20150112-高盛-Crossing_the_abyss__OSH_up_to_Buy,_BPT_down_to_Sell_15页_478kb

Australia: Energy Summary

Core Content

This document provides an analysis of the Australian energy sector, focusing on oil and LNG (Liquefied Natural Gas) dynamics, and evaluates the investment prospects of key companies such as Beach Energy (BPT.AX) and Oil Search (OSH.AX). It highlights the impact of declining oil prices on earnings, dividends, and overall market performance, while also identifying potential opportunities for investors in a deflationary environment.

Main Points

Oil Price Outlook

• Lower oil prices are expected to persist, with the following updated forecasts:
  • 2015E: Average Brent oil price of US$50.40/bbl (down from US$83.75/bbl)
  • 2016E and beyond: Long-term Brent oil price of US$70/bbl (down from US$90/bbl)
• A US$70/bbl long-term oil price environment is projected to result in US$9–11/MMBtu LNG pricing, under current long-term contracts.

Earnings and Dividend Impact

• EPS forecasts for LNG exporters are now 73–94% below Bloomberg consensus for 2015E.
• Dividends are expected to be lower, with Santos being the key outlier due to its >1,400% payout ratio.
• STO may need to cut dividends in 2015 to maintain its credit rating, and further cuts are anticipated.

Investment Strategy

• OSH is upgraded to Buy, as it is viewed as a quality company with growth prospects that benefit from the deflationary LNG cycle.
• BPT is downgraded to Sell, as it is considered overvalued and has less leverage to an oil price recovery.
• Investors are advised to seek companies with strong balance sheets and leverage to oil price recovery, such as DLS and KAR.

Market Performance

• The Australian energy equities have underperformed the ASX200 by ~23% over 4 months.
• STO has been the weakest performer, while BPT has outperformed Cooper Basin peers.
• OSH is discounted to NPV, and DLS and KAR are considered undervalued.

Key Information

Updated Oil Price Forecasts

Valuation Metrics

Share Price Performance

Investment Profile

• BPT is Sell, due to its high valuation and uncertain future.
• OSH is Buy, due to its high-quality growth prospects and deflationary benefits.
• KAR is recommended for defensive energy exposure, with a strong cash balance.
• DLS is recommended for growth and leverage, with manageable balance sheet.
• SXY and AWE have hedges in place to mitigate risks.

Key Risks

• Oil price volatility
• Disappointing drilling results
• Delays in LNG expansion
• Lower capex budgets
• Chevron's decision on the Cooper Basin JV

Strategic Outlook

• The bear market in oil is expected to drive structural changes in the sector, including M&A, strategic partnerships, and restructuring.
• Capex deferrals are expected in 2015, with STO and OSH having reduced budgets.
• LNG projects outside the USA are unlikely to reach FID in 2015.
• Deflationary cycle in LNG is expected to benefit OSH, which has lower production costs and strong reserve life.

Summary

The Australian energy sector is currently facing lower oil prices, which have significantly impacted earnings and dividends. While BPT is downgraded to Sell, OSH is upgraded to Buy due to its strong growth prospects and resilience to oil price deflation. The report emphasizes the importance of dividend policy and capital structure in a low oil price environment, with OSH and KAR being highlighted as better options for investors. The turbulent market conditions may lead to structural changes, and companies with strong balance sheets are expected to benefit from future oil price recovery.