| | | Bankers Petroleum Ltd. (BNK.TO), Baytex Energy Corp. (BTE.TO), Devon Energy Corp (DVN),
Dragon Oil (DGO.L), Energy Transfer Equity, LP (ETE), Gazprom, Oryx Petroleum (OXC.TO),
Weir Group (WEIR.L), Western Refining, Inc. (WNR), Williams Companies, Inc (WMB),
European Refiners Bi-Monthly,
Japan Alert: Where we are in restarting nuclear power plants (18)—Media reports,
Citi's Global Equity Quarterly
Bankers Petroleum Ltd. (BNK.TO)
Production Inline; Margin Initiatives Continue; Tweaking Down 2015 Estimates
D. Phung 07 July 2014 sendspace.com
Q2/14 Production Inline: Bankers reported Q2/14 production of 20,630 bbls/d, essentially inline with our estimate of 20,550 bbls/d. Quarterly sales was 21,627 bbls/d, which included an export cargo that was carried over from the previous quarter. Realized pricing marginally deceased to 79% of Brent (was 81% of Brent in Q1/14) as Bankers sold a portion of its product in the spot market at lower pricing.
Margin Initiatives Ongoing: The company continues to focus on reducing costs and expanding margins through a variety of initiatives, including gathering pipelines in the field to reduce trucking costs. Construction is planned to commence this summer on emulsion gathering lines that could potentially reduce trucking costs by US$0.40-0.50/bbl once completed in Q1/15E. Previously management has highlighted the potential to drive operating costs down US$1.75-3.75/bbl over the next few years, which coupled with margin expansion could provide valuation uplift in the long term.
Secondary Recovery Progressing: We believe that early results from Bankers' water and polymer flood pilot program have been encouraging, including earlier responses than anticipated at some patterns. The pilot project is ongoing with additional polymer flood and one additional water flood conversions planned for H2/14. Further success here could result in greater confidence in repeatability and lead to potential multiple expansion.
Recommendation: We maintain our NEUTRAL rating and TP of C$8.25. We look forward to Bankers continuing its trend of quarterly production growth, results from margin expansion initiatives and further proving up its secondary recovery program.
Estimates: We are revising our 2015 EPS estimates to US$0.31 from US$0.32, respectively.
Baytex Energy Corp. (BTE.TO)
REINSTATING Coverage with a NEUTRAL Rating and Target Price of C$48
A. M. Kuske, J. Frew 08 July 2014 sendspace.com
Reinstating Coverage: We are reinstating coverage of BTE with a Neutral rating and a C$48 target price (an increase from our previous target price of C$42 in January. Rating is otherwise unchanged). Our core investment thesis on BTE remains largely intact: we view the company constructively given its ability to identify and invest in capital efficient / high return plays as is evident in BTE's three year average all-in recycle ratio of ~2.3x vs. Canadian mid-cap peers at ~1.8x. The Eagle Ford acquisition provides the company with a new source of high return inventory given primary heavy oil opportunities within Peace River and Lloydminster were approaching only ~5-6 years at current development rates. This view is somewhat tempered by BTE's growing balance sheet (now ~2.2x vs. YE13 at 1.1x) and a continued funding shortfall, based on our forecasts, despite raising the dividend by 9% earlier this year.
Updated Guidance: BTE provided updated 2H14 and FY14 guidance to incorporate the Eagle Ford acquisition completed in late June. For the second half, BTE expects to spend between C$440 - 465 million and generate average production of 88,000-90,000 boe/d. For FY14, capex is expected to be in the C$765 - 790 million range (up from the pre-acquisition level of ~C$485 million) while average production is expected to be in the range of 75,000-77,000 boe/d (up from 60,000-62,000 boe/d).
Valuation: Our target price of C$48 equates to 8.7x 2015E EBIDAX, a ~5% premium to Canadian mid-cap peers (~10% premium in 2016) and is at 0.95x our risked NAV of C$50.62/sh. An expanded inventory from additional horizons within the Eagle Ford as well as successful sale of assets to improve the balance sheet could change our view.
