oil & gas outlook calendar/attachments/75... · mars. 8 . natural gas storage and production...

Brian M. Gibbons, Jr., CFA [email protected]

Oil & Gas Outlook

2

Presentation Overview

• Oil market trends and outlook

• Natural gas market trends and outlook

• Key industry themes

• Credit trends and outlook

3

Global Crude Demand Outlook

Source: IEA, CreditSights

YoY Global Oil Demand Growth (mmbd)

Top 5 Oil Consumers YoY Growth (mmbd)

(0.6)(0.4)

(0.2)0.0

0.20.4

0.60.8

1.0

2012 2013E 2014E

US50 China JapanIndia Russia

(0.9)

2.8

0.71.1

0.81.1

(1.5)(1.0)(0.5)0.00.51.01.52.02.53.0

2009 2010 2011 2012 2013E 2014E

4

Global Crude Supply Outlook


Global Crude Supply Capacity Growth (mmbd)

OPEC Spare Capacity (mmbd)

(2.0)

(1.0)

0.0

1.0

2.0

3.0

2010 2011 2012 2013E 2014E

Non-OPEC Growth (ex-biofuels)

OPEC Crude Capacity Growth

Total

-

1

2

3

4

5

6

8/03 8/05 8/07 8/09 8/11 8/13

5

Crude and Products Forward Days Demand Cover

Source: EIA, CreditSights

U.S. Demand Cover European Demand Cover

40

45

50

55

60

65

J F M A M J J A S O N D

20132012

Shaded area is 5-yr range

5-yr Avg

55

60

65

70

75


2012

5-yr Avg


2013

6

Crude Price Trends and Outlook ($/bbl)

Source: Bloomberg, CreditSights

52-Week Price Trends 12-Month Futures Curves

$60

$70

$80

$90

$100

$110

$120

$130

$140

10/10 4/11 10/11 4/12 10/12 4/13 10/13

WTIBrentLLS

$90

$95

$100

$105

$110

$115

N D J F M A M J J A S O

WTIBrent

7

Refining Margins Reliant on Crude Discounts, Export Strength

Source: Bloomberg, CreditSights

Crude Price Discounts to Brent ($/bbl)

U.S. Composite Refining Margins ($/bbl)

$7.6

4

$7.4

2 $11.

42 $15.

06

$13.

48

$13.

48

$0

$5

$10

$15

$20

$25

2009 2010 2011 2012 2013E 2014E

Annual Change2011: +45%2012: +36%2013E: -15%2014E: 0%

($30)($25)($20)($15)($10)

($5)$0$5

$10

Sep-10

Mar-11

Sep-11

Mar-12

Sep-12

Mar-13

Sep-13

WTI

May

LLS ANS

Mars

8

Natural Gas Storage and Production Trends

Source: EIA, Bloomberg, CreditSights

Natural Gas Storage (bcf) Natural Gas Production vs. Rig Count

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500



5-Yr Avg

2013

2012

0200400600800

1,0001,2001,4001,6001,800

7/03 7/05 7/07 7/09 7/11 7/1345.0

50.0

55.0

60.0

65.0

70.0

Rig

Cou

nt Pro

duct

ion

9

Gas Price Competitiveness, Potential LNG Exports

Source: Bloomberg, EIA, CreditSights

Gas Competitive vs. Coal and Oil ($/mmbtu)

Potential Gulf Coast and East Coast LNG Exports

Location Capacity Freeport 1.8 Bcf/d

Lake Charles

2.0 Bcf/d

Sabine Pass

2.2 Bcf/d

Cove Point 1.0 Bcf/d 10/10 4/11 10/11 4/12 10/12 4/13 10/13

$0

$5

$10

$15

$20

$25Nat Gas App. Coal WTI

10

Natural Gas Production and Demand Outlook

Source: EIA, CreditSights

Dry Gas Production (bcf/d) Demand by Sector (bcf/d)

58.4

62.7

65.766.4 66.8

54

56

58

60

62

64

66

68

2010 2011 2012 2013E 2014E0

10

20

30

40

50

60

70

2010 2011 2012 2013E 2014E

Residential CommercialIndustrial Electric Power

11

Natural Gas Futures Prices

Source: Bloomberg, CreditSights. Note: 2013 strip price is October – December.

