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1、Top picks,Hold,Deutsche BankMarkets Research,Global Emerging MarketsBrazilOil&Gas,IndustryBrazil Oil and Gas,Date26 November 2012Breaking NewsMarcus Sequeira,HRT farms out;OGX farms inHRT farms down 3 Namibian licenses,OGX farms in BS-4HRT divested 14%of three licenses in Namibia while OGX announced
2、 theacquisition of 40%of BS-4.We see the news as more positive for HRT than forOGX.The two companies have a challenging financial condition:OGX haslimited cash flow generation and a growing net debt position,while HRT hascurrently no cash flow generation and a limited cash position versus itsexplora
3、tion program.QGEP remains our favorite way to gain exposure to thespace,although we see the farm in of OGX in BS-4 as concerning for QGEP.OGX adds 40%stake in BS-4 to its portfolioThe company announced the acquisition of Petrobras 40%stake in BS-4 forUSD270mn,a premium of 29%versus the price paid by
4、 QGEP in August 11.The BS-4 project comprises the ultra-deep heavy oil Atlanta and Oliva fields.,Research Analyst(+1)212 250-Luiz FonsecaResearch Analyst(+55)11 2113-Queiroz Galvao E&P(QGEP3.SA),BRL13.58 BuyCompanies FeaturedHRT Participacoes(HRTP3.SA),BRL5.312011A 2012E 2013E,The fields contain 2.1
5、bn bbls of oil in place,of which 15-19%is believed to be,EPS(BRL),-1.32-0.88-0.43,recoverable.The development of the block is planned for 2H13 and the first oil,P/E(x),for 2014.The block has also pre-salt potential,being located close to the largediscoveries of Libra and Franco.During the 3Q12 earni
6、ngs conference call,theblocks operator QGEP declined to comment on annual capex planned for thefull development of the area.,EV/EBITDA(x)OGX(OGXP3.SA),BRL4.87 Sell2011A 2012E 2013EEPS(BRL)-0.15-0.32-0.07,Net/net for OGX is negative:balance sheet constraints and impact on portfolio,P/E(x),On the posi
7、tive side,the transaction adds an asset with lower monetizationrisk.However,the acquisition raises the following questions:(1)given thecompanys consistently positive speech on its Campos basin portfolio,why isOGX venturing into more expensive deep offshore production?(2)is BS-4 pre-salt potential bi
8、g enough to justify this move?(3)given the companys balancesheet(current net debt of USD1.5bn and rising),is it worth for OGX to commitmore capital?(4)What does this acquisition mean for the remainder of OGXsportfolio(Santos,Espirito Santo,Para-Maranhao,Colombia(and to a lesserextent,Parnaiba)?Final
9、ly,we are concerned about the entrance of a partnerwith limited financial resources for the group and operator QGEP.HRT farms down 14%of three licenses(six blocks)in NamibiaThe company announced an agreement with GALP(GALP-LIS,Hold,EV/EBITDA(x)Queiroz Galvao E&P(QGEP3.SA),BRL13.58 Buy2011A 2012E 201
10、3EEPS(BRL)0.35 0.32 0.84P/E(x)51.9 42.1 16.2EV/EBITDA(x)41.3 22.2 9.6Petrobras(PBR.N),USD18.78 Hold2011A 2012E 2013EEPS(USD)2.94 1.62 2.32P/E(x)10.9 11.6 8.1EV/EBITDA(x)7.5 6.9 6.3,EUR12.22)for the farm down of a 14%stake in three licenses in Namibia.HRTwill remain the operator of the PELs,planning
11、to start the drilling campaign in1Q13.GALP will carry part of HRTs costs,limited by a cap(not disclosed)associated with the drilling of three wildcat wells in 2013.Net/net:transaction is positive for HRT but big challenges remainThe transaction is positive for HRT as it reduces the capex for the exp
12、lorationof these blocks.However,with USD580mn in cash(expectation of Capex+Opex of USD360mn in 2013,net of divestitures),no cash flow generation anddim perspectives of getting external financing,HRT needs to farm down moreassets and cut costs to adjust to the challenging time until the company is ab
13、leto monetize its gas discoveries and/or find commercial oil.Valuation and risksOur valuation is DCF based.Main upside risks:improvement in economicactivity,lower government interference.Main downside risks:weakercommodity prices,unfavorable exploration results.Please see details on pg 5._Deutsche B
