s&p capital iq market outlook 2012; tech & o&g sector outlooks

Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.Copyright © 2012 Standard & Poor’s Financial Services LLC, a subsidiary of The McGraw‐Hill Companies, Inc. All rights reserved.

Market OutlookShallow and Short Pullback

Lorraine Tan, CFAMarch, 2012

2. Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.

Markets Rally

• Eurozone: Concerted central bank action, ECB liquidity moves send yields down

• U.S.: Fed pledge to keep interest rates low, improving macro signals

• Asia: Monetary relaxation

Source: S&P Capital IQ, Bloomberg

Risk Appetite Returns on Series of Positive News

‐30%

‐25%

‐20%

‐15%

‐10%

‐5%

0%

5%

10%

15%

20%

25%Australia

China

‐A

China‐H

Hon

g Ko

ng

India

Indone

sia

Japa

n

Malaysia

Philipp

ines

Singapore

South Korea

Taiwan

Thailand

S&P Asia 50

2012 YTD 2011

2012 Performance Year‐to‐Feb. 29


0.4%

1.3%

1.8%

3.0%

2.1%

‐3.5%

3.0%

1.7%2.1%

2.3%

‐4%

‐3%

‐2%

‐1%

0%

1%

2%

3%

4%

2009

2010

1Q11A

2Q11A

3Q11A

4Q11R

2011R

1Q12E

2012E

2013E

Real GDP Growth

Chain Linked Annualized Full Year (YoY)

US Outlook

Source: S&P Capital IQ, Standard & Poor’s Rating Services

Slow Growth Expectation Unchanged, but Risk of Recession Lowered

Revised higher


US Outlook


Base Case View – Equipment Spending Helps

(5.0)

‐

5.0

10.0

15.0

20.0

1Q11 2Q11 3Q11 4Q11e 1Q12e 2Q12e 3Q12e 4Q12e

Annu

alized

Growth %

Real GDP Consumer Spending

Equipment Spending Exports

State & Local Govt. Spending


Looking for Relief in Housing Prices

• We’ve seen a triple dip in home prices – and the weakness remains problematic for U.S. banks

• 4% fall possible but this should be the “final” botttom – rents are rising and inventory is slowly shrinking

2.0

2.5

3.0

3.5

4.0

4.5

1975

1977

Q2

1979Q3

1981

Q4

1984

1986

Q2

1988

Q3

1990

Q4

1993

1995

Q2

1997

Q3

1999

Q4

2002

2004

Q2

2006

Q3

2008

Q4

2011

2013

Q2

2015Q3

Ratio of avg. hom

e price to avg. hou

seho

ld dispo

sable income

Existing New Quality‐adjusted


Eurozone Outlook


Base Case View – Shallow 1H12 Recession

3.7

1.4 1.4

1.82.1

3

1.7

0.40.7

1.4

0.90.6 0.5

‐1

0 0

0.5

1.5

1

0

1 1 1

‐0.1

‐2

‐1

0

1

2

3

4

Germany France Italy Spain Eurozone U.K.Real GDP Growth (%) YoY

2010 2011p 2012e 2013e


Eurozone Outlook

• Standard & Poor’s Ratings Services stress test indicates a potential shortfall of EUR287 bln from

the existing European support mechanism and the IMF (or around 2.7% of combined 2010 GDP)


Debt Worry a Prolonged Overhang

*Stress test scenarios are: (1) double dip recession and (2) double dip recession with an interest rate shock. Includes Germany, France, Greece, Spain, Italy, Portugal, and Ireland.

EUR bln 2011 2012 2013 2014Scenario 1Base‐case gross borrowing needs 1,664 1,677 1,375 1,237Additional deficits 0 115 175 167Bank recapitalization costs 0 39 39 39Projected gross borrowing needs 1,664 1,831 1,588 1,443Scenario 2Base‐case gross borrowing needs 1,664 1,677 1,375 1,237Additional deficits 0 156 219 247Bank recapitalization costs 0 44 44 44Projected gross borrowing needs 1,664 1,877 1,637 1,528


