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1、,Rise of Energy Infrastructure,2013 Oil&Gas Industry Outlook,China Merchant Securities(H.K.)Ltd Research Dept,Michael Yuk,Dec 2012,Overview,Chinas energy focus is shifting from import-dependent oil,towards domestically produced natural gas.Energyinfrastructure needed.,We predict natural gas pipeline
2、s will be the new bottleneck in,China with only 3Tcf/y capacity by 2015,only 60%ofrequired capacity.,Chinas RMB1tn infrastructure spending and rise in NOCs,capex will pave way for new construction projects.,Brent crude oil should remain steady averaging US$110/bbl,during 2013.This will continue to e
3、ncourage new investmentin production,benefiting equipment and service providers.,Stock picks:Chu Kong Petroleum&Nat.Gas Pipe Ltd.,(01938.HK),Hilong Holdings(01623.HK),China OilfieldServices(02883.HK).,Table of Contents,Chinas energy development,Outlook for oil majors,Mid/Small cap stock picks,Tcf,Ch
4、inas vast natural gas reservesChina&U.S.natural gas reserves1000900800700600500400300200,100,Population,0,USA,China,density of400+people/km2,Source：IEA,EIA,China Ministry of Land&ResourcesChinas Ministry of Land&Resources estimates China has 25.1Tcm or 886.0Tcf ofexploitable onshore shale gas reserv
5、es,almost double current U.S.reserves.However,population density is still heaviest along coastal regions.Hence,the nation needs to rapidly develop it gas natural gas transmission network,Chinas natural gas reach far behind US,Source：CNPC,The length of Chinas natural gas pipeline network is only 1/8t
6、h of the US.Chinas NDRC has set the goal of doubling total gas pipelines from 50,000km to100,000km by 2015.Aggressive pipeline expansion is part of the countrys energy security plan.,New pipelines skewed towards natural gas,Dia.4-10 in.,12-20 in.22-30 in.32+in.,Total,4-10 in.,12-20 in.22-30 in.32+in
7、.,Total,Area,KMGas Pipelines,KMCrude Oil Pipelines,US,640,256,320,1,216,34,749,432,120,1,334,Canada,230,230,139,139,Latin America,202,496,46,744,717,717,Asia-Pacific,48,302,2,478,4,475,7,304,96,32,128,EuropeMiddle EastAfrica,1,562,1,562-,427,427-,Total Gas,48,1,144,3,230,6,634,11,056,130,781,432,1,4
8、03,2,746,World Total,GasCrudeTotal,48130178,1,1447811,925,3,2304323,662,6,6341,4038,037,11,0562,74613,802,Source:OGJIn 2012,operators completed over 13,800km of oil and gas pipelines at a cost ofUS$39.6bn.Completed pipeline construction rose 6.7%from the previous year.Natural gas making up 78%of tot
9、al new pipelines,with Asia-Pac comprising 66%ofnew gas lines.,-,Global pipeline construction to accelerate,Dia.4-10 in.,12-20 in.22-30 in.32+in.,Total,4-10 in.,12-20 in.22-30 in.32+in.,Total,Area,KMGas Pipelines,KMCrude Oil Pipelines,USCanadaLatin America,362,61183822,1,8291,200195,941455,187,3,7422
10、,0835,405,4821,629254,70745347,3,4421,514347,4,6303,187949,Asia-Pacific,304,1,355,5,722,15,422,22,803,107,312,3,245,3,664,Europe,421,1,563,4,386,6,370,883,883,Middle East,248,406,54,4,589,5,298,469,480,949,Africa,21,21,4,104,4,146,Total Gas,934,3,675,10,563,34,674,49,846,576,2,677,1,579,9,430,14,262
11、,World Total,GasCrudeTotal,9345761,510,3,6752,6776,352,10,5631,57912,142,34,6749,43044,104,49,84614,26264,109,Source:OGJFor projects after 2012,more than 64,000km of new pipes are to be laid,spendingroughly US$203bn.Gas-to-crude oil pipeline ratio 3.5:1.Asia-Pacific will account for 41.2%of new pipe
12、s or 26,467km(more than twice theEarths diameter).,Gas pipelines:the new bottleneck in China,km 0006005004003002001000,Natural gas pipeline length,bcf/y120001000080006000400020000,5Tcf/y by 2015,Natural gas demand,China-2009,China-2010,China-2015,U.S.-Current,1995,2000,2005,2010,2015,2020,2025,2030,
13、2035,2040,Source：EIA,CMS(HK)Ltd.Chinese government plans to boost natural gas 10%of total energy consumption by2020.Gas demand by 2035 to reach 11Tcf/y,with 5%annual growth.However,we estimate China will only have 3.0Tcf/y of pipeline capacity by 2015,2.0Tcf/y less than natural gas demand.NOCs opera
