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Regional Oil & Gas Summary - 23 July 2014

Core Content Overview

This document provides an overview of the regional oil and gas market, highlighting key news headlines, price movements, and analyst reports from 22-23 July 2014. It includes updates on production, contracts, and market valuations across various regions including Asia, India, Japan, Malaysia, Philippines, Thailand, and Vietnam.

Key News Headlines

• China-Venezuela Agreements: China signed 38 new agreements with Venezuela, including an oil deal, to receive 100kbpd of crude in exchange for a USD4b credit line.
• US Senators and Russian Energy Sanctions: US senators called for Russian energy sanctions following the downing of the Malaysian plane.
• China-Iran Crude Imports: China imported 48% more Iranian crude in the first half of 2014, reaching 726,742bpd, with Sinopec being a major buyer due to lower costs compared to Saudi crude.
• China-Pakistan LNG Projects: China is building an LNG terminal and pipeline in Pakistan, with an estimated cost of USD1b for the pipeline and over USD2b for the LNG terminal.
• PACC Semi-Sub Sinking: A semi-sub owned by PACC Offshore Services sank off Indonesia, resulting in three deaths.
• Oil Search Production Increase: Oil Search's 2Q14 production volume more than doubled to 3.7mmboe due to the PNG LNG project, with revenue increasing to USD339.7m.
• Seadrill Mobilization: Seadrill's semi-sub West Alpha is being mobilized for Russian waters in the Kara Sea.

Major Oil & Gas Prices and Indexes (22 July 2014)

Note: LNG Northeast Asia CFR is based on ICAP's JKM 1-month forward price for LNG.

Analyst Reports

• Vard Holdings:
  • 2Q14 results disappointed due to lower EBITDA margins at the Promar yard.
  • Target Price (TP): SGD1.25.
  • Positive outlook with a turnaround expected at Promar in FY15E and reduced risks at Niteroi yard.
• China Oil & Gas:
  • Most investors believe Chinese oil & gas should be "Market-weight".
  • Sinopec is the core holding, but investors are advised to shift to PetroChina due to high valuations and ownership levels.
• Cairn India:
  • Maintain BUY with a DCF-based TP of INR400.
  • Estimated EPS for 1QFY15 is INR15.3, 9% above consensus.
  • Low PER of 5x FY15F and P/B of 1x, with a 4% dividend yield.
  • Proven reserves and exploration upside are key catalysts.
• Ezion Holdings:
  • Secured contracts worth USD269m.
  • Maintain BUY with TP unchanged at SGD2.70.
  • Confidence in lifeboat business and future contract wins.

Asia Oil & Gas Valuation Comparison

Summary of Key Insights

• Price Trends:
  • Henry Hub price fell by 2% overnight, marking a 20% drop since June.
  • Crude oil prices (Brent and WTI) and other energy commodities declined in the short term, with some showing positive performance over a month.
• Market Activity:
  • China has significantly increased its oil imports from Iran and is expanding its energy infrastructure in Pakistan.
  • Oil Search's production volume more than doubled due to the PNG LNG project, leading to increased revenue.
  • Seadrill is mobilizing its semi-sub for Russian waters, showing interest in the region.
• Analyst Ratings:
  • Vard Holdings and Ezion Holdings are rated BUY with target prices.
  • Cairn India is recommended as a BUY with a target price of INR400.
  • Several Asian companies, such as Petronas Gas and PTT PCL, are rated BUY, while others like Thai Oil PCL are rated SELL.
• Valuation Metrics:
  • The report provides a detailed comparison of valuations, including P/E, EV/EBITDA, RoE, and P/B, across companies in different regions.
  • Asian oil and gas companies are generally undervalued compared to global majors, with lower multiples and yields.

This summary reflects the key trends, developments, and valuation insights in the regional oil and gas sector as of 22-23 July 2014.