Eurozone Outlook


Improved Appetite, Liquidity Reflected in Bond Yields

4

9

14

19

24

29

34

39Dec‐09

Feb‐10

Apr‐10

May‐10

Jul‐10

Aug‐10

Oct‐1

0Nov‐10

Jan‐11

Mar‐11

Apr‐11

Jun‐11

Jul‐11

Sep‐11

Oct‐11

Dec‐11

Feb‐12

Greece (%)

3

4

5

6

7

8

Spain & Italy (%)

Greece Spain Italy


4.3 3.8 4.0 4.46.2

3.9 3.6 3.85.9

4.6 4.5 4.8

6.0 6.27.3

8.46.9

6.5 6.2 5.6

4.35.1 5.0 5.0

‐4.2‐2.9 ‐3.6 ‐3.6

‐1.2

0.60.7 1.0

‐0.4 ‐0.1 ‐0.1 ‐0.5

‐6

‐4

‐2

0

2

4

6

8

10

12

14

1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11

GDP Growth %

Consumption Gross Capital Formation Net Exports

China Outlook

Slower growth

Source: CEIC

No Repeat of Financial Crisis Lows

Expected to improve in 2H12

Slightly Slower


China Outlook

• Broad based recovery from November low may be driven by restocking

Manufacturing Appears to Have Bounced Off Recent Low

Source: CEIC

30

35

40

45

50

55

60

65

70No

v‐07

Feb‐08

May‐08

Aug‐08

Nov‐08

Feb‐09

May‐09

Aug‐09

Nov‐09

Feb‐10

May‐10

Aug‐10

Nov‐10

Feb‐11

May‐11

Aug‐11

Nov‐11

Feb‐12

PMI (points)

PMI New Orders Production

Employment Suppliers' Delivery Time Raw Material Inventory


China Outlook

• A reduction in the exceptionally high RRR on track – is the preferred policy tool to

fine tune the economy. We see large banks RRR down to 19.0‐19.5%.

Loosening in Monetary Policy Likely

Source: CEIC

0.0

5.0

10.0

15.0

20.0

25.0Mar‐89

Dec‐90

Sep‐92

Jun‐94

Mar‐96

Dec‐97

Sep‐99

Jun‐01

Mar‐03

Dec‐04

Sep‐06

Jun‐08

Mar‐10

Dec‐11

RRR %

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Interest Rate %

RRR Lending Rate Time Deposit Rate SHIBOR 3 Mths Rate


China Outlook

• Deposits growth has lagged loans growth since Aug. 2011. Deposit rates will have

to rise in the mid‐term unless inflation falls sharply

Interest rates unlikely to decline

Source: CEIC

Inflation vs. Interest Rates

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

Jan-

07M

ay-0

7Se

p-07

Jan-

08M

ay-0

8Se

p-08

Jan-

09M

ay-0

9Se

p-09

Jan-

10M

ay-1

0Se

p-10

Jan-

11M

ay-1

1Se

p-11

Jan-

12

%

CPI 3-Mths Time Deposit Rate 3-Mths SHIBOR


China Outlook

• While we expect the PBoC to relax monetary policy somewhat, we do not expect

overall government policy to be aggressively accommodative for the following

reasons:

– Wages are still rising: indications of pockets of tight labor

– Government linked entities debt levels have risen

– Funding limitations

– Heightened risks of NPLs

• We suspect tolerance of sub‐8% GDP growth as long as unemployment does not rise

distinctly

• Seen in recent decision to reduce budgeted railway expansion

Government may not expand agressively


Asia‐Pacific OutlookModerating Growth

Source: S&P Capital IQ Standard & Poor’s Rating Services

Country

Country 2009 2010 2011a/e 2012f

Australia 1.3 2.7 1.8‐2.3 2.2‐2.7China 9.1 10.3 9.2 7.7‐8.2

Hong Kong ‐2.8 7.0 5.0 2.5‐3.0India 6.8 8.9 7.3‐7.8 6.8‐7.3

Indonesia 4.5 6.1 6.5 6.0‐6.5Japan ‐5.2 4.0 (2.3) 1.5‐2.0

Korea 0.2 6.2 3.6 2.8‐3.3Malaysia ‐1.7 7.2 5.1 4.4‐4.9

Philippines 1.1 7.6 3.8 4.0‐4.5Singapore ‐1.3 14.5 5.0 2.0‐2.5

Taiwan ‐1.9 10.9 4.5 2.3‐2.8Thailand ‐2.2 7.8 0.1 3.5‐4.0

Annual real GDP growth (% )