14、ank Securities Inc.Deutsche Bank does and seeks to do business with companies covered in its research reports.Thus,investors shouldbe aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors shouldconsider this report as only a single factor in m
15、aking their investment decision.DISCLOSURES AND ANALYSTCERTIFICATIONS ARE LOCATED IN APPENDIX 1.MICA(P)072/04/2012.,26 November 2012Oil&GasBrazil Oil and GasBrazilian E&PHRT farms down 3 Namibian blocks,OGX farms in BS-4Busy day for the Brazilian E&Ps,with both HRT and OGX announcing M&Atransactions
16、:HRT divested 14%of three exploration licenses in Namibia while OGXannounced the acquisition of 40%of BS-4.We see the announcements as morepositive for HRT than for OGX.In common,the two companies have a challengingfinancial condition:OGX has limited cash flow generation and a growing net debtpositi
17、on,while HRT has no cash flow generation and a limited cash position versus itsexploration program.QGEP remains our favorite way to gain exposure to the space,although we see the farm in of OGX in BS-4 as concerning for QGEP.OGX farms in BS-4 from PetrobrasThe transaction:OGX announced the acquisiti
18、on of Petrobras 40%stake in the BS-4block,located in the Santos Basin.The block is operated by Queiroz Galvao E&P(30%stake),with partner Barra Energia(30%stake).Financial consideration:OGX will pay Petrobras USD270mn for the stake.In August 24,2011,QGEP paid USD157.5mn for a 30%stake,valuing the who
19、le block at USD525mn.The price paid by OGX values the whole block at USD675mn,or a 29%premium to theprice paid by QGEP.Since the acquisition by QGEP and Barra Energia,no drilling hasbeen performed in the block,so the price uptick should indicate a higher scarcitypremium attributed to Brazilian E&P a
20、ssets,given the absence of ANPs Round sales.We note that since Aug11,Brent prices remained essentially unchanged.The asset:The BS-4 project comprises the joint development of the Atlanta and Olivafields,which are located in the ultra-deep water of the northern part of the SantosBasin.The fields cont
21、ain 2.1bn bbls of oil in place,of which 80%is located in theAtlanta field.The oil is heavy,of 14-16 API.According to the Development Plansubmitted to the ANP,the recovery factor of the fields is between 15-19%,translatinginto recoverable oil of 315 to 399mn bbls.As such,OGX paid USD2.14-1.69/bbl.Acc
22、ording to the blocks operator,QGEP,the Development plan includes a system forearly production for a period of 3 years with the drilling of 2 horizontal wells.The finaldevelopment of the field,planned for 2017/2018 calls for a FPSO with a capacity of 80-100tbpd connected to ten additional horizontal
23、wells.The start of the development ofthe block is planned for 2H13 and the first oil expected for 2014.QGEP is currently innegotiations for the acquisition of the equipment and materials needed for the start ofdevelopment.The block has also pre-salt potential,being located close to the largediscover
24、ies of Libra and Franco.The company plans to start drilling the pre-saltprospect Piapara late 2013.The pre-salt well is expected to cost USD80mn(net forQGEP).During the 3Q12 earnings conference call,QGEP declined to comment on theannual capex planned for the full development of the BS-4 block until
25、the DevelopmentPlan is approved by the regulator.Our view for OGX is mostly negative:on the positive side,the transaction adds anasset with lower monetization risk.However,the acquisition raises the followingquestions:(1)given the companys consistently positive speech on its Campos basinportfolio,wh
