Energy in 2012
Transitions
209 pages, 236 exhibits
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First page:
An Uncertain World: As we head into 2012, much uncertainty remains
within the global macro environment. Although our macro indicators signal
continued sluggishness early in 2012, we remain positive on 2013-2014
Brent Oil prices—supply remains a significant constraint and secular trends
in non-OECD demand are supportive. Entering 2012, we find Energy fairly
valued versus other market sectors. Within Energy, we lower our weighting
on the Integrated Oils to Market Weight. We believe there will be a rotation
into Oilfield Services and select liquid-rich E&Ps.
Transitions to Watch in 2012: With technology change and political/ regulatory
volatility, there are a lot of transitions to watch. We believe there will be greater
M&A activity from the Majors and from Asia, with a focus on shales and
exploration hotspots. Within US E&P, we focus on successful liquid transition
stories. The Eagleford, Mississippian, core Niobrara, and liquids-rich Marcellus
top the 2012 returns leaderboard. US Oilfield Services suffered from execution
issues in 2011, leaving the shares looking undervalued. Strong demand for
services and better execution in 2012 offer upside potential. Internationally, we
are cautious on Russian Energy, positive on YPF, and believe Asia’s upstream
companies will outperform local peers. On the political front, several transitions
in key oil suppliers make us nervous.
Some Transitions That Look Farther Off: We devote a considerable part
of this report to analyses of US gas markets. We lower the outlook for
demand from the power sector, offering a detailed analysis of energy
efficiency. On the supply side, we highlight drilling efficiency gains as a cap
on US gas prices, even when power and LNG export demand eventually
inflects higher. |