Risk of Oil Shock

• We see the WTI averaging USD101 in 2012, USD114 in 2013 – barring an oil shock that

could conceivably send prices up to USD150 and lead to a recession

30

50

70

90

110

130

150

Jan‐08

Mar‐08

May‐08

Jul‐08

Sep‐08

Nov‐08

Dec‐08

Mar‐09

Apr‐09

Jun‐09

Aug‐09

Oct‐09

Dec‐09

Feb‐10

Apr‐10

Jun‐10

Aug‐10

Oct‐10

Dec‐10

Feb‐11

Apr‐11

Jun‐11

Aug‐11

Oct‐11

Dec‐11

Feb‐12

USD

/bbl

WTI Brent Dubai


Equities Recovery to Continue


Recovery has legs

• With our view that the global economic outlook will improve through 2012, we

believe higher beta markets should see a better year‐end performance.

• Second Greek bailout clears one hurdle but is priced‐in already. Key positive is that

yields of other sovereigns are declining.

• Higher beta / cyclical issues and markets may outperform on a recovery scenario.

• However, a short‐term pull back is possible given the strong start to the year.

• Risks:

– Rising oil prices

– Inflation may not ease as much as expected

– Excess liquidity from capital inflows into Asia raises bubble risk

– Eurozone overhang risk remains


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000May‐73

Aug‐77

Nov‐81

Feb‐86

May‐90

Aug‐94

Nov‐98

Feb‐03

May‐07

Aug‐11

HSI

0

5

10

15

20

25

30

35

40

45

50

PER x

'Hang Seng Index' PER

Hang Seng Still at Historically Attractive Valuation Levels

Source: CEIC

Still at historically attractive levels


FSSTI at Historically Attractive Valuation Levels

Source: S&P Capital IQ, CEIC

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Apr‐98

Apr‐99

Apr‐00

Apr‐0

1Apr‐02

Apr‐03

Apr‐04

Apr‐05

Apr‐06

Apr‐07

Apr‐08

Apr‐09

Apr‐1

0Apr‐11

FSSTI

0.0

20.0

40.0

60.0

80.0

100.0

120.0

PERx

FSSTI PER x Std Dev ‐1


Short and Shallow Pullback?

Source: Bloomberg

‐8.0%

‐7.0%

‐6.0%

‐5.0%

‐4.0%

‐3.0%

‐2.0%

‐1.0%

0.0%

1.0%Ch

ina‐H

Hon

g Ko

ng

Australia

India

Singapore

Taiwan

South Korea

Japa

n

China‐A

Indo

nesia

Thailand

Malaysia

Philippines

S&P Asia

50


S&P Asia 50 Sector Ratios and Recommended Weightings

Source: S&P Capital IQ

Based on S&P Capital IQ market consensus estimates as of Feb. 29, 2012

YTD Rtn PER 2012 EPS 2011 EPS 2012 Div Yld 2012 PBV 2012 Recommended

% X YoY % YoY % est. % X S&P Sector Emphasis

Consumer Discretionary 6.4 11.1 0.8 12.0 1.2 1.8 Marketweight

Consumer Staples (0.7) 14.0 44.2 1.6 2.2 1.7 Overweight

Energy 21.1 9.8 36.6 9.7 3.8 1.6 Overweight

Financials ‐ Banks 20.7 8.1 39.2 7.6 4.9 1.4 Marketweight

Financials ‐ Insurance 26.7 16.2 42.8 38.5 1.6 2.4 Marketweight

Financials ‐ Real Estate 17.4 13.4 (11.6) (23.4) 3.1 0.9 Overweight

Industrials 20.6 14.0 (10.6) 10.4 2.7 1.6 Marketweight

Information Technology 14.7 12.5 (12.4) 18.7 2.1 2.3 Marketweight

Materials 12.8 15.7 (22.3) (6.9) 4.4 0.5 Marketweight

Telecom Services 7.3 11.0 26.9 2.4 4.4 1.9 Underweight

Utilities 3.8 19.7 5.2 7.4 2.7 2.1 Underweight

S&P Asia 50 11.1 11.5 21.8 9.6 3.6 1.8

S&P Asia 50 Recommended Sector Weightings (as of Feb.29, 2011)


