“I think [prices] could fall below $100 a barrel on slowing global demand and rising production in the US, Brazil and Canada, and from OPEC states such as Saudi Arabia and Angola.” - Energy Information Administration (EIA) Chief Guy Caruso –Tuesday (August 26, 2008) at Platts Energy Podium in Washington
In response to an audience member’s question at the Platts Energy Podium, asking whether he sees a short term scenario where oil prices dip below $100, Caruso says “I think it could, obviously we are not projecting that but the real key is of course the global economy …over the next year or so. Whereas If you got real weakness in demand, it happens to be that we are actually, we think we are going get some significant increases in non OPEC supplies over the next year or so, starting with our own country with more deep water coming online, in addition we have the increases in Brazil and Canada and then in OPEC - Angola, and Saudi’s adding capacity. So I’m building up a scenario here where if you got a weak demand year (close to little or no growth) and the increases in non OPEC supply capacity along with the growth that we are expecting in Saudi, Angola capacity and couple of other OEPC countries. Again this is highly dependant on not having more problems in Nigeria or elsewhere. You could get a scenario where spare productive capacity starts pushing up in the 3-4 million barrel a day range, whereas it’s maybe 1.5 million barrels/day right now – that’s when it opens up the possibility that you get conflict within OPEC about setting production quotas.”
My Take: I think the evident weakness in American oil demand is more than being made up by non-OECD and emerging economies and that is the likely the key going forward. Sure, the price of oil could temporarily dip below $100 (due to other factors such as movements in the U.S. dollar, statements from high level government officials etc.) but I don’t think it will stay there for long. Besides, what’s going to cure the problems in Nigeria? Fundamentally, I believe the price of oil is on the up and up.
For more on the fundamental Oil and Gas picture and various Canadian energy stocks – click here to view Oil and Gas specialist, Josef Schachter, President of Schachter Asset Management impart his opinions on BNN on August 26, 2008
Update on Oilexco (OIL: TSX)
Oilexco recently reported its numbers for the second quarter, with cash flow per share of $0.74 and EBITDA of $171.7 million. Production came in at 17,073 Boe/d and were slightly shy of estimates due to maintenance downtime of approximately 15 days in the quarter. However, sales volume came in at 20,606 Boe/d. due to a Q2/08 production overlift.
Looking forward into Q3/08, Oilexco informed investors that production volumes will be affected by a 3-4 week shut-in in August as a result of annual maintenance on the Balmoral FPV and facility upgrades.
During Q2/08, Oilexco reported the commencement of drilling at the first of two production wells at Shelley. Management expects first production from Shelley in Q4/08. The fifth well at Brenda was also completed and tied in at production rates of 7,800 b/d. Furthermore, successful appraisal wells were drilled at Balmoral and Blaydon (in Block 16/21). An appraisal well also commenced at the redevelopment Caledonia field and depending on success or failure, Oilexco will drill a horizontal well in Q4/08 that is expected to begin production in Q1/09. Moreover, Oilexco also reported successful exploration wells at Moth and Delta.
Oilexco is expected to cash flow an estimated $3.33/sh for 2008, $6.58/sh for 2009 and $9.36/sh for 2010. The aforementioned cash flow estimates are expected to stem from production volumes of approximately 22,800 boe/d for 2008, 41,000 boe/d for 2009 and 60,364 boe/d for 2010.
With regards to valuation, BMO Capital Markets analyst Mark Leggett writes “Oilexco’s shares currently trade at discount 2009E multiples of 2.2x P/CFPS, 2.2x EV/EBITDA and 0.6x P/NAV versus the Canadian peer group. Our target price implies 2009E valuation multiples of 4.0x P/CFPS, 3.8x EV/EBITDA and 1.1x P/NAV (2014E+ Brent US$98.50/bbl).” Leggett has an Outperform rating on Oilexco.
Similarly, CIBC World Markets analyst Robert Pare writes “With the company trading at 1.5x our base NAV estimate, we believe the market is ascribing significant value to Oilexco’s high impact discoveries at Huntington and Moth. However, we do not believe the full upside of these discoveries has yet been reflected in the stock price. Offering ~$21.00/share of unrisked resource upside on predominantly development activity, we believe Oilexco’s valuation has moved to a compelling level. We are upgrading Oilexco to a Sector Outperformer rating and reiterating our $25.00 price target (unchanged).”
Disclosure: I do not own any Oilexco.
Do Your Own Due Diligence !
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Last update : 25-11-2008 06:17
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