28 July 2011

Global crude prices edge higher:: Macquarie Research

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Global crude prices edge higher
Energy Market Indices WoW Changes
⇒ S&P/TSX Energy Index: 3.3%
⇒ S&P 500 E&P Index: 4.4%
⇒ Oil Service Sector Index: 3.5%
⇒ UK FTSE Oil & Gas Producers Index: 1.9%
⇒ Asia Pacific Oil & Gas Producers Index: 0.2%
Weekly Market Recap
West Texas Intermediate (WTI) crude oil prices edged steadily higher this past week
closing up 2.5% to settle at US$99.71/bbl. Supporting markets was the weekly EIA report,
which showed a larger than anticipated withdrawal of crude oil inventories and an
announcement from the IEA that it would not be releasing any additional supplies from
strategic petroleum reserves. Global crude oil markets also received support on the
economic front after the EU reached an agreement on a second bailout package for
Greece. In contrast Henry Hub natural gas prices slid 3.5% to end the week at
US$4.39/mmbtu. This easing occurred due to expectations that the current heat wave will
soon come to an end and in spite of expectations for continued above normal
temperatures in the Midwest.
In the Canadian sector we’d liked to highlight CNOOC’s acquisition of OPTI Canada in a
deal valued at US$2.1bn. While the deal has been approved by the board of directors, it
still requires approval from 66.6% of the second lien bond holders, who are expected to
meet in September. The deal will need government and regulatory approvals from
Canada and China to be made valid. Additionally, EnCana reported 2Q11 cashflow per
share in ahead of expectations at US$1.47 versus our US$1.25 and consensus US$1.32.
Encana’s position in the emerging Duvernay shales of west central Alberta has grown to
365,000 net acres. In the US, Encana has established a position of 250,000 net acres in
the Tuscaloosa shale in Mississippi and Louisiana.
In the European E&P space, we updated our analysis of Cove Energy reiterating our
Outperform rating with 150p TP (currently trading at 26% discount to our Core NAV).
Offshore Nigeria, Afren revised down the expected Ebok field production while highlighting
reservoir qualities above expectations in both Ebok and Okoro fields. Offshore Norway,
Premier Oil released the data on the Grosbeak appraisal and sidetrack on licence 378 while
Lundin Petroleum completed the sidetrack of the first Avaldsnes appraisal well on block
PL501 and started drilling the second well on the block. The company also spudded Aldous
Major South E&A well. Onshore Kazakhstan, Max Petroleum commenced drilling the Uytas-
2 appraisal well on block A and, later during the week, provided results for the ZMA-ET1
appraisal well in the Triassic section of the Zhana Makat field on block E. Melrose issued an
exploration update, reporting the spud of an exploration well on the Kaliakra East prospect
in the Galata Block (Bulgaria) and providing an update on the drilling activities on the South
West Kanun prospect in the South Mardin Block (Turkey).
On the Integrated side, OMV issued on Friday a weak 2Q11 trading update with
production 2% below our estimate and 14% down yoy. Refining margin were also down
~33% qoq while refining output was down ~3% qoq. Based on this update, we now see
downside risk to our current 2Q11 clean EPS estimate of €1.08/sh.

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