S&P Capital IQ Research Technical View

• Current pullback may be over (if S&P 500 holds above Friday’s close of 1370) – indices

held up by some large caps

• Dow Jones Transports, S&P Materials and S&P Energy rebounded from support levels

• Sets up for decent push to 1400‐1440 for S&P 500

• US Dollar in midst of completing bullish double bottom and this my hurt precious

metals

– Hence, gold may face continued volatile trade

• Crude oil movement has not be sensitive to USD, could hit USD130 in 2Q and set the

market up for a more significant correction

– However, fundamentals and smart money trades do not align with this happening yet


Summary ‐ Recommendations

• Periodic pull backs expected ‐ we see these to be shallow and short at this juncture

• Fresh leads are needed as market rises – could come from better housing data,

improved earnings outlooks, Eurozone recovery

• We regard recent pullback as an opportunity to pick up selective cyclical issues:

– Energy and Real Estate are still largely preferred but there are also select banks, consumer

and industrials names

– Continue to prefer oil over other commodities

• Defensive sectors (Consumer Staples, Telcos and Utilities) are likely to lag on a

recovery story although there may be positive from M&A drivers


Thank You


2012 Technology OutlookThe Tide is Turning

Technology Outlook Seminar

Apurva PatelMarch 14, 2012


2012 Global IT Spending Will Increase by +3.7% YoY

Global IT Spending Tracks Global GD P Grow th

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

2008A 2009A 2010A 2011E 2012E 2013E 2014E 2015E-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

G lo b a l IT Sp e n d in g (U SD tr illio n s) G lo b a l IT Sp e n d in g (Y o Y c h a n g e )

2008 Global GDP +1.5% 2009 Global GDP -2.3%2010 Global GDP +4.2%So urc e: Wo rld B ank

Source: Gartner (January 3, 2012 update)

Spending in 2H12 expected to pick‐up, but Eurozone is a wildcard


Technology SectorsHardware and Software spending above Global IT spending

To simplify, we have combined Telecom Equipment and Telecom Services into Telecom

Software Spending Resilient Throughout the Business Cycle

-15%

-10%

-5%

0%

5%

10%

15%

2009A 2010A 2011E 2012E 2013E 2014E 2015E

Telecom Services Hardware Software Global IT Spending

Source: Gartner (January 3, 2012 update)

YoY

Cha

nge

(%)


Technology SectorsTechnology Sub‐Industries and Companies

Deeper look at the various sub‐

industries

A list of public companies in the

various sub‐industries

Telecom Services Hardware SoftwareNetwork Equipment Planning PCs Applications

Fixed-Line Telecom Services Implementation Servers Application development

Mobile Voice Support Monitors Deployment tools

Data and Multimedia Services Operations Printers System Infrastructure

Training Peripherals

Education Mobile Phones/Smartphones

Tablets

StorageSource: S&P Capital IQ

Telecom Services Hardware SoftwareAT&T Cognizant Tech Apple Microsoft

Americas Verizon Amdocs Intel Oracle

Cisco Systems Computer Sciences Corp. Qualcomm VMware

BT Accenture Nokia SAP

EMEA Vodafone Cap Gemini STMicroelectronics NA

Ericsson Atos SA Infineon NA

China Mobile Tata Consultancy Samsung Electronics NA

Asia Pacific China Telecom Infosys TSMC NA

ZTE Wipro Hitachi NASource: S&P Capital IQ


Asian IT Sector Dominated by HardwareWe will focus on Hardware

– Hardware market is interconnected via supply chain

– Services market still developing in Asia, dominated by Indian companies

– Limited Software industry outside the U.S. (excludes Internet companies)

– Software companies in China rising (based on China’s MIIT), but today most of these companies are not standalone companies (i.e., Huawei, ZTE, Haier)

