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Regional Oil & Gas Summary - 04 July 2014

Core Content

This document provides an overview of the oil and gas market in Asia and globally, including price movements, company news, and analyst reports from Maybank Kim Eng and Bloomberg. It highlights the performance of key players, market trends, and investment recommendations.

Market Performance

• Stock Indices:
  • Dow Jones and S&P 500 both gained 0.5%.
  • WTI crude oil fell 0.4%.
  • In Asia:
    • Dabai Fateh crude dropped 1.0%.
    • China Daqing crude fell 0.9%.

News Headlines

China

• Refinery Utilization:

  • Major Chinese refineries had an average utilization rate of 77.89% on Thursday, down from 82.61% two weeks ago due to plant maintenance.

• Contracts and Projects:

  • Dalian Shipbuilding secured contracts to build two more drilling rigs, including a semisub Hai Yang You 982 (A5000 design for COSL) and a jack-up (JU2000E for China Petroleum Offshore Engineering).
  • SapuraKencana sent the Sapura Diamante to a project operated by Seadrill in Brazil for a long-term charter with Petrobras.
  • Linc Energy started an unconventional drilling campaign in South Australia's Arckaringa basin with three wells.
  • OMV drilled a well in the Hoop that hit pay with 20-50mmboe of reserves, currently producing 325Mcf/d of gas.
  • Drillsearch Energy is re-drilling the Anakin-1 well in Queensland using the Weatherford 826 rig.
  • COOEC secured a USD1.6 billion contract for the Yamal LNG project in Russia, involving 36 modules to be built in Qingdao.

India

• Cairn India is highlighted as a Buy with a target price of USD443.
  • Its stock price was USD361.40, with a market cap of USD11.6 billion.

Philippines

• Petron Corp is recommended as a Buy with a target price of PHP16.80.
  • The company's RMP-2 project is expected to be completed by the end of the month and operational by December 2014.

Malaysia

• COOEC (Offshore Oil Engineering Corporation) won a USD1.6 billion contract for the Yamal LNG project in Russia.

Analyst Reports

Sinopec

• Rating: Hold
• Target Price: HKD6.85
• Note: Restructuring and marketing division sale are expected to unlock potential, but positive outcomes will take time. The company is retaining 70% of its enlarged capital.

Yinson Holdings

• Rating: Buy
• Target Price: MYR3.03
• Note: 1QFY1/15 results are in line with expectations. The company is targeting a new FPSO job for 2014.

Petron Corp

• Rating: Buy
• Target Price: PHP16.80
• Note: A good buying opportunity as the RMP-2 project is nearing completion. The stock has underperformed the PSEi by 28 ppts YTD.

SapuraKencana Petroleum

• Rating: Buy
• Target Price: MYR5.30
• Note: 1QFY1/15 core net profit is in line, and 2.35sen DPS is a positive surprise. The company has secured MYR1.3 billion in new EPCIC contracts, increasing its backlog to MYR30 billion.

NewOcean Energy

• Rating: Buy
• Target Price: HKD8.88
• Note: The company is well-positioned in the auto LNG market, which is the fastest-growing segment in the Chinese energy industry. It is expanding its auto LNG alliance in Guangdong and could become the largest distributor by 2017.

PetroChina

• Rating: Buy
• Target Price: HKD11.50
• Note: The company is a key beneficiary of the Eastern section W2E pipeline selldown. It is expected to benefit from natural gas liberalization and private capital participation.

CNOOC

• Rating: Hold
• Target Price: HKD14.34
• Note: Earnings outlook is uninspiring unless oil prices rise. The CAGR is estimated at 2.6% due to 5% cost inflation. The company is fighting the producer's curse.

China Oil & Gas (Initiation)

• Rating: NEUTRAL
• Note: Initiated with a NEUTRAL view. PetroChina and NewOcean Energy are recommended as BUY, while CNOOC and Sinopec are HOLD. The energy reform is under way, focusing on natural gas liberalization, unconventional gas production, and natural gas vehicles.

Valuation Comparison

Asia Oil & Gas

Asian Refiners Average

• P/E (2014E): 16.0
• P/E (2015E): 13.1
• EV/EBITDA (2014E): 7.8
• EV/EBITDA (2015E): 6.6
• RoE %: 9.3
• Yield %: 1.4

Global Oil & Gas Major Average

• P/E (2014E): 11.4
• P/E (2015E): 11.0
• EV/EBITDA (2014E): 4.5
• EV/EBITDA (2015E): 4.4
• RoE %: 13.4
• Yield %: 1.5

Key Players and Analysts

• Howard Wong (HK/CHINA)
• Jigar Shah (INDIA)
• Pandu Anugrah (INDONESIA)
• Liaw Thong Jung (MALAYSIA)
• Bianca Solema (PHILIPPINES)
• Laura Dy-Liacco (PHILIPPINES)
• Yeah Chee Keong (SINGAPORE)
• Sutthichai Kumworachai (THAILAND)
• Le Nguyen Nhat Chuyen (VIETNAM)
• Truong Quang Binh (VIETNAM)

Conclusion

The document outlines the current market dynamics, emphasizing the impact of energy reforms in China, the growth potential of unconventional gas and LNG sectors, and the strategic moves by various companies. It also highlights the investment recommendations for key players such as PetroChina, NewOcean Energy, and Cairn India, while cautioning against overvaluation and short-term challenges for others like Sinopec and CNOOC.