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Regional Oil & Gas Summary - 07 July 2014

Core Content

This summary provides an overview of the regional oil and gas market and investment analysis as of 07 July 2014, focusing on key developments and valuation comparisons across major players in Asia, India, and other regions.

Key Market Developments

• China:

  • Petrol retail demand marginally improved, with a slow recovery starting in March due to the rainy season.
  • China signed a USD2 billion crude oil deal with Ecuador, backed by future crude supplies.
  • Sinopec is undergoing restructuring and has no plans for an IPO, with a target price of HKD6.85.
  • PetroChina is a key beneficiary of the energy reforms, particularly with the Selldown of the W2E pipeline.
  • CNOOC is facing challenges with its earnings outlook and is under a HOLD rating with a target price of HKD14.34.
  • NewOcean Energy is positioned to benefit from the auto LNG market, with a BUY rating and a target price of HKD8.88.

• India:

  • Halliburton has entered the Indian market with a USD200 million deal to drill 100 wells in Rajasthan.
  • Cairn India has secured two EPCIC contracts worth MYR1.3 billion, with a BUY rating and a target price of MYR5.30.
  • Petron Corp is expected to complete RMP-2 by the end of the month, with a BUY rating and a target price of PHP16.80.

• Asia:

  • Asia base oil producers may further trim production due to supply glut, with Chinese plants at 60% utilization.
  • Singapore's Vallianz has signed a three-year contract to supply OSVs to COOEC.
  • Qatar's Tasweeq has offered LPG for August loading.
  • Australia's APLNG project is on schedule for mid-2015 shipment.

Valuation Comparison

Main Points

• China:

  • Petrol demand has improved slightly, but the recovery is slow.
  • China's energy reforms are ongoing, impacting the market structure and pricing.
  • Sinopec and CNOOC are under HOLD, while PetroChina and NewOcean Energy are under BUY.
  • There is a significant focus on auto LNG and natural gas vehicles as growth drivers.

• India:

  • Halliburton's entry into the Indian market is a notable development.
  • Cairn India is performing well and is expected to secure more contracts.
  • Petron Corp is showing potential with the RMP-2 project.

• Asia:

  • Base oil production may be further reduced due to supply glut.
  • There are new contracts and projects, such as Vallianz supplying OSVs to COOEC and APLNG on schedule.
  • LPG and other products are being offered on the international market, indicating market diversification.

• Valuation:

  • The valuation of companies in the region varies, with some showing higher potential for growth and others facing challenges.
  • P/E and EV/EBITDA ratios are used to assess the market value, with higher ratios indicating better growth potential.

Key Insights

• Market Trends:

  • Demand for OSVs is expected to rise due to the need for vessel replacement.
  • The auto LNG market is growing rapidly, with NewOcean Energy being a key player.
  • There is a shift towards liberalization and private sector involvement in natural gas.

• Investment Outlook:

  • BUY ratings are given to companies showing strong growth potential, such as Cairn India and Petron Corp.
  • HOLD ratings are assigned to companies with stretched valuations and lack of immediate earnings improvement.
  • The overall market sentiment is mixed, with NEUTRAL ratings for some sectors and optimistic outlooks for others.

• Challenges:

  • Some companies are facing issues with production and earnings, such as CNOOC and Sinopec.
  • The market is sensitive to forex and interest rate fluctuations.

Conclusion

The regional oil and gas market is showing signs of both growth and challenges. While some companies are performing well and are recommended for investment, others are under pressure due to supply glut and valuation concerns. The energy reforms in China are a significant factor, driving changes in the industry and creating new opportunities for certain players. The overall market is expected to remain volatile, with a focus on long-term fundamentals and strategic moves in the sector.