O & G:Industry conference
Poor outlook. Panelists at the 14th Asian Oil & Gas Conference 2009 (AOGC) generally concurred with our views on declining E&P spending as well as project cancellations, delays and replenishment risks as the oil and gas sector navigates the global economic slowdown and financial crisis. We maintain Underweight. IEA says 2009 E&P spend collapsed by 21%. International Energy Agency (IEA) director Nobuo Tanaka said E&P spending has fallen 21% to USD375b, USD25b worse than our assessment. Planned O&G projects involving a total 2.0m bpd of oil and 1b cu ft / day of gas supply were cancelled over the past 6 months. A further 35 projects affecting 4.2m bpd of oil and 2.3b cu ft / day were delayed by at least 18 months. Industry is in consolidation. PETRONAS Chairman Hassan Marican said small, independent and cash-strapped oil players are suffering more than the Super majors and National Oil Companies in this environment. He sees forced sellers among the weak players due to cashflow and financial constraints. Oil prices to remain volatile. Hassan Marican thinks oil prices will remain volatile over the next few years. He questioned the foundations of the oil price rally. Is it due to economic recovery prospects or speculative investment in commodities on weaker USD views? He added there is a real danger that continuing low investments could lead to capacity shortages and another energy price spike. Steady development needed to ease volatility. There is a need to develop more O&G fields to moderate volatility in the industry cycle as the current spare capacity and new output conditions indicate a repeat of cycle volatility akin to the 1980’s. Spare crude oil capacity has been tight, averaging 2.7m bpd over the past decade. Maintain Underweight. We reiterate our view that values have vanished following the recent share price run-ups. We are Sellers as mid-cycle valuations are now reflected in the share prices of O&G stocks. Prospects of global economic recovery remains hazy and global oil demand needs to be sustained at a higher level of of 85-86m bpd and move to a higher growth path to justify more expensive valuations.