14、te trunk pipelines,while local transmission networks are operated byvarious local distribution companies.This has prevented the emergence of a nationalgas transmission grid in China.,Major pipeline contractsLarge Scale Pipeline Projects,PetroChinas WEPP IIPetroChinas WEPP IIIWEPP III BranchlinesEast
15、 Siberia Pacific Ocean oil PipelineMyanmar-to-China crude oil pipelineMyanmar-to-China gas pipelineWEPP IVWEPP VTotal,Completed5,471km8,000km922km2,402km2,806kmPlanningPlanning19,671km,Source：CNPC,CMS(HK)Ltd.There are already over 19,000km of pipeline projects on hand.Major pipeline projects to watc
16、h include:1.The twin barrel Myanmar-China pipeline,which will cost an estimatedUS$2.54bn to compete.2.WEPP III(ex-branchlines),estimated cost for the should be approximatelyUS$14.6bn.,Infrastructure spending supports hypothesis,Source:Davis Langdon,At over US$900bn spent during 2011,China drives glo
17、bal infrastructure spending.A RMB1tn(US$158bn)infrastructure spending plan was recently approved by the,government.Projects will begin construction over the next 1-2 years.,To avoid over-stimulating,the government wants to wean away from housing and“bridges to no where”.Energy related infrastructure
18、 projects provides good alternative.,NOCs E&P spending balloons,RMBmn300000,PetroChina,Sinopec,CNOOC,RMBmn90000,PetroChina nat.gas&p/l spending,80000,250000200000150000100000500000,700006000050000400003000020000100000,2006,2007,2008,2009,2010,2011,2012E,2006,2007,2008,2009,2010,2011,2012E,Source：The
19、 Companies,CMS(HK)Ltd.China E&P capex has recovered from 2009 trough growing at 7.7%CAGR since2009 and at 10.0%yoy for 2012 shows signs of acceleration.Natural gas capex has also accelerated growing by 22%yoy for 2012.All Chinese NOCs have emphasized continual increase in E&P and natural gas capexov
20、er the next 5-10yrs.Key driver:Unconventional&Shale gas.,1985,1990,1995,2000,2005,2007,2008,2009,2010,2011,2012,2013,2014,2015,2016,2017,2018,2019,2020,1985,1990,1995,2000,2005,2007,2008,2009,2010,2011,2012,2013,2014,2015,2016,2017,2018,2019,2020,Shale could be answer to rising imports,mmcm600000500
21、000400000,Without shale gas,80%60%40%,mmcm600000500000400000,With shale gas,60%50%40%30%,300000,300000,20%,2000001000000,20%0%-20%,2000001000000,10%0%-10%-20%,Nat.gas consumption,Nat.gas production,Import dependency(%),Nat.gas consumption,Nat.gas production,Import dependency(%),Source：NDRC,CMS(HK)Lt
22、d.estimatesChinas net import of natural gas has been growing at a 17%3-yr CAGR,whiledomestic gas production has only grown at 8%CAGR.NDRC has set a goal of at least 60bcm/y(2,118bcf/y)of shale gas production by 2020.Without shale gas Chinas natural gas import dependency would reach 60%by 2020.With s
23、hale gas,import dependency would remain below 50%.,Shale gas goal benefits drillers,bcm706050403020100,Shale gas production profile,70006000500040003000200010000,Shales gas wells,2012,2013,2014,2015,2016,2017,2018,2019,2020,2021,2013,2014,2015,2016,2017,2018,2019,2020,Source：NDRC,CMS(HK)Ltd.estimate
24、sAssuming average production of 1mmcfd over the life of one gas well,we calculate677 shale gas wells need to be drilled by 2015,and over 5800 wells need to be drilledby 2020.Drillers are key beneficiary of Chinas aggressive push towards domestic shale gasproduction.,Table of Contents,Chinas energy d
25、evelopment,Outlook for oil majors,1)CNOOC Ltd.(00883.HK)2)Sinopec Corp.(00386.HK),3)PetroChina Co.Ltd.(00857.HK),Mid/Small cap stock picks,(X),17,15,13,11,9,7,5,Stock PickCNOOC Ltd.(00883.HK)CNOOC Ltd.is Chinas largest offshore oil producer.,Upward trend in crude oil prices,will lead to,12M Rolling
26、Forward PE,Mean,+2 Standard Deviation,-2 Standard Deviation,continued earnings improvement.With new oilfields coming online,CNOOCsproduction volume will continue to rebound duringFY13 with an estiamted 5%increase in organicproduction growth.Good cost control.CNOOCs all-in cost shouldremain at US$34.
