20150414-光大证券-Oil_and_Gas_Equipment_and_Services_17页_278kb

Summary of Oil and Gas Equipment and Services Sector Update (Hong Kong/China)

Core Content

This document provides an analysis of the oil and gas equipment and services sector, with a focus on the North America and China markets, particularly in the context of the oil price slump in early 2015. It outlines the current state of oil and gas production, rig count trends, cost structures, and the implications for both domestic and international players.

Main Points

1. Global and North American Oil Supply and Demand Imbalance

• Global Oversupply: Crude oil supply continues to exceed demand due to increased production from North America, South America, and Africa, leading to a record fifth consecutive quarter of oversupply.
• Seasonal Demand: Crude oil demand in Q1 is typically lower than in Q4, further exacerbating the oversupply issue.
• OPEC's Role: OPEC's decision to maintain production levels has contributed to the oversupply, and it is unlikely to cut output in the short term.
• Oil Price Outlook: Oil prices are under pressure but have limited downside due to the gradual exit of high-cost production capacity.

2. North American Active Rig Count and Oil Price Dynamics

• Rig Count Decline: The North American active rig count has been falling for 20 consecutive weeks, with the US active rig count reaching its lowest since 2009.
• Lag in Rig Count Response: The US active rig count lags behind oil prices by 3-4 months. The psychological barrier for rig count recovery is at $60-$70/barrel.
• Cost Structures: Most listed US shale oil and gas producers operate at a cost of $30-$50/barrel, while a few have costs above $70/barrel. High-cost producers will face significant pressure to cut production.
• Historical Pattern: The historical pattern of oil prices and rig counts shows a delay in the recovery of drilling activities after a price bottom.

3. Impact on Domestic Oil and Gas Equipment and Services Providers

• Less Exposure to North America: Chinese oil and gas equipment and services companies are less affected by the North American production cuts as they mainly operate in traditional onshore oil and gas regions such as China, Central Asia, the Middle East, and Africa.
• Dividend Pressure: Chinese companies face less pressure from dividend payments compared to their North American counterparts.
• Government Support: The Chinese government is investing in major energy projects in the western region, including the Tarim oilfield and Fuling shale gas field, which are likely to be key investment areas.

4. Sector Valuation and Investment Outlook

• Valuation Boost by Southbound Funds: Southbound funds are expected to boost the valuation of quality domestic oil and gas companies in Hong Kong.
• Investment Picks: TSC Group, Hilong Hldg., and SPT Energy are highlighted as long-term investment choices due to their stable orders and financial soundness.
• Market Potential: Domestic manufacturers are expected to benefit from increased demand for low-cost onshore and shallow water oilfield equipment and services.

Key Information

• Global Active Rig Count: Fell to 2,557 units by end-March 2015, down 14.4% YoY.
• US Active Rig Count: Continued to fall, reaching the lowest level since 2009, with a 44.2% YoY decline.
• Oil Price Trends: Oil prices are under pressure, with the psychological recovery level at $60-$70/barrel.
• Cost Analysis: Most listed US shale producers have costs between $30-$50/barrel, while a few exceed $70/barrel.
• Impairment Costs: Companies with production costs below oil prices are less affected by impairment, while those with costs above oil prices will see significant declines.
• China's Oil Dependence: China's increasing dependence on oil imports indicates limited room for production cuts, supporting domestic equipment and services demand.

Conclusion

The oil and gas equipment and services sector faces short-term challenges due to global oversupply and falling oil prices, but long-term potential remains strong. Chinese companies are relatively less affected due to their geographic focus and financial structure, while US companies with high costs are expected to exit the market first. The sector is anticipated to benefit from the eventual recovery of oil prices and the shift in demand towards low-cost production areas.