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OIL & GAS
In Q2FY12, average Brent crude oil was at $114/bbls as against $118/bbls in
Q1FY12 and $77/bbls in Q2FY11. On a sequential basis, the crude oil price
has fallen by 3.5% mainly due to lower global demand, disappointment on
QE3, problems in European countries, increase in supply of oil by USA from
SPR, etc. This has impacted the realization of upstream oil exploration
companies such as Cairn India, etc. WTI crude oil price declined by 17.0%
QoQ on the back of rising production of oil sand in Canada and shale gas in
the US. Henry Hub natural gas price declined by 14.3% qoq on the back of
weak macro-economic environment in the US.
With the fall in Brent crude oil, the average Indian crude basket price also
decreased by USD 4/bbl to USD 110/bbl which is positive for refining and
marketing companies in India. However, the same is already priced in, we
opine. Cairn India's bottom line is expected to take a hit on account of
higher royalty payment.
Crude prices are set for a correction from these levels, effectively due to
expectation of cut in demand growth and impact of resumption of supplies
from Libya. We forecast Brent to average USD 109/bbl in FY12 and USD 85/
bbl in FY13.
In Sep'11, International Energy Agency (IEA) cut its forecast for global oil
demand growth to 1.2% in CY2011 to 89.3mnbpd and 1.6% to 90.7mnbpd in
CY2012.
Gas supply from domestic sources are likely to remain muted in FY12 as
KGD6 volumes remain in decline mode, which is a positive for PLNG.
The Singapore refining margins were lower by $ 0.6/bbl QoQ to $13.5/bbl
due to correction in diesel spreads. In petchem, cracker and polymer
margins corrected QoQ due to lower global demand. Also, fall in cotton
prices led to correction in polyester prices and margins.
The natural gas supply in India was lower due to delay in ramp-up of the
natural gas production from KG-D6 by RIL. Apart from RIL, this is negative
for gas-utility companies such as GSPL, GAIL, Gujarat Gas, etc. However, part
of the gas volume loss was compensated by higher import of LNG by PLNG.
Key highlights
We expect upstream companies to report strong YoY growth in revenues in Q2FY12
mainly on account of rise in crude oil prices. However, gas utility companies can see
some volume pressure on account of lower domestic natural gas supply. At the
same time, the raw material cost and working capital will be higher as part of the
gas supplied was
Gas Companies
n Indraprastha Gas (IGL). We expect IGL to show decent volume growth on YoY
basis mainly due to major conversion of vehicles to CNG. In Q2FY12, the company
increased selling price by which it will partly ring-fence its margins. In
Oct'11, IGL has raised the price of compressed natural gas (CNG) for automobiles
by Rs 2 per kg in Delhi and Rs 2.30/kg in neighbouring Noida, Greater
Noida and Ghaziabad. This reflects their pricing power. However, the impact of
this rise will be reflected in Q3FY12E.
n Petronet LNG (PLNG). We expect the Company to show strong volume growth
on QoQ basis mainly on account of higher gas demand and lower KG-6 gas production.
The Company filled the supply-demand gap by importing higher LNG.
RLNG prices has increased in Q2FY12, this will be increase the working capital
expenditure of PLNG.
n GSPL. We expect GSPL to report sequential de-growth in profits. We estimate
transmission volumes at 37 mmscmd due to lower production volumes from
KG?D6 and also some pressure on the tariffs.
Oil & Gas Companies
n Castrol. We expect some pressure on the margins of the Company due to
higher raw material cost as a result of higher crude oil price. However, the Company
would have partly passed on the rise in the raw material cost by increasing
the selling price. Also, the recent hike in retail fuel price by the govt. will lead to
lower retail volume along with this slowing economic activity will impact the industrial
lubricant consumption. Hence, we expect fall in the sales volume. Also,
seasonally Q3CY11E is the worst quarter for lubricant industry.
n Cairn India Ltd. CIL's earnings will be significantly impacted in Q2FY12E due to
the one-time adjustment for royalty on the Rajasthan block which was previously
paid by ONGC. Going ahead, the key triggers for the stock will be regulatory
approval for next phase of volume growth, commissioning of production at the
Bhagyam field, positive updates on exploration in Sri Lanka in Q3FY12E and any
exploration update in Rajasthan outside production area.