Devon Energy Corp (DVN)
Upgrading To Buy; Price Target Increased To $96/share
6 July 2014 ¦ 36 pages ir.citi.com
Transformation Now Complete; Valuation Reassessed... – We are upgrading
Devon Energy to Buy and are raising our price target to $96 from $75 per share.
We have revamped our detailed sum-of-the-parts NAV which we now peg at
~$112 per share. Our price target is based on DVN’s stock achieving a
‘normalized’ 2015 EV/DACF multiple of 6.7x, which is still a 0.7x discount to our
average price target multiple for Devon’s large-cap peers, and ~86% of our sum-
of-the-parts NAV, which is slightly below our price target NAVs for its large-cap
peers. Notably, we believe the market is not fully recognizing the value of
Devon’s midstream assets via its ownership interest in Enlink (MLP) and Enlink
Midstream (GP) and the potential for future dropdowns from its Canada and
Eagle Ford midstream assets. Backing out the market value of these, our price
target equates to 2015 EV multiple of 6.3x.
Robert S Morris
Dragon Oil (DGO.L) — Disappointing exploration results in Philippines
7 July 2014 ¦ 7 pages ir.citi.com
Nido Petroleum Limited, Dragon Oil’s partner in the SC63 exploration project in
the Palawan Basin offshore the Philippines, issued a press release this morning
announcing that the Baragatan-1A exploration well drilling did not yield
commercial results. The well will be plugged and abandoned going forward.
Although the lack of commercial reserves discovery disappoints, the share price
reaction is likely to be muted, in our view, given the generally risky nature of
exploration activities and the relatively insignificant CAPEX budget Dragon spent
on the well (c$15mn).
Energy Transfer Equity, LP (ETE)
Reiterate ETE as Top Core Holding in the Space Despite Focus List Removal
A. Rajendran 08 July 2014 sendspace.com
The Credit Suisse Investment Policy Committee (IPC) is removing Energy Transfer Equity LP (ETE) from the U.S. Focus List, as it is adding Williams Co. (WMB).
Reiterate Outperform-The Focus List change is largely driven by the fact that we believe the upside in WMB over the next 6-12 months is greater. For ETE, we continue to see it as the top pick/core holding in the long term in the space as it is poised to benefit from a turnaround helped by new project opportunities and other initiatives at ETP, an improved outlook for RGP (helped by their recent acquisitions including PVR and EROC's midstream assets) as well as half the GP economics of SXL (which is a strong grower over the next several years helped). Add to it the LNG opportunity, and ETEshould be one of the strongest performers in the space for years to come.
Credit Suisse is a financial adviser on the deal recently announced for Energy Transfer Partners (ETP) to acquire Susser Holdings Corp (SUSS). As such, we do not include SUSS/SUSP in our forecasts.
Gazprom (GAZP.MM) — MinFin throwing in the towel on dividends?
ir.citi.com
Oryx Petroleum (OXC.TO)
Demir Dagh-6 Encounters Small Gas Cap
S. Panigrahi, D. Phung 07 July 2014 sendspace.com
Demir Dagh-6 Elected to be an Observation Well: Production test results at Demir Dagh-6 (DD-6) will likely lead to the well becoming an observation well. The first test in the Kometan formation yielded a rate of ~500 bbls/d (~320 bbls/d net), but the fracture network that the well encountered was not sufficient to sustain rates. The company believes that the 3D seismic data acquisition in Kurdistan should improve targeting these fracture networks in the future. The second test in the Shiranish formation yielded rates in excess of 3,000 bbls/d, but due to the presence of a small gas cap the rates were restricted. to ~700 bbls/d (~450 bbls/d net). We expect this gas cap to have minor implications for reserves, as most of the volume is expected to come from the matrix down below.
Exit Rate Unchanged; Maintaining Estimates: Upcoming development wells at Demir Dagh include DD-7, which is expected to reach total depth in Q3/14, as well as an additional three other wells before year end. 2014E exit rate expectations are unchanged and is expected to reach roughly 25 kbbls/d (~16k bbls/d net). Current production stands at approximately 4 kbbls/d (2.6 kbbls/d net). We currently elect to maintain our estimates.
