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Regional Oil & Gas Summary - 20 June 2014

Core Content Overview

The document provides a summary of the oil and gas market dynamics as of 19 June 2014, including price movements, news headlines, and analyst reports. It also includes valuation comparisons for Asian oil and gas companies.

Market Price Movements

• Brent Crude Oil: Increased by 1.4% to $115.06.
• Dubai Fateh Spot: Increased by 1.4% to $110.74.
• China Daqing Spot: Increased by 1.7% to $112.74.
• Henry Hub (NYMEX): Decreased by 3.1% to $4.56.
• Gold: Increased by 3.8% to $1,319.21.

News Headlines

China & Russia

• Gazprom-China Gas Deal: Potential increase in volume, with Gazprom planning to start laying the Power of Siberia pipeline in August.
• Gazprom LNG Export to China: Gazprom's vice chairman mentioned the possibility of exporting LNG to China in addition to the pipeline.
• Tethy's Extension Permit in Kazakhstan: Tethys Petroleum has secured a 15-year extension for its Kyzyloi production contract. It has farmed out half of its stake in Kazakhstan to a Chinese private equity fund for $75m.
• CGG and Sovcomflot Partnership: A joint venture called Arctic Geophysical Exploration (AGE) is being formed for seismic survey work in Russia's Arctic.

Middle East & Africa

• Egypt's Gas Production: Declined by 14% YoY in April, while power demand increased by 6% YoY. Egypt's LNG exports dropped by 81% YoY.

Asia

• China's Oil Operations in Iraq: Unaffected, with PetroChina reducing its workforce in the oilfields.
• EU Aid to Ukraine: EUR500m prepared to help Ukraine with gas debt.

Analyst Reports

SapuraKencana Petroleum

• Rating: BUY
• Target Price: MYR5.30
• Key Points: 1QFY1/15 core results are in line, with a 2.35sen DPS positive surprise. Secured two EPCIC contracts worth MYR1.3b, bringing total backlog to MYR30b.

China Oil & Gas (Initiation)

• Rating: NEUTRAL
• Key Themes: Natural gas liberalization, unconventional gas production, and natural gas vehicles.
• Key Companies:
  • PetroChina: BUY, Target Price: HKD11.50
  • NewOcean Energy: BUY, Target Price: HKD8.88
  • CNOOC: HOLD, Target Price: HKD14.34
  • Sinopec: HOLD, Target Price: HKD6.85

PetroChina

• Rating: BUY
• Target Price: HKD11.50
• Key Points: The company is expected to benefit from the W2E pipeline sale, which is a key milestone in China's energy reform. It is also expected to benefit from private capital entering the natural gas sector.

Sinopec

• Rating: HOLD
• Target Price: HKD6.85
• Key Points: The company lacks catalysts for further re-rating. Although it has plans to utilize private capital proceeds, investment in shale gas and natural gas distribution is expected to take years to show results.

CNOOC

• Rating: HOLD
• Target Price: HKD14.34
• Key Points: Uninspiring earnings outlook unless oil prices rise. Expected 5.7% and 12.5% volume growth for 2014/15, but with 5% cost inflation, the CAGR is only 2.6%.

NewOcean Energy

• Rating: BUY
• Target Price: HKD8.88
• Key Points: Expected to be the largest auto LNG distributor in China by 2017. Strong operating cash flow and logistics advantage are key strengths.

Valuation Comparison (Asia)

Key Insights

• Price Volatility: Crude oil prices in the region showed mixed performance, with Brent, Dubai Fateh, and Daqing crude rising, while Henry Hub fell.
• China's Energy Reforms: Significant steps are being taken, including the sale of the W2E pipeline and the push for natural gas liberalization.
• Gazprom's Expansion: Gazprom is expanding its gas exports to China, including the Power of Siberia pipeline and potential LNG exports.
• Private Capital Involvement: Private capital is being introduced into the natural gas sector, which could lead to long-term changes in the industry.
• Valuation Differences: Companies in the region show varied valuations, with some receiving BUY ratings and others HOLD or SELL based on their financial performance and growth potential.

Analysts Contact Information

This summary provides a comprehensive overview of the regional oil and gas market and key insights from the analysts.