Even though crude oil prices has fallen sequentially to 114/bbls in Q2FY12 as
against $118/bbls in Q1FY12, this will be partly compensated by rupee depreciation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
OIL & GAS
In Q2FY12, average Brent crude oil was at $114/bbls as against $118/bbls in
Q1FY12 and $77/bbls in Q2FY11. On a sequential basis, the crude oil price
has fallen by 3.5% mainly due to lower global demand, disappointment on
QE3, problems in European countries, increase in supply of oil by USA from
SPR, etc. This has impacted the realization of upstream oil exploration
companies such as Cairn India, etc. WTI crude oil price declined by 17.0%
QoQ on the back of rising production of oil sand in Canada and shale gas in
the US. Henry Hub natural gas price declined by 14.3% qoq on the back of
weak macro-economic environment in the US.
With the fall in Brent crude oil, the average Indian crude basket price also
decreased by USD 4/bbl to USD 110/bbl which is positive for refining and
marketing companies in India. However, the same is already priced in, we
opine. Cairn India's bottom line is expected to take a hit on account of
higher royalty payment.
Crude prices are set for a correction from these levels, effectively due to
expectation of cut in demand growth and impact of resumption of supplies
from Libya. We forecast Brent to average USD 109/bbl in FY12 and USD 85/
bbl in FY13.
In Sep'11, International Energy Agency (IEA) cut its forecast for global oil
demand growth to 1.2% in CY2011 to 89.3mnbpd and 1.6% to 90.7mnbpd in
CY2012.
Gas supply from domestic sources are likely to remain muted in FY12 as
KGD6 volumes remain in decline mode, which is a positive for PLNG.
The Singapore refining margins were lower by $ 0.6/bbl QoQ to $13.5/bbl
due to correction in diesel spreads. In petchem, cracker and polymer
margins corrected QoQ due to lower global demand. Also, fall in cotton
prices led to correction in polyester prices and margins.
The natural gas supply in India was lower due to delay in ramp-up of the
natural gas production from KG-D6 by RIL. Apart from RIL, this is negative
for gas-utility companies such as GSPL, GAIL, Gujarat Gas, etc. However, part
of the gas volume loss was compensated by higher import of LNG by PLNG.
Key highlights
We expect upstream companies to report strong YoY growth in revenues in Q2FY12
mainly on account of rise in crude oil prices. However, gas utility companies can see
some volume pressure on account of lower domestic natural gas supply. At the
same time, the raw material cost and working capital will be higher as part of the
gas supplied was
Gas Companies
n Indraprastha Gas (IGL). We expect IGL to show decent volume growth on YoY
basis mainly due to major conversion of vehicles to CNG. In Q2FY12, the company
increased selling price by which it will partly ring-fence its margins. In
Oct'11, IGL has raised the price of compressed natural gas (CNG) for automobiles
by Rs 2 per kg in Delhi and Rs 2.30/kg in neighbouring Noida, Greater
Noida and Ghaziabad. This reflects their pricing power. However, the impact of
this rise will be reflected in Q3FY12E.
n Petronet LNG (PLNG). We expect the Company to show strong volume growth
on QoQ basis mainly on account of higher gas demand and lower KG-6 gas production.
The Company filled the supply-demand gap by importing higher LNG.
RLNG prices has increased in Q2FY12, this will be increase the working capital
expenditure of PLNG.
n GSPL. We expect GSPL to report sequential de-growth in profits. We estimate
transmission volumes at 37 mmscmd due to lower production volumes from
KG?D6 and also some pressure on the tariffs.
Oil & Gas Companies
n Castrol. We expect some pressure on the margins of the Company due to
higher raw material cost as a result of higher crude oil price. However, the Company
would have partly passed on the rise in the raw material cost by increasing
the selling price. Also, the recent hike in retail fuel price by the govt. will lead to
lower retail volume along with this slowing economic activity will impact the industrial
lubricant consumption. Hence, we expect fall in the sales volume. Also,
seasonally Q3CY11E is the worst quarter for lubricant industry.
n Cairn India Ltd. CIL's earnings will be significantly impacted in Q2FY12E due to
the one-time adjustment for royalty on the Rajasthan block which was previously
paid by ONGC. Going ahead, the key triggers for the stock will be regulatory
approval for next phase of volume growth, commissioning of production at the
Bhagyam field, positive updates on exploration in Sri Lanka in Q3FY12E and any
exploration update in Rajasthan outside production area.
Even though crude oil prices has fallen sequentially to 114/bbls in Q2FY12 as
against $118/bbls in Q1FY12, this will be partly compensated by rupee depreciation.
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