12-Month Futures Curve Annual Strip Prices

$3.30

$3.50

$3.70

$3.90

$4.10

N D J F M A M J J A S O

$3.81

$4.00

$4.14$4.23

$4.34

$3.25

$3.50

$3.75

$4.00

$4.25

$4.50

2013 2014 2015 2016 2017

12

Key Industry Themes

• Activist risk remains elevated > Share price underperformance > Discounted valuations > Room for leverage

• Returns-focused capital spending > Oil play returns dominate the IRR matrix > Efficiency gains - Pad drilling, horizontal drilling, hydraulic fracturing > Cost controls - Reining in oilfield services and drilling costs, G&A expenses

• Infrastructure developments across the commodity complex > Pipes, rails, and processing plants

13

Existing and Potential Targets for Activists

• Apache Corp (APA; A3/A-) • Devon Energy (DVN; Baa1/BBB+) • Hess (HES; Baa2/BBB) • Murphy Oil (MUR; Baa3/BBB) • Occidental Petroleum (OXY; A1/A)

• Chesapeake Energy (CHK; Ba3/BB-) • Forest Oil (FST; B3/B-) • Newfield Exploration (NFX; Ba1/BBB-) • Quicksilver Resources (KWK; Caa2/CCC)

• Transocean (RIG; Baa3/BBB-)

14

Natural Gas: Returns Drive Strategic Direction

Play Returns Marcellus 20%

Fayetteville 10%

Haynesville 10%

Woodford 20%

Pinedale 20%

Play Returns Cleveland / Tonkawa

40%

Miss. Lime 45%

Granite Wash

40%

Eagle Ford 45%

Marcellus Wet / Utica

20%

Source: Bentek, CreditSights estimates ($3.25/mcf, $80/bbl, NGLs at 30% of crude price)

Dry Gas Liquids-Rich Gas

Play Returns Eagle Ford 45%

Permian 45%

Bakken 55%

Niobrara 45%

Utica 45%

Crude

15

Domestic Crude Production and Takeaway Capacity


Light Tight Oil Production Planned Pipeline Projects Capacity

Crude Oil Pipeline Project Region kbd Start-upWest TX Gulf Expansion Permian-GC 110 1Q13Permian Express 1 Permian-GC 90 1Q13Longhorn Reversal 1 Permian-GC 135 1Q13Longhorn Reversal 2 Permian-GC 90 3Q13BridgeTex Permian-GC 278 2Q14Permian Express 2 Permian-GC 200 2Q14Permian-GC, total 903

Seaway Reversal Cushing-GC 150 2Q12Seaway Expansion Cushing-GC 250 1Q13Keystone XL Cushing-GC 700 3Q13Seaway Twin Cushing-GC 450 3Q14Cushing-GC, total 1,550

Rail expansions Bakken-All 400 2012Plains Bakken North Bakken-Cushing 50 4Q12Butte Loop Bakken-Eastern Mkts 150 4Q12Enbridge BEP 2 Bakken-Eastern Mkts 145 1Q13Rail expansions Bakken-All 75 2013Keystone XL Bakken-Cushing 100 2Q15Bakken, total 920 Koch Pipeline Eagle Ford-GC 250 4Q12Enterprise Eagle Ford-GC 350 2Q13Eagle Ford, total 600

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2010

2011

2012

2013

E

2014

E

2015

E

2016

E

2017

E

MontereyBarnettNiobraraEagle FordOther Tight OilWilliston Basin

16

Credit Market Trends: Oil & Gas Issuance ($ bn)

Source: Bloomberg, CreditSights.

Investment Grade Issuance High Yield Issuance

$31.2

$62.4 $64.6

$0

$10

$20

$30

$40

$50

$60

$70

YTD '11 YTD '12 YTD '13

$28.5

$43.1$39.1

$0

$10

$20

$30

$40

$50

YTD '11 YTD '12 YTD '13

17

Leverage Comparisons

Source: Company filings, Bloomberg, CreditSights.

Investment Grade E&Ps: Debt/Total Capital

High Yield E&Ps: 2013E Debt/Ebitda(x)

15%19%

27% 28% 30% 31% 31%34%

36%

25%25%

0%

15%

30%

45%

OXY HES MUR MRO PXD APA NBL EOG COP DVN APC

Average

1.6 1.7 2.0 2.4 2.5 2.6 3.14.0

9.8

0.0

2.0

4.0

6.0

8.0

10.0

12.0

WLL CLR CXO DNR CHK NFX FST LINE KWK

Average ex-KWK

18

Leverage Comparisons

Source: Company filings, Bloomberg, CreditSights.

