E&Ps: Oil prices rise following attack on Aramco
An escalation in geopolitical tensions following an attack on world’s largest oil production company, Saudi Aramco, has disrupted ~5% (5.7mn bpd) of world oil production and 18% of OPEC crude supply. The attack on processing facility in Abqaiq and the oil field in Khurais is expected to remain offline as restoration efforts are being conducted.
The development has sent the oil price galloping as high as 19% DoD while Brent trades at USD66/bbl, up 10% DoD, at the time of writing this report.
Initial estimates have placed partial production restoration expected in a matter of days while entire production rehabilitation could stretch over weeks, according to initial newsflows.
Brent oil prices have averaged at USD 62/bbl during FY20TD compared to USD69/bbl in FY19 where the duration of production outage can continue to influence the prices, we believe. Clarity is expected to emerge from Saudi Aramco’s update expected within 48 hours of the incident.
Our base case oil price assumption for FY20/21 stands at USD 63/62/bbl, unchanged amid current developments and uncertainty surrounding rehabilitation of the affected field and facility.
However, given the current scenario, with every USD 5/bbl increase in oil prices POL remains the most sensitive with 10% annualized increase in earnings from our base case and by 7% for OGDC and PPL.
In terms of macros, a USD5/bbl movement in oil price may lead to an annualized impact of USD0.9â€1.1bn on Pakistan’s oil import bill. On the inflationary front, every USD5/bbl hike in oil price increases headline inflation by 27bps (old base).
We maintain an overweight stance on the E&P sector with a Buy rating that currently trades at a forward P/E of 4.3x. OGDC and PPL are our preferred picks.
Oil and Gas Development Company is a petroleum exploration and production (E&P) company in the Pakistan oil and gas sector. Co.'s principal activity is to explore, develop, produce and sell oil and gas resources and related activities. Co. also manufactures Gas, Liquefied Petroleum Gas, Crude Oil, and Sulphur. Co.'s major fields contributing in the aforesaid production of crude oil include Nashpa, Kunnar/KPD, Pasakhi, Sinjhoro and Rajian and for gas include Qadirpur, Uch, KPD, Nashpa and Dakhni. Co. carries out exploration and development activities on its own as well as in joint ventures with other oil companies.
Co. and its subsidiaries are principally engaged in the exploration, drilling, production and sale of crude oil and gas and other products.
Pakistan Petroleum Limited (PPL) is a supplier of natural gas. The Company is principally engaged in conducting exploration, prospecting, development and production of oil and natural gas resources. The Company operates nine producing fields, which include Sui, Kandhkot, Adhi, Mazarani, Chachar, Adam, Adam West, Shahdadpur and Shahdadpur West. It has working interests in approximately 20 partner-operated producing fields. Its partner-operated fields include Qadirpur Gas Field, Tal Block, Miano Gas Field and Sawan Gas Field. The Company, along with its subsidiaries, has a portfolio of approximately 40 exploration blocks, of which over 20 are operated by the Company, including Block-8 in Iraq, while approximately 20 blocks consisting of three offshore leases in Pakistan and two onshore concessions in Yemen are operated by joint venture partners. Its gas production from its operated and partner-operated fields is approximately one billion cubic feet of gas per day.
BMA is amongst the leading financial groups in Pakistan. BMA Capital’s core areas of business include Capital Markets, Corporate Finance & Advisory, Asset Management, and Financial Products Distribution. BMA Capital is the leader in privatisation advisory in Pakistan, having successfully advised on over 50% of all privatisations in Pakistan, by value, in transactions valued in excess of US$4 billion. Recent transactions include joint lead managing the $813 million GDR Offering of 10% of OGDCL on the London Stock Exchange in 2006-07, and advising Etisalat on their successful acquisition of a 26% strategic stake in Pakistan Telecommunications Company Limited (PTCL) for US$2.6 billion, the largest M&A transaction and foreign direct investment in Pakistan’s history. The firm is among the top brokers in the Pakistan equity and treasury markets, and is among a handful of firms that comprehensively cover all segments of the capital markets. This is supported by a very strong and independent research capability, which is quoted regularly in both local and international media. BMA Capital’s retail brokerage brand, BMA Trade, has launched a nationwide network of branches as well as a comprehensive online trading platform, enabling investors across Pakistan to take part in the capital markets.
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