Telecom Services Hardware SoftwareAT&T Cognizant Tech Apple Microsoft

Americas Verizon Amdocs Intel Oracle

Cisco Systems Computer Sciences Corp. Qualcomm VMware

BT Accenture Nokia SAP

EMEA Vodafone Cap Gemini STMicroelectronics NA

Ericsson Atos SA Infineon NA

China Mobile Tata Consultancy Samsung Electronics NA

Asia Pacific China Telecom Infosys TSMC NA

ZTE Wipro Hitachi NASource: S&P Capital IQ


Technology Supply ChainA sample view of the hardware supply chain


Technology Themes

• Mobile devices (semiconductors, hardware, software)

– Greater wireless broadband speeds, falling prices, desire for Internet/e‐mail access from any location for personal and professional purposes

• Internet advertising (services)

– Users/usage of Internet increasing, spending still trailing activity on percentage basis, high relative ROI (with sophisticated targeting, personalization, measurement, reporting)

• Electronic content in autos (semiconductors, hardware, software)

– Government pollution guidelines, safety and security regulations, and high oil prices

• Software as a service (SaaS) (software)

– Ease of deployment/customization, lower total cost of ownership, access from any Internet‐enabled device, scalability

• Solar energy (semiconductors)

– High oil prices, government subsidies, national/corporate/individual energy independence, conservation/sustainability, nuclear questions

• Electronic Medical Records (semiconductors, hardware, software)

– Simplify transfer of medical records, lower costs of medical insurance/drugs, reduce human errors, new federal health privacy laws

• Connected Home (semiconductors, hardware, software)

– Intelligent home electronic devices/appliances, enhanced electric power requirements, lower maintenance costs

Internet is the driving force for the hardware industry


Previously, the PC market drove the Hardware market…

• Desktop units and ASP declining

• Notebooks units rising, while ASP declining

• Blended ASP declining

PC Shipments (units)

0

100

200

300

400

500

600

2010 2011 2012 2013 2014 2015

Uni

ts (m

illio

ns)

Global Desktops (units) Global Notebooks (units)

Source: IDC (December 2011update)

58% 59%61%

64%

67%

69%

Notebook as % of total PC shipments


Smartphone Units RisingIndustry shifting to high‐volume smartphone market

Mobile Phone and Smartphone Shipments

0

500

1000

1500

2000

2500

3000

3500

2010 2011 2012 2013 2014 2015

Uni

ts (m

illio

ns)

Mobile Phone Shipments (units) Smartphone Shipments (units)

18%

Smartphones as % of total mobile phone shipments

24%28%

30%32%

34%

Source: IDC


…Now, the smartphone market will drive the Hardware market

• Dec 4Q11 Smartphone shipments totaled 158 million units

• Dec 4Q11 PC shipments forecasted to be 92 million units

Smartphone and PCs are at inflection point

Smartphones vs. PCs shipments (units)

0

200

400

600

800

1000

1200

2010 2011 2012 2013 2014 2015

Uni

ts (m

illio

ns)

Smartphone Shipments (units) PC Shipments (units)

Source: IDC

Inflection point


2011 Stock Performance

• On November 23, 2011, we raised our recommendation to Marketweight from Underweight

– As of November 22, 2011, the Asian IT sector was in the negative territory

Technology Stocks Performed Poorly, but better than S&P Asia 50

Asia 50 Stock Performance (2011)

(30.0)

(25.0)

(20.0)

(15.0)

(10.0)

(5.0)

0.0

5.0

10.0

Cons

umer

Dis

cret

iona

ry

Util

ities

Info

rmat

ion

Tech

nolo

gy

Tele

com

Serv

ices

Cons

umer

Stap

les

Ener

gy

S&P

Asi

a 50

Mat

eria

ls

Indu

stria

ls

Fina

ncia

ls -

Ban

ks

Fina

ncia

ls -

Real

Esta

te

Fina

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ls -

Insu

ranc

e

Stoc

k Pe

rform

ance

(%)



2012 Outlook Slightly More Positive

• Higher global GDP growth expectations vs. 2011

• IT Hardware supply/demand expected to rebalance sometime 2H12

• Smartphones shifting from high‐end/premium to high‐volume/lower price points

• Notebooks (Ultrabooks) could be fueled by Windows 8 (2H12)

• Signs of a bottom in the LCD TV market (lower global industry capacity)

• M&A: consolidation in the DRAM market (shifting to NAND) and more to come

• Valuation attractive ‐multiple compression (2011)

What’s Driving 2012 Outlook?


