Oil & Gas Atlas Energy equities remain firm as oil slips ::Macquarie Research,

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Oil & Gas Atlas
Energy equities remain firm as oil slips
Energy Market Indices WoW Changes
⇒ S&P/TSX Energy Index: 4.5%
⇒ S&P 500 E&P Index: 4.5%
⇒ Oil Service Sector Index: -8.4%
⇒ UK FTSE Oil & Gas Producers Index: 6.3%
⇒ Asia Pacific Oil & Gas Producers Index: 3.5%
Weekly Market Recap
Equity markets were largely up last week as West Texas Intermediate (WTI) crude oil
prices increased by 5% and Henry Hub natural gas gained almost 2%. Oil markets were
supported by the weekly EIA report which showed greater than expected declines in
crude oil and gasoline stocks. Also providing optimism was positive news out of Greece
after its Parliament approved the austerity measures required to secure additional funding
from the EU.
In Canada, Petrobank increased its bitumen resource estimate to 624m barrels from
560m barrels. After factoring in the implied value of the company’s PetroBakken stake,
we estimate the implied value of Petrobank’s heavy oil assets to be $0.075/bbl. With
typical transaction values in the $0.50–1.00/bbl range we believe Petrobank shares offer
significant upside at current levels. Activity in the junior space was headlined by the
announcement of a farmout JV agreement by DeeThree in the Alberta Bakken. Under a
full earning scenario, DeeThree will participate in eight horizontal wells on these lands at
no cost. We view each JV agreement as a pragmatic way to delineate the extent of a big
resource with minimal outlay of capital and reduced risk to DeeThree.
In the US, we launched coverage on CVR Energy with an Outperform rating and a US$34
target price. CVR Energy is an independent refining and nitrogen fertilizer company
located in the US Mid-Continent region.
In Europe, we published an integrated sector update where we highlight that stocks
reflect a lower oil price than the commodity price strip and we see multiple stock re-rating
potential as the companies continue to post earnings and cashflows that validate the
“cheapness” of the stock. We have also increased our target price for BG Group to
£18.25 (from £16.50) and Galp to €19.50 (from €17.40) following BG’s upgrade to the
Santos Basin (Brazil) resource potential.
In the European E&P universe, we published an analysis on the Carin India-Vedanta deal
looking at different possible scenarios. Later during the week, the Government of India
gave conditional approval to the deal under the condition that Cairn India pays 20%
royalty on its share of production. We also issued a note on San Leon Energy, following
FY2010 results, where we provide a 12 months drilling programme and liquidity analysis.
Elsewhere in the Euro E&P space, Premier Oil announced disappointing results from
Gajah Laut Utara exploration well on the Tuna Sea Block, offshore Indonesia; while
Salamander reported a 35m net oil pay discovery on the East Terrace. Lundin
Petroleum's first appraisal well on the Avaldsness discovery confirmed the extension of
the Avaldsnes field 6.5km SE of the discovery well in PL501, offshore Norway.