Oilfield Services & Drillers: Debt/Total Capital

Refiners: Debt/Total Capital

22% 24%28%

39% 41%

0%

10%

20%

30%

40%

50%

BHI SLB ESV HAL RIG

Average

22%27%

39%

23%

0%

10%

20%

30%

40%

50%

MPC PSX VLO TSO (High Yield)

Average

19

Enterprise Valuation Comparisons: EV/2014E Ebitda(x)


Investment Grade E&Ps

High Yield E&Ps

10.1

6.8 6.3 6.0 5.5 5.2

3.2 3.0

4.8 4.74.7

0.0

2.0

4.0

6.0

8.0

10.0

12.0

PXD HES NBL EOG APC OXY DVN COP APA MRO MUR

Average

11.8

7.6 7.0 6.8 6.6 6.14.5

4.95.3

0.02.04.06.08.0

10.012.014.0

KWK CXO LINE CLR DNR CHK NFX FST WLL

Average ex-KWK

20

Enterprise Valuation Comparisons: EV/2014E Ebitda


Oilfield Services & Drillers

Refiners 5.5 5.2

4.73.9

0.0

1.0

2.0

3.0

4.0

5.0

6.0

PSX TSO (High Yield) VLO MPC

Average

8.8

6.65.9

5.35.5

0.0

2.0

4.0

6.0

8.0

10.0

SLB HAL ESV BHI RIG

Average

21

Equity Performance 2013 YTD


Investment Grade E&Ps

High Yield E&Ps

22

Equity Performance 2013 YTD


Oilfield Services & Drillers

Refiners

0%

-7%

44%

22%29%

-10%

0%

10%

20%

30%

40%

50%

HAL SLB BHI RIG ESV

-1%

10%

4%

14%

-4%

0%

4%

8%

12%

16%

VLO PSX MPC TSO (High Yield)

23

Bond Comparisons


Investment Grade E&Ps: YTM (sorted by maturity)

High Yield E&Ps: YTW (sorted by workout date)

3.2% 2.9%3.5% 3.4% 3.6% 3.7%

4.3%3.9% 3.7%

3.3% 3.6%

0.0%

2.0%

4.0%

6.0%

HES8.1%2019

APC8.7%2019

NBL4.2%2021

OXY3.1%2022

APA3.3%2022

DVN3.3%2022

MUR4%

2022

PXD4%

2022

MRO2.8%2022

COP2.4%2022

EOG2.6%2023

7.3%

10.6%

7.7%

5.3% 4.9%6.0% 5.5%

4.5%5.7% 5.8%

0.0%

3.0%

6.0%

9.0%

12.0%

LINE7.8%2021

KWK9.1%2019

FST7.5%2020

CXO5.5%2023

WLL5.8%2021

TSO(Refiner)

5.4%2022

CHK5.8%2023

CLR4.5%2023

DNR4.6%2023

NFX5.6%2024

24

Bond Comparisons


Oilfield Services & Drillers: YTM (sorted by maturity)

Refiners: YTM (sorted by maturity)

3.7%3.1% 3.1% 3.3%

4.7%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

ESV 4.7%2021

BHI 3.2% 2021 SLB 3.3%2021

HAL 3.3%2021

RIG 6.4% 2021

3.4%

4.2%3.6%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

VLO 6.1% 2020 MPC 5.1% 2021 PSX 4.3% 2022

25

Cash Bond Total Returns 2013 YTD


Investment Grade: Top 10 Total Return YTD

High Yield: Top 10 Total Return YTD

2.0% 1.9%1.6% 1.5%

1.3% 1.1% 1.1% 1.1% 1.1% 1.1%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

PXD5.9%2016

RIG5.1%2016

APC5%

2016

RIG6%

2015

APC6.4%2017

PXD7.5%2020

DVN2.4%2016

RIG2.5%2017

MPC3.5%2016

VLO4.5%2015

25.9%

12.1%9.6%

6.7% 6.7% 6.5% 6.3% 5.7% 4.0% 4.0%

0.0%

5.0%10.0%

15.0%20.0%

25.0%30.0%

KWK7.1%2016

KWK9.1%2019

CHK7.3%2018

CHK6.5%2017

FST7.3%2019

CHK6.6%2020

CHK6.1%2021

CHK6.9%2020

CLR7.1%2021

CLR8.3%2019

26

Conclusion

+ Ongoing oil and natural gas price strength

+ Favorable production growth and unit cost control outlook

+ Improving free cash flow outlook

= Robust equity and credit performance potential

Copyright CreditSights 2013. All rights reserved. Reproduction of this report, even for internal distribution, is strictly prohibited. The information in this report has been obtained from sources believed to be reliable; however, neither its accuracy, nor completeness, nor the opinions based thereon are guaranteed. If you have any questions regarding the contents of this report contact CreditSights at [email protected]. BondScore, CreditSights Ratings, ratings products and related information are provided by CreditSights Analytics, LLC. CreditSights Limited is authorised and regulated by the Financial Services Authority (FSA). This product is not intended for use in the UK by Private Customers, as defined by the FSA. Certain data appearing herein is owned by, and used under license from, certain third parties. Please see Legal Notices for important information and limitations regarding such data. For CreditSights' terms of use, please see Terms & Conditions.

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