Asian IT Sector Challenges

• Exports primary driver

– Businesses tied to global macro environment

– Domestic consumption is low, but rising

• Higher inflation

– Negatively impacts profits

• Excess capacity

– China building capacity in various IT sectors

• Larger companies benefiting

– Shifts in product cycles benefiting mostly established players

– Smaller companies unable to maintain R&D investments

Domestic consumption is key


2012 Technology Performance (YTD) Starting on a solid footing

Asia 50 Stock Performance (YTD, pricing as of 3/9/12)

(10.0)

(5.0)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Cons

umer

Stap

les

Util

ities

Cons

umer

Dis

cret

iona

ry

Tele

com

Serv

ices

Mat

eria

ls

S&P

Asi

a 50

Fina

ncia

ls -

Real

Esta

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Fina

ncia

ls -

Insu

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Info

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Tech

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Fina

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Ban

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Ener

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Indu

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Stoc

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rform

ance

(%)



Thank You


Oil & Gas Sector Update Increasing Supply Side Risks

Ahmad Halim, CFAMarch 14, 2012


Oil prices: where are we now vs 2008?

• Still some 14‐27% off July 2008 peak


0

20

40

60

80

100

120

140

160

Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12

WTI Dated Brent Dubai

USD/bbl


Demand Outlook (cont)

Source: S&P Capital IQ, EIA

Emerging markets to drive oil demand in 2012

-0.30

-0.20

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

0.60

China Middle East Brazil Africa India Russia NorthAmerica

Japan Europe Others

mbpd


88.5

89.0

89.5

90.0

90.5

91.0

Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12

IEA EIA OPEC

mbpd

Demand outlook

Source: S&P Capital IQ, International Energy Agency, Energy Information Administration, OPEC

Continuous downward revision over the last six months


-60.0%

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

-5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0%

Average crude oil price YoY

Demand growth YoY

SS & DD drives oil prices

Source: S&P Capital IQ, BP, EIA

…

but what about the outliers?

Iran Revolution

Outbreak of the Iran-

Iraq War


Supply Outlook


Nothing out of the ordinary on the surface

0

10

20

30

40

50

60

70

80

90

100

2010 2011E 2012F 2012F

OECD OPEC crude OPEC non-crude FSU China Other non-OECD

mbpd


Supply Outlook (cont)

Source: S&P Capital IQ, BP, EIA, Bloomberg

Global oil supply disruptions since 1970

0

20

40

60

80

100

12019

50

1960

1970

1980

1990

2000

2010

USD/bbl (2010 prices)

Arab-Israeli War & oil embargo

Iranian revolution and outbreak of Iran-Iraq war

First Gulf War

Second Gulf War, Venezuelan strikes

Arab Spring, Libyan supply cut


Supply Outlook (cont)


What lies beneath?


The flashpoints: Iran

Source: EIA

Plenty of saber‐rattling but all‐out war unlikely

• Oilfields near border with Iraq, main gas field is offshore South Pars

• 4th largest oil reserves and 2nd largest gas reserves in the world

• Total exports in 2010 = 2.2 mbpd

• Bilateral sanctions increasing, with EU oil embargo the latest step

• Effective lost supply could amount to 1 mbpd, if no alternative buyer found.

• Tactical strike by Israel?

• Straits of Hormuz chokepoint potentially at risk (but unlikely).


The flashpoints: Iran (cont)Supply with no (capable & willing) buyers = lost supply

Source: EIA

Iran's 1H11 exports by destination, kbpd

China, 543

EU, 450

Japan, 341

India, 328

South Korea, 244

Turkey, 182

Others, 170


The flashpoints: Syria

• Violent crackdown by Bashar

Al‐

Assad’s forces on protestors since

early 2011

• Economic sanctions by the US and

EU in place. Additionally, US also

imposed energy sector sanctions

• Total reserves = 2.5 bln

bbls

(2010)

• Production = 387 kbpd

(2010),

declining rapidly.

• Exports 109 kbpd

in 2010, almost

exclusively to EU. 75% heavy, sour

crude.

Small but vital exporter to EU countries



The flashpoints: Sudan & South Sudan

• Continuing dispute between South

Sudan and Sudan on pipeline transit

fees.

