CAT oil (O2C.DE), ConocoPhillips (COP), Nabors Industries, Ltd. (NBR).
Petrobras (PBR), Russian Oil & Gas, Riding LNG Shipping Wave, Wood Group (WG.L),
Unburnable Carbon & Stranded Assets
CAT oil (O2C.DE)
New framework agreement with Gazprom Neft
supports growth strategy execution, Buy reiterated
24 June 2014 ¦ 8 pages ir.citi.com
CAToil issued a press release this morning announcing the new three-year
framework agreement with Gazprom Neft, which guarantees full utilization of four
new drilling rigs and one new fracturing fleet through the end of 2016. The new
drilling and fracturing capacities are expected to be deployed in the field from
Sept to Dec 2014, which implies the positive effect on CAToil’s profitability should
be visible as soon as from 4Q14 onwards. We welcome the news, which in our
view diminishes execution risks around the 2014-16E growth strategy, the
cornerstone of CAToil’s investment case. We reiterate our Buy rating for the
stock and consider CAToil as one of the primary beneficiaries of the growing
complexity of Russian reserves base and the ongoing transition to more
sophisticated and advanced technological solutions in Russian OFS industry.
ConocoPhillips (COP)
Portfolio Depth/Quality Mitigates Reinvestment Risk
25 June 2014 ¦ 11 pages ir.citi.com
Global Big Oil has outperformed broader markets over the last 4M, and within
that group COP has been the best performer (+33% since 10 Feb versus Big Oil
+20% and markets +9%). We still see considerable capacity for outperformance.
We think versus peers that the company offers relatively low-risk growth,
delivering a potential 15% ROE (+300bps vs. peers) and 9% p.a. expansion in
book value to 2018. The valuation of 1.3x end-17E book is a discount to most Big
Oil (and many North American E&P) peers, a discount that we think largely stems
from market concerns around capital re-allocation: perhaps a prejudice around
the COP management team of old.
Nabors Industries, Ltd. (NBR)
A Consolidator Has Emerged
NBR Merges C&P Business with CJES.
25 June 2014 sendspace.com
Petrobras (PBR)
Unexpected PSC award adds weight to PBR balance sheet
24 June 2014 ¦ 13 pages ir.citi.com
Surprise announcement of new PSC adds extra weight to balance sheet. Today,
the CNPE (National Energy Policy Council) approved the sale of a new PSC
(production sharing contract) directly to Petrobras for R$2bn upfront and another
R$13bn to be paid until 2018 characterized as an anticipation of future taxes due
from the field’s development phase. The PSC provide the terms for PBR to
exploit potential reserves located on the same acreage where it has negotiated
rights to produce up to 5bn boe. Our best case points for production to start by
2023. The payment adds extra weight to PBR stressed balance sheet, implies a
lower return to the estimated IRR (10%-18%) recently bid on Libra (12-20% USD
IRR) and should negatively impact investors’ perception of political influence
behind this decision. We see PBR trading at a large 2015-2016 year-end
EV/EBITDA premium at 6.5x and 6.3x. Neutral rating maintained
Russian Oil & Gas
MinFin’s “tax maneuver” proposal floated, refiners set to benefit in near term
24 June 2014 ¦ 7 pages ir.citi.com
Vedomosti reports that MinFin has adjusted its reform proposal for the Russian
oil industry from that reported in the paper two weeks ago. The proposed
reforms, popularly dubbed as MinFin’s “tax maneuver”, are set to accelerate
existing plans whereby export duties on crude are lowered even as extraction
taxes on crude and export duties on heavy products are increased. Vedomosti
credits Rosneft CEO Igor Sechin for having influenced process in favor of
refiners, who as a group are generally investing heavily in upgrading their plants
to boost light product output and decrease the share of heavy products in their
refining slates. Regarding the near-term improvement, companies such as
Bashneft and Gazpromneft are set tp benefit more – relative to both the current
law and MinFin’s initial proposal – than will those with lower refining cover such
as Tatneft and SurgutNG, while Lukoil and Rosneft are in the middle of the pack.
Riding LNG Shipping Wave
Equity Strength Can Accelerate Growth for GasLog Entities
25 June 2014 ¦ 16 pages ir.citi.com
We are increasing our price targets for both GasLog Ltd and GasLog Partners,
as recent strength in the equity markets, which appears to be driven by rising
geopolitical tensions, has opened the door to potentially faster growth at Partners
and a valuation arbitrage at GasLog Ltd.
Wood Group (WG.L)
1H 2014 trading update
26 June 2014 sendspace.com
Unburnable Carbon & Stranded Assets — Minerals Council
Challenges Legality of Divestment Campaigns
Australia/NZ 24 June 2014 ¦ 9 pages ir.citi.com
The Minerals Council of Australia issued a report “A Critique of the Coal
Divestment Campaign”. The report appears to reflect MCA concerns that the
divestment campaign will successfully damage the coal industry, in line with
campaigners’ objectives. It acknowledges the role of those who discuss
investment risks, but suggests that where campaigners cause investors to make
valuation errors and rebalance their portfolios away from fossil fuels, this may
contravene the Corporations Act regarding false or misleading information. We
retain our view that "mainstream” investors will continue to value stocks based on
assessment of supply/demand/price, but probably with growing consideration of
scenarios that challenge the status quo. We expect greater fossil fuel use than in
the extreme “unburnable carbon” scenario, and more global warming. We see
emerging trends that might accelerate risks for coal: cost reductions in
renewables, measures to address local air quality, and progress with carbon
emissions constraints. |
