Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: Dennis Roth who wrote (140362)	10/6/2010 12:53:08 PM
From: Dennis Roth	2 Recommendations Respond to of 206085

European Oil & Gas Repsol sale to Sinopec - valuation implications 17 pages, 11 figures Download Link sendspace.com Repsol monetises Brazil: On October 1st, Repsol announced that Sinopec would subscribe to a $7.1bn capital increase in Repsol Brasil in exchange for a 40% stake in the new company. The deal values Repsol Brazil’s assets at $10.7bn and the equity value including cash at $17.8bn. Share prices for Repsol, BG and Galp rose 5-8% on the announcement. We believe this deal is a clear positive for Repsol as it monetises resources and de-risks its NAV; however we think the impact on BG and Galp was overdone on 1st Oct. Initial read by Street incorrect: We think the Sinopec announcement was misread by the market. We understand most participants used $17.8bn as the asset value for 1.8bnboe of resources, implying $9.8 per barrel, well above market consensus and our own estimates (post-Petrobras‘ Transfer of Rights) of $5-6/boe. In reality, the asset value excluding cash is unchanged at $10.7bn, implying $5.9/boe. Being an “arm’s length transaction”, the Sinopec deal confirms our view on Brazil valuations, as it brings external validation to Petrobras rights transfer valuations for Guara and other Santos licensed fields, which were viewed by some as biased. Deal most positive for Repsol: We see the deal as a clear positive for Repsol as it replaces undervalued Brazil resources by cash, funds capex until 2014 and lowers gearing by 16pp. We estimate the deal added around €1.1/share to our revised NAV of €24.4/sh. However, with two major catalysts in Brazil having already played out, investors may have to wait until next year to unlock further valuation upside: 1) a potential sale of YPF and 2) the completion of the Spanish refinery upgrades in 2H11. BG remains best way to play Brazil: In our view, BG remains the cheapest way to play Brazil. Friday’s deal had little positive read-across to our valuations, and we may see some profit-taking near-term as the initial move (+5%) was well above the Sinopec transaction price (1.5%). However, among the three European integrateds exposed to Brazil, we see the highest upside to NAV in BG (23%), followed by Repsol (16%) and Galp (5%).