• Border conflicts in the Blue Nile region

and the vital oil producing Abyei

region

• US energy sanctions in place, and EU

and UN general embargoes.

• Total reserves = 4 bln‐7 bln

bbls

(2010)

• Production = 470 kbpd

(2010), expected

to be in decline

• Exports 372 kbpd

in 2010, almost

exclusively to Asia (China 67%, Malaysia

12%). 55% heavy, sour crude, balance is

medium sweet.

Significant exporter to Asia



The flashpoints: Yemen

• Rising piracy and political unrest

damages existing infrastructure and

deters investments

• Total reserves = 3 bln

bbls

(2011)

• 2010 production = 259 kbpd, 2011

expected at 170 kbpd.

• Exported 103 kbpd

in 2010, largely

to Asia.

• Turned net importer of crude and

refined products by January 2012,

due to continued pipeline attacks

• Production is largely light, sweet

crude.

Minor exporter but in control of vital Bab

el Mandab

chokepoint



The flashpoints: Libya

• Production picking up following

overthrow of Muammar Ghaddafi,

but recent news from Eastern

region is discouraging.

• Total reserves = 46 bln

bbls

(2010)

• 2010 production = 1.6 mbpd‐1.8

mbpd, 2011 production affected by

revolution.

• Crue

oil and product exports = 1.5

mbpd

in 2010 .

• Production is largely light, sweet

crude, exported largely to Europe.

Biggest reserve size in Africa, major exporter to EU



The flashpoints: in summary

• China unlikely to pull back from Iran. Would likely increase imports, but unlikely to

be able to absorb all.

• Syria, Sudan & Yemen troubles = 400 kbpd

loss in supply

• Too early to tell on Libya.

• Potential supply loss = 700 kbpd

–

1 mbpd.

• Saudi Arabia to offset loss of Iran heavy?

Likely some loss to global supply

Source: CEIC


S&P Capital IQ crude oil price outlook

• Our average WTI crude price assumptions for 2012‐2013 stand at USD91/bbl and

USD108/bbl

– Last updated early January 2012, does not reflect higher geopolitical tension since then

• Oil price response to supply disruptions have diminished in recent times, but still

represents a substantial risk

• Short‐term price increase to benefit upstream producers

• Long‐term higher prices can negatively impact global economy and push

demand

lower.

• S&P believes US can tolerate USD4/gallon oil (currently averaging USD3.72/gallon)

due in part to low gas price and declining unemployment

• …

but what about USD5/gallon gas?

Plenty of upside risk to our WTI assumptions


Valuation tables

Company Name CIQ Ticker TradingShare Price 1 Mth 3 Mths 6 Mths FY2012 FY2013 FY2012 FY2013O&G (Integrated)PetroChina SEHK:857 HKD 11.42 296,217 -1.2% 20.1% 22.9% 10.6x 10.0x 15.7% 5.7%Sinopec SEHK:386 HKD 8.90 102,940 -3.4% 10.4% 23.1% 7.7x 7.0x 10.4% 9.4%Exxon Mobil NYSE:XOM USD 84.30 397,325 0.6% 5.3% 17.3% 10.3x 9.4x -9.4% 7.7%Royal Dutch Shell LSE:RDSA GBP 22.80 224,783 -0.2% 0.8% 14.6% 7.8x 7.5x -11.4% 6.3%Chevron Corp NYSE:CVX USD 109.57 216,616 4.1% 6.3% 14.2% 8.5x 8.2x -5.6% 1.7%ConocoPhillips NYSE:COP USD 77.16 98,741 6.8% 9.5% 20.1% 9.0x 8.4x -12.7% 2.9%BP plc LSE:BP. GBP 4.94 146,678 0.7% 11.1% 31.5% 7.0x 6.7x -18.6% 3.8%PTT PCL SET:PTT THB 351.00 32,790 0.9% 9.7% 11.8% 8.7x 7.7x 10.0% 13.9%Average 1.04% 9.15% 19.45% 8.7x 8.1x -2.7% 6.4%