Catalysts: We currently continue to forecast the need for ~US$200 million in additional capital this year and a resolution could be a potential catalyst in the near future. On the operations front, Banan-2 is expected to complete testing in Q4/14 and is targeting ~153 mmbbls in best estimate un-risked prospective resources.
Recommendation: We currently maintain our Neutral rating and TP of C$17.50.
Weir Group (WEIR.L)
Machinery
Oil And Gas Opportunity Underappreciated – Upgrade To Buy
7 July 2014 ¦ 52 pages ir.citi.com
We upgrade Weir to Buy, raising EPS forecasts by 3.2%/2.2%/4.2% 2014-16E.
Our new target price is £31/share reflecting improved US Oil and Gas growth and
our view that Weir deserves a premium rating to the sector to reflect positive
exposure to structural trends in oil and gas, further earnings upgrade potential
and improving returns. Rising US frac service intensity should drive equipment
replacement and comments from oil services names indicate scope for earnings
upgrades over 12-24 months, (20%+ on blue sky analysis, ), with interim results
a potential positive catalyst. Global unconventional recoverable reserves (3-4x
US reserves) provide long-term opportunity. Weir’s minerals orders fell less than
peers during the previous cycle and aftermarket sales can support profitability.
Non-mining exposure in minerals and new products provide diversification while
declining ore grades should drive more intensive processing.
Western Refining, Inc. (WNR) — Unlocking Value through
Restructuring; Upgrade to Buy
6 July 2014 ¦ 14 pages ir.citi.com
We are upgrading WNR (c-corporation) from Neutral to Buy (1H) and raising our
target price to $55 p/s. We believe WNR could be restructured into a holding
company with the limited and general partnership interests in NTI (master limited
partnership) and WNRL (master limited partnership). We believe WNR could
drop down its refineries into NTI and swap NTI’s logistics assets into WNRL.
Williams Companies, Inc (WMB)
WMB Re-Rating Just Getting Started...Adding to US Focus List
A. Rajendran 08 July 2014 sendspace.com
The Credit Suisse Investment Policy Committee (IPC) is adding Williams Cos. (WMB) to the U.S. Focus List, as it is considered one of the firm's top investment ideas.
WMB Value Unlocking Only Just Beginning-Despite the recent move in the stock over the past few weeks, we believe there is significant further re-rating to come from WMB. We believe our TP of $69 is just a starting point for the stock looking out a year from now-this TP amounts to a ~3.5% target yield, and based on pure-play GP comps and its growth profile looking ahead, this could eventually settle closer to 3% which would imply that the stock could potentially drive closer to $80. Our TP equates to comfortable upside potential of ~20% over the next 12 months, and full re-rating to ~3% yield amounts to upside closer to 40%. We also note that a cleaner structure within the family could also better facilitate M&A, and even further upside with it (see next bullet for thoughts on timing).
First Step of Transformation Complete; Next Steps Coming-With the closing of the GIP deal very quickly (last week), we expect mgmt to push ahead with the remainder of the transaction. The ACMP/WPZ merger must go through conflicts checks and regulatory approvals, but we don't expect any major hiccups here (minor deal structure tweaks are possible). The full transformation should be complete (including dropdown of future WMB projects) roughly by year-end, and possibly sooner. Deal Numbers-In our full report, we show our take for where the trajectory of dividends could go pro forma for all the steps in the deal. Our analysis is available on request.
European Refiners Bi-Monthly
Artificial rebound continues
07 July 2014 sendspace.com
Japan
Electric power sector
Alert: Where we are in restarting nuclear power plants (18)—Media reports
6 July 2014 ¦ 6 pages ir.citi.com
FWIW, Citi's
Global Equity Quarterly
Earnings Up, Markets Up
4 July 2014 ¦ 116 pages ir.citi.com
All sectors, all regions. broad brush. |
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