27、60/boe,a 1.7%yoy decline versusFY12.Nexen-Opti acquisition allows CNOOC toconsolidate the 72,000 barrels-per-day bitumen,production capacity at Long Lake under one entity,which would facilitate a faster upgrade time.,Source：CMS(HK)Ltd.,Stock ticker,12M TP,EPS(RMB),P/E,Net Profit（RMBm）,（HKD）2012E 201
28、3E 2014E,2012E 2013E 2014E 2012E 2013E 2014E,CNOOC Ltd.(00883.HK),18.30,1.52,1.55,1.58,8.9,8.7,8.5,67,717 69,381 70,703,Source：CMS(HK)Ltd.estimates;Based on Dec 24,2012 closing prices,CNOOCs production has already recovered,mmboe1009080706050403020100,Crude Oil and Liquids,Natural Gas,Production Gro
29、wth QoQ%25%20%15%10%5%0%-5%-10%,1Q10,3Q10,1Q11,3Q11,1Q12,3Q12,1Q13E,3Q13E,Source：The Company,CMS(HK)Ltd.After a series of unfortunate events,decline in production growth has beenCNOOCs overhang.However,production growth has bottomed and recovery will continue to accelerate.Production recovery will c
30、ome from four new projects that have or will veryshortly come on line,which includes:1)Weizhou 6-9/6-10,2)Yacheng 13-4,3)Panyu 4-2/5-1 adjustment and 4)Liuhua 4-1.,35,30,25,20,15,10,5,0,Stock PickSinopec Corp.(00386.HK),Sinopec is Chinas largest refiner with over 50%market share in Chinas retail mar
31、ket.,(X),12M Rolling Forward PE,Mean,+1 Standard Deviation,-1 Standard Deviation,If inflation remains under control,changes in Chinasenergy policy helps boost Sinopecs profitability.Upstream production continues to recover withoverseas crude oil production increasing 82.5%yoy or5.03MMbbl making up n
32、early three-fourths of theproduction increase.Natural gas production continues to show stronggrowth increasing 14.1%yoy to 289.78bcf as thecompanys efforts and E&P investment to increaseproduction at gas fields such as Erdos gas field and,Sichuan Basin begin to bear fruit.,Source：CMS(HK)Ltd.,Stock t
33、icker,12M TP,EPS(RMB),P/E,Net Profit（RMBm）,（HKD）2012E 2013E 2014E,2012E 2013E 2014E 2012E 2013E 2014E,Sinopec Corp.(00386.HK),8.90,0.64,0.87,0.91,10.5,7.7,7.4,59,088 82,395 85,832,Source：CMS(HK)Ltd.estimates;Based on Dec 24,2012 closing prices,Refining recovery,loss to lessen,Refining Operating Prof
34、it/(Loss)-(RHS)RMB/bbl0-5-10-15-20-25-30-35,Unit Profit/(Loss)-(LHS)RMBmn0-2000-4000-6000-8000-10000-12000-14000,Source：The Company,CMS(HK)Ltd.Sinopecs refining operations would turn profitably if only the current refinedproduct pricing mechanism were fully followed.We estimate refining loss of RMB2
35、8.5bn for FY13E,20%less than FY12E.,30,20,15,10,5,PetroChina Co.Ltd(00857.HK),PetroChina is Chinas largest integrated oil major.,(X),12M Rolling Forward PE,Mean,+1 Standard Deviation,-1 Standard Deviation,Higher earnings multiple relative to other Chinese oil,majors.,25,Most leverage to changes in g
36、overnment policy,e.g.resource taxes and special oil gain levy(upstreamE&P),refined product price liberalization(refiningdivision),natural gas pricing reform(natural gas&p/l division).Expecting stable production in FY13 with productionincreasing 3%yoy to 1,360mmboe.Source：CMS(HK)Ltd.,Stock ticker,12M
37、 TP,EPS(RMB),P/E,Net Profit（RMBm）,（HKD）2012E 2013E,2014E 2012E 2013E 2014E,2012E,2013E,2014E,PetroChina Co.Ltd(00857.HK),10.55,0.65,0.71,0.74,13.1,12.0,11.5,131,220 143,037 149,683,Source：CMS(HK)Ltd.estimates;Based on Dec 24,2012 closing prices,Natural gas business becoming second overhangOperating
38、Profit-Natural gas&P/LRMBmn800070006000500040003000200010000,-1000 1Q11,3Q11,1Q12,3Q12,1Q13E,3Q13E,-2000,Source：The Company,CMS(HK)Ltd.,PetroChinas natural gas business has turned loss-making due to rising natural gasand LNG imports.Natural gas business will continue to be loss-making if natural gas