O&G (E&P)CNOOC Ltd. SEHK:883 HKD 16.70 97,705 -3.4% 13.5% 24.6% 9.1x 8.9x -2.2% 1.8%Statoil ASA OB:STL NOK 160.70 89,589 2.9% 7.9% 31.2% 9.2x 8.5x 9.3% 3.9%Suncor Energy TSX:SU CAD 34.24 54,029 1.1% 17.8% 20.1% 10.2x 9.5x 22.6% 12.3%Apache Corp. NYSE:APA USD 107.45 41,295 2.2% 14.4% 13.5% 8.7x 7.7x 10.7% 12.1%Anadarko NYSE:APC USD 85.25 42,491 -2.1% 9.6% 21.2% 23.9x 17.9x NM 34.8%Woodside Petroleum ASX:WPL AUD 35.93 30,654 1.5% 11.0% 10.3% 16.1x 13.4x 16.5% 19.8%Hess Corporation NYSE:HES USD 63.04 21,278 2.0% 11.9% 8.7% 9.4x 7.9x 31.1% 15.2%PTT EP PCL SET:PTTEP THB 179.50 19,437 0.6% 7.5% 11.5% 11.2x 9.3x 18.4% 19.8%Average 0.60% 11.68% 17.65% 10.6x 9.3x 15.2% 15.0%

Market Cap (USD mln)

Price Performance P/E (x) Net Profit Growth


Valuation tables (cont)

Company Name CIQ Ticker FY2012 FY2013 FY2012 FY2013 FY2012 FY2013 FY2012 FY2013 FY2011 FY2012O&G (Integrated)PetroChina SEHK:857 5.7x 5.3x 1.6x 1.4x 14.9% 14.8% 36.58% 46.90% 4.16% 4.50%Sinopec SEHK:386 4.6x 4.2x 1.2x 1.1x 16.3% 15.7% 16.89% 17.25% 3.48% 3.62%Exxon Mobil NYSE:XOM 4.7x 4.5x 2.3x 2.1x 21.7% 20.4% 47.50% N/A 2.33% 2.47%Royal Dutch Shell LSE:RDSA 4.0x 3.8x 1.2x 1.1x 15.5% 14.9% 17.80% N/A 4.70% 4.87%Chevron Corp NYSE:CVX 3.6x 3.5x 1.6x 1.4x 19.2% 17.8% 46.00% N/A 3.01% 3.15%ConocoPhillips NYSE:COP 4.0x 3.9x 1.4x 1.3x 15.6% 14.9% 29.40% N/A 3.59% 3.81%BP plc LSE:BP. 3.9x 3.7x 1.2x 1.1x 17.7% 16.7% 19.80% N/A 4.14% 4.57%PTT PCL SET:PTT 5.9x 5.3x 1.6x 1.4x 19.7% 19.6% 9.10% 10.12% 3.87% 4.27%Average 4.5x 4.3x 1.5x 1.3x 17.6% 16.8% 27.88% 24.76% 3.66% 3.91%

O&G (E&P)CNOOC Ltd. SEHK:883 4.7x 4.5x 2.0x 1.8x 23.7% 21.1% 57.15% 62.45% 3.79% 3.99%Statoil ASA OB:STL 2.3x 2.2x 1.6x 1.5x 18.7% 18.1% 47.38% 46.07% 4.23% 4.45%Suncor Energy TSX:SU 5.2x 4.7x 1.2x 1.1x 13.1% 12.1% 60.80% 62.60% 1.32% 1.42%Apache Corp. NYSE:APA 3.7x 3.4x 1.3x 1.1x 15.3% 14.9% 79.30% N/A 0.60% 0.61%Anadarko NYSE:APC 6.3x 5.4x 2.1x 1.9x 8.9% 11.2% 71.30% N/A 0.43% 0.43%Woodside Petroleum ASX:WPL 8.8x 7.3x 2.2x 1.9x 14.2% 15.8% 68.90% 68.90% 3.17% 3.67%Hess Corporation NYSE:HES 3.6x 3.2x 1.0x 0.9x 11.4% 11.1% 36.30% 37.60% 0.66% 0.66%PTT EP PCL SET:PTTEP 5.0x 4.2x 2.5x 2.1x 23.5% 24.0% 51.47% 51.12% 3.47% 4.24%Average 4.9x 4.4x 1.7x 1.5x 16.1% 16.0% 59.07% 54.79% 2.21% 2.43%

Gross Margin Div YieldEV/EBITDA P/B ROE


Thank You


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