northern-American region about
80 companies have filed for bankruptcy since 2015. Most of these were highly leveraged shale
producers, biggest names include Aztec Oil & Gas, Linn Energy, Penn Virginia and Energy XXI. The
latter was the biggest independent player in the Gulf of Mexico, it has filed for bankruptcy after
spending billions on investments. The main problem among most of the firms was caused by the
exercised hedge options, which left them exposed to the oil prices and caused them to start
burning cash. The total debt stuck in these bankrupted companies reaches $66.5B. Many
companies still in the market increased their debt in order to support their cost cutting strategies.
However, in many cases these funds are directly used to maintain dividend levels in order to keep
up investor attention. Besides these steps many companies are trying to further diversify their
product portfolio, as conventional hedge options are becoming less effective under low oil price
conditions.
As it can be observed on the graph below, major companies (except BP) have significantly
increased the share of gas based operations, which is comprised mainly by gas extraction and spot
market sales. This energy carrier is relatively hard to transport overseas, therefore there is no
global price identified as there is for oil. As a result having a well-positioned field can easily have
above average financials prospects, which makes it a desirable alternative for oil. In addition its
lower overall CO2 pollution level, lower investment costs and lower cost of switching plants on
and off are all advantages over oil. Flexibility of companies having higher share of gas is increased,
especially with the rising share of LNG (Liquefied Natural Gas), which provides a solution for easier
transatlantic shipment. The share of gas based energy generation is expected to grow by 5% this
year, which is mainly the result of the switch from coal-based plants.
Some fell short
Shifting towards gas
5. Equilor Investment Ltd. Tel: (36 1) 430 3980 equilor@equilor.hu Member of the Budapest, Warsaw
1037 Budapest, Montevideo 2/C Fax: (36 1) 430 3981 www.equilor.hu
http://equilor.blog.hu
and Prague Stock Exchanges 10
Source: Bloomberg
Shell and Eni have the brightest potential in terms of their gas departments. Beside their solid
financial outlooks, both companies have significantly raised the level of gas operations showing
they are bidding on gas. Eni lately announced a major gas discovery in Egypt, which the CEO
identified as a game changer for Egyptian, and maybe even for European energy security over the
long-run. Other companies (Chevron, Total) also show change in their resource mix. However their
financial outlooks are not promising enough to make the most of gas. MOL also has issues, as their
domestic market for gas is heavily limited by governmental measures.
Shell CEO said in an interview that the growth of gas might also be supported by the change in the
main fuel for transportation. He pointed out that the electrification of shipping and the heavy
truck transportation might come later as expected, therefore gas could be a great bridge fuel. In
this scenario gas would not only serve as a hedge, but also a lucrative part of the energy mix of
integrated companies.
In the middle -and long-run the oil and gas industry has plenty of potential. Companies are argued
to be hit heavily by the effects of the lower oil price, and the lowered amount of investment
towards exploration operations is expected to result in a slump of supply in the future. This would
result in the appreciation of the share prices not only among shale producers, but also of
integrated operators, especially the two highlighted companies, Shell and Eni.
Shell and Eni
Summary
6. Equilor Investment Ltd. Tel: (36 1) 430 3980 equilor@equilor.hu Member of the Budapest, Warsaw
1037 Budapest, Montevideo 2/C Fax: (36 1) 430 3981 www.equilor.hu
http://equilor.blog.hu
and Prague Stock Exchanges 11
Research:
Monika Kiss
Head of Research
Direct: (+36 1) 808 9212
monika.kiss@equilor.hu
Laszlo Illes
Senior analyst
Direct: (+36 1) 436 9531
laszlo.illes@equilor.hu
Balint Kovacs
Analyst
Direct: (+36 1) 430 3452
balint.kovacs@equilor.hu
Zoltan Varga
Analyst
Direct:(+36 1) 436 7015
zoltan.varga@equilor.hu
Institutional sales
Marton Csintalan
Sales Trader
Direct: (+36 1) 436 70 14
marton.csintalan@equilor.hu
Attila Jozsef Szabo
Sales Trader
Direct: (+36 1) 808 92 00
attila.szabo@equilor.hu
Equities Department
Zsolt Vavrek
Equities Department Director
Direct: (+36 1) 430 3991
zsolt.vavrek@equilor.hu
Private Banking
Bertalan Nagy
Private Banking Director
Direct: (+36 1) 436 7019
bertalan.nagy@equilor.hu
This document shall be considered an advertisement, and was not made in accordance with legal requirements aimed at promoting the independence of investment
analyses. Likewise, it is not subject to the prohibition of concluding transactions prior to the distribution and publication of investment analyses.
This document – either as a whole or in part – does not represent any offer or call for the subscription, purchase, sale, holding or leasing of any financial instrument,
and neither the document nor any content thereof shall be considered as a request for proposal or any encouragement to enter into any agreement or commitment.
Neither Equilor Zrt. nor its employees shall accept any liability for any losses arising from or otherwise in connection with such a use of the document or any content
thereof.
The full text of the legal disclaimer relating to the document is available at http://www.equilor.hu/en/market-analyses We suggest reading through the whole
disclaimer to avoid any misinterpretation.