39、 pricing reformis not implemented.However,compared to Chinas refined product price reform,natural gas pricingreform is much more difficult.,Table of Contents,Chinas energy developmentOutlook for oil majors,Mid/Small cap stock picks,1.Chu Kong Steel Pipe(01938.HK)2.Hilong Holding(01623.HK)3.China Oil
40、field Services Ltd,(02883.HK),HK Listed Oil Service and Equip Companies,Market Cap Price,PE(X),EPS(RMB),EPSCARG,Company Name,Ticker,(HKDmn)(HKD),11,12E,13E,11,12E,13E,11-13E,Oilfield Service Providers,China Oilfield ServicesAnton Oilfield ServicesSPT Energy Group,02883 HK03337 HK01251 HK,84,951.17,8
41、90.35,566.3,15.943.663.65,13.241.416.3,12.528.416.0,10.920.812.9,0.9000.0370.180,1.0290.1050.184,1.1780.1430.228,16.2%100.0%12.5%,Equipment Providers,Shandong MolongHongua GroupCIMC EnricChu Kong Steel PipeHilong HoldingChina AutomationShengli Oil&Gas PipeAnhui Tianda Oil Pipe,00568 HK00196 HK03899
42、HK01938 HK01623 HK00569 HK01080 HK00839 HK,8,062.98,843.29,399.43,882.84,105.72,155.21,910.01,370.4,3.182.716.803.822.582.080.751.36,8.421.89.710.710.313.016.353.9,N/A13.314.310.29.78.528.29.1,N/A10.611.58.28.26.717.214.8,0.2100.0520.6610.2300.2100.1940.0380.070,N/A0.1660.3830.3040.2140.2000.0220.12
43、0,N/A0.2090.4760.3750.2530.2530.0360.074,N/A103.5%(13.8%)29.7%11.5%16.2%0.0%4.4%,Offshore Equip Providers,TSC Group Holdings,00206 HK,1,310.9,1.92,11.1,20.6,27.5,US$0.005 US$0.012 US$0.009,32.6%,Jutal Offshore Oil Svcs,03303 HK,710.5,1.13,57.2,N/A,N/A,0.017,N/A,N/A,N/A,AverageMedian,21.813.2,15.513.
44、3,13.611.5,Source：Companies,CMS(HK)Ltd.;Based on Dec 24,2012 closing prices,Subsector key statistics,Oil Service,Onshore Equipment,Offshore Equipment,No.of companiesMedian market cap(HK$mn),37,890,83,994,21,010,Valuation(ex-earnings),P/B(X)Dividend yield%Free-cash flow yield%,3.30.70.8,1.11.8(8.7),0
45、.90.0(4.0),Growth,RevenueGross ProfitOperating ProfitPBTNet Profit,21.0N/A26.49.25.4,52.343.230.636.942.9,5.92.319.6(69.2)(80.3),Profitability Ratio,Gross Margins%Operating Margins%Net Margins%ROAA%ROAE%,30.021.113.98.816.3,20.910.07.45.09.8,29.05.32.23.56.8,Source：Companies,CMS(HK)Ltd.;Based on Dec
46、 24,2012 closing prices,Stock Pick Chu Kong Steel Pipe(01938.HK)Chu Kong is Chinas largest manufacturer of LSAW(lateralsubmerged arc weld)steel pipes.Its LSAW pipes are theonly ones that meet offshore and deep sea oil and gas usage.FY13 is expected to be a strong year for sales.We expectsteel pipes
47、sales will reached 600,000tonnes,a 20%yoyincrease versus FY12.FY12 ASP increased 10.2%yoy to RMB7,832/tonne,whichwe view as evidence that the company is able to pass-on costincreases to end users.Gross margins increased 80bps to 17.3%even though thecompany implements a“cost-plus”mechanism for its st
48、eelpipe orders,which implies company is benefiting from timelag between receiving orders and purchasing raw materials.,Stock ticker,12M TP,EPS(RMB),P/E,Net Profit（RMBm）,（HKD）2012E 2013E 2014E,2012E 2013E 2014E 2012E 2013E 2014E,Chu Kong Steel Pipe(01938.HK),4.10,0.29,0.35,0.40,10.1,8.4,7.3,298,354,4
49、07,Source：CMS(HK)Ltd.estimates;Based on Dec 24,2012 closing prices,Stock Pick Hilong Holding(01623.HK)Hilong Holdings is the largest drilling pipe producer in Chinaand ranked 2nd globally(30%Schlumberger,Weatherford,andGazprom for oversea markets.New land rigs to support strong growth in oil service
50、s division,which have already seen a 40%yoy increase in segment revenue.Possible valuation rerating as division matures.The company is also the dominant leader in coating material andservices capturing 60%-67%of the China market and ranked 2ndglobally.,Stock ticker,12M TP,EPS(RMB),P/E,Net Profit（RMB
