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Regional Oil & Gas Summary - 23 June 2014

Core Content Overview

This document provides an overview of the regional oil and gas market trends, news highlights, and analyst reports from Maybank Kim Eng as of 20 June 2014. It includes updates on crude oil prices, company-specific news, and valuation comparisons across Asia, India, Japan, and other regions.

Key Market Trends

• Crude Oil Prices:
  • WTI gained 0.7% to $106.83 per barrel.
  • Dubai Fateh and China's Daqing crude both gained 0.5% to $111.26 and $113.32 per barrel respectively.
  • Brent crude was at $114.81 per barrel, with a slight decrease of -0.25 USD.
• Natural Gas Prices:
  • LNG Northeast Asia CFR fell by -4.2%.
• Fuel Prices:
  • 3.5% 180cst Fuel SG Spot increased by 0.3% to $631.03 per metric ton.
• Other Commodities:
  • Gold declined by -0.4% to $1,314.82 per ounce.
  • USD-CNY exchange rate slightly decreased by -0.1% to 6.23.

News Headlines

• CNOOC in Talks with Noble Energy and Delek over Cyprus Gas Field:
  • CNOOC is in negotiations to acquire a 30-40% stake in the Aphrodite gas field. Noble Energy owns 70%, Delek Group owns 30%. Woodside is also interested, but CNOOC is seen as a more likely buyer.
• CNOOC Hires Atwood Oceanics:
  • CNOOC has hired Atwood Oceanics to conduct offshore drilling in Equatorial Guinea at a dayrate of USD337k for 90 days, with an option for an additional well.
• SapuraKencana Wins USD415m EPCIC Contracts:
  • SapuraKencana has secured two USD415m EPCIC contracts from CPOC and Hess, focusing on offshore projects in Malaysia and Thailand.
• Four More Chinese Rigs Mobilized to South China Sea:
  • Four Chinese rigs are being deployed in the South China Sea, with three heading to areas near southern China and Pratas islands by 12 August, and the fourth just outside Vietnam's EEZ by 20 June.
• FPCC Reduces Base Oil Exports to China:
  • FPCC is expected to cut base oil exports to China by 33% MoM in July, potentially by 30k tonnes.
• Sinopec Lowers Butadiene Price:
  • Sinopec reduced its ex-factory butadiene price by CNY200/tonne to CNY9,100/tonne. Market sources indicate that the recent restocking order by the Taiwanese is largely over.

Analyst Reports

SapuraKencana Petroleum

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

PetroChina

• Rating: BUY
• Target Price: HKD11.50
• Key Points:
  • Initiated with a BUY rating, suggesting the true value of its assets has not yet been fully reflected.
  • Expected to benefit from the W2E pipeline selldown as part of China's energy reforms.
  • Access to transmission pipelines could lead to liberalization of natural gas pricing.

Sinopec

• Rating: HOLD
• Target Price: HKD6.85
• Key Points:
  • Initiated with a HOLD rating, as it lacks catalysts for further re-rating.
  • Positive on plans to use private capital, but investment in shale gas and auto natural gas distribution will take years to show returns.
  • Despite outperforming MSCI China by 22%, consensus earnings continue to sag.

CNOOC

• Rating: HOLD
• Target Price: HKD14.34
• Key Points:
  • Initiated with a HOLD rating due to uninspiring earnings outlook.
  • FCF return on new barrels is expected to be challenging due to cost inflation.
  • Fighting the 'producer's curse' similar to other global producers.

NewOcean Energy

• Rating: BUY
• Target Price: HKD8.88
• Key Points:
  • Offers access to auto LNG, the fastest-growing segment in the Chinese energy industry.
  • Expanding auto LNG alliance in Guangdong.
  • Expected to be the largest auto natural gas distributor in China by 2017.
  • Earnings are 2H heavy, with bunkering margin expected to expand post storage completion.

Valuation Comparison

Summary of Key Themes

• Energy Reforms in China:
  • Phase II of energy reform is underway, focusing on natural gas liberalization, unconventional gas production, and natural gas vehicles.
  • These reforms are expected to result in structural changes and increased access for private capital.
• LNG and Auto Natural Gas:
  • Auto LNG is a fast-growing segment, with NewOcean Energy being a key player in expanding its distribution network in Guangdong.
• Market Outlook:
  • While there are positive developments, the overall market remains cautious due to inflationary pressures and slow returns from long-term projects.
• Valuation Insights:
  • Valuation metrics such as P/E and EV/EBITDA are used to compare companies across the region.
  • Some companies are rated as BUY, while others are rated as HOLD or not rated.

Conclusion

The oil and gas market in the region is showing mixed signals with some price gains and others experiencing declines. CNOOC and Sinopec are under scrutiny due to their performance and valuation, while SapuraKencana and NewOcean Energy are highlighted for their growth potential in EPCIC and auto LNG sectors, respectively. The ongoing energy reforms in China are expected to reshape the industry landscape, but the path to profitability remains uncertain for some players.