20140613-招商证券_香港_-2H14_Oil___Gas_Industry_Outlook_29页_2mb

2H14 Oil & Gas Industry Outlook Summary

Core Content

This document provides an outlook for the oil and gas industry during the second half of 2014 (2H14), focusing on global and Chinese market dynamics, industry trends, and stock recommendations. It highlights the impact of geopolitical factors, production trends, and financial performance on the sector.

Main Points and Key Information

Global Crude Oil Outlook

• Crude oil prices: The expectation for Brent crude in 2H14 is around US$108.5/bbl, slightly higher than the beginning of the year, but expected to decline slightly compared to 2H13 and further in 2015E.
• Ukraine risk premium: The political situation in Ukraine added a risk premium to global crude oil prices, but this is expected to dissipate as the situation stabilizes.
• Speculative activity: Smart money has left the crude oil market, indicating a potential for price correction in 2H14.
• Inventory dynamics: U.S. crude oil ending stocks have reached a 5-year high, but a decline in gasoline inventory before summer driving season is expected to support crude prices for the next 1-2 months.
• Fundamental pressure: Inventory build-up in July may put downward pressure on crude oil prices.

China Oil & Gas Outlook

• Crude oil imports: China's crude oil imports are expected to increase to 312mmtonnes (6.32mmbd) in 2014E and 349mmtonnes (7.06mmbd) in 2015E, with import reliance reaching ~60%.
• Shale gas development: China is making progress in its shale gas ambitions, with the Fuling project (Sinopec) as a key example. Shale gas spending is expected to accelerate in 2H14 and 2015.
• Xinjiang Province: The opening of Xinjiang for private oil & gas investment benefits PetroChina and SPT Energy, which have a significant presence in the region.
• Natural gas/LNG imports: Natural gas consumption is rising, and imports are expected to increase by 23% YoY in 2014E and 18% YoY in 2015E.

Industry Trends

• E&P capex: E&P capital expenditures are expected to moderate, but growth in shale gas and offshore development will drive spending.
• Rig market: The global rig market faces headwinds, with utilization rates and day rates under pressure. The S&P 500 Oil & Gas Drilling Index is near its -1std dev from mid-cycle valuation, indicating limited upside for offshore OFS companies.
• Localization of offshore equipment: CNOOC is leading efforts to localize offshore equipment production, which could reduce reliance on foreign suppliers and boost domestic manufacturers.

Top Stock Picks

• PetroChina (00857.HK): Dominant oil & gas producer in China with strong exposure to shale gas development. Expected to benefit from asset sales and cost reduction. Target price: HK$11.20.
• SPT Energy (01251.HK): Leading private oilfield service provider with strong ties to PetroChina. Target price: HK$6.20.
• Chu Kong Pipe (01938.HK): Largest manufacturer of LSAW steel pipes in China. Expected to benefit from new pipeline projects and improved margins. Target price: HK$3.80.
• NewOcean Energy (00342.HK): Niche player in oil and gas distribution with rerating potential due to new oil business. Target price: HK$9.83.

Summary of Key Companies

PetroChina (00857.HK)

• Rating: Buy
• Share Price: HK$9.50
• Target Price: HK$11.20
• Earnings: FY14E EPS growth expected at 4.2%.
• Catalysts: Asset sales, cost reduction, shale gas development.
• Valuation: P/E of 10.0x, P/B of 0.8x.

SPT Energy (01251.HK)

• Rating: Buy
• Share Price: HK$4.65
• Target Price: HK$6.20
• Earnings: FY14E EPS growth expected at 16.8%.
• Catalysts: Opening of Chinese oil industry, increased investment in Xinjiang.
• Valuation: P/E of 16.2x, P/B of 2.7x.

Chu Kong Pipe (01938.HK)

• Rating: Buy
• Share Price: HK$2.78
• Target Price: HK$3.80
• Earnings: FY14E EPS growth expected at 28.2%.
• Catalysts: Panyu land appraisal, new pipeline projects, logistical efficiency from new facilities.
• Valuation: P/E of 11.8x, P/B of 2.3x.

NewOcean Energy (00342.HK)

• Rating: Buy
• Share Price: HK$7.33
• Target Price: HK$9.83
• Earnings: FY14E EPS growth expected at 15.8%.
• Catalysts: Rerating due to new oil business, niche market position.
• Valuation: P/E of 8.6x, P/B of 0.7x.

Conclusion

The oil and gas sector in 2H14 faces a mix of challenges and opportunities. While global crude prices are expected to remain volatile and show slight declines, China's continued investment in shale gas and infrastructure development presents growth potential. Companies with exposure to these trends, such as PetroChina, SPT Energy, and Chu Kong Pipe, are highlighted as top picks due to their strong positioning and potential for earnings growth.