26、y is OGX venturing into more expensive deep offshore production?(2)isthe pre-salt potential big enough to justify this move?(3)given the companys balance,Page 2,Deutsche Bank Securities Inc.,26 November 2012Oil&GasBrazil Oil and Gassheet(current net debt of USD1.5bn and rising),is it worth for OGX t
27、o commit morecapital for the development of BS-4?(4)what does this acquisition mean for theremainder of OGXs portfolio(Santos,Espirito Santo,Para-Maranhao and Colombia-where OGX acquired one additional field in the Ronda 2012)?We are less concernedabout Parnaiba.During the 3Q12 earnings conference c
28、all,management stressed thelimited financial commitment for the exploration of the new field in Colombia.Impact for partners QGEP and Barra Energia:we are concerned with the entrance of apartner with limited financial resources to the group,replacing Petrobras.,Figure 1:BS-4 and adjacent blocks in t
29、he Santos basinSource:Deutsche Bank and Wood Mackenzie.,Figure 2:Details of the BS-4 blockSource:Deutsche Bank and Wood Mackenzie.,HRT farms down 14%stake in three exploration licenses(sixblocks)in NamibiaThe transaction:HRT announced an agreement with GALP(GALP-LIS,Hold,EUR12.22)for the farm down o
30、f a 14%stake in three Petroleum Exploration Licenses(PEL)inNamibia,one in the Walvis basin:PEL 23,comprised by the 2112B and 2212A blocksand two in the Orange basin:PEL 24,comprised by the 2713A block and PEL 28(2813A,2814B and 2914A blocks).HRT will remain the operator of the PELs and plansto start
31、 the drilling campaign in 1Q13.Financial consideration:GALP will carry part of HRTs costs,limited by a cap(notdisclosed)associated with the drilling of three wildcat wells in 2013 in areas alreadyidentified and with defined prospects(two prospects in PEL23 likely Murombe andWingat and one prospect i
32、n PEL24).The agreement does not call for the reimbursementof seismic acquired by HRT.The assets are shown on Figure 3 and Figure 4.The main targets of these prospectshave a combined estimated gross recoverable resource of almost 8 billion bbl(unriskedmean estimate)with a probability of success betwe
33、en 20-30%,resulting in 1.6-2.4bnbbl of risked resources).We note the frontier nature of Namibia,with only oneproducing asset:the natural gas Kudu field.Our view for HRT is positive on the transaction but very cautious on the story:thefarm down of part of the Namibian assets is positive for HRT as it
34、 reduces the capitalexpenditure for the exploration of these blocks.However,with USD580mn in cash(andexpectation of Capex+Opex of USD360mn in 2013),no cash flow generation and dimperspectives of getting external financing,HRT needs to continue to farm down assets.,Deutsche Bank Securities Inc.,Page
35、3,26 November 2012Oil&GasBrazil Oil and GasThe company has recently announced the intention to divest part of its Solimoes basinportfolio and noncore assets(transportation assets in the Amazons).Moreover,HRT hasembarked on an aggressive(but welcomed)cost reduction program with personnelcuts and a co
36、nsiderable slow down on exploration activity in the Solimoes basin versusinitial expectations.Considering that the company concluded its IPO not too long ago(late 2010),wequestion the company managements decision to originally dimension its operations forthe best case scenario(quick monetization of
37、oil in the Solimoes,which has not beenfound yet).,Figure 3:Details of PEL 23Source:Deutsche Bank and Wood Mackenzie.Page 4,Figure 4:Details of PELs 24 and 28Source:Deutsche Bank and Wood Mackenzie.Deutsche Bank Securities Inc.,26 November 2012Oil&GasBrazil Oil and GasValuation and Risks:OGX:We have
38、performed a detailed NAV calculation for OGX,on a project-by-projectbasis in the Campos basin and Parnaiba basins(for the gas that has been contracted).We use DBs oil curve for 2012,2013 and a long-term oil price for pre-operational OGXof$80/bbl.The main upside risks are:better-than-expected flow ra
39、tes,lower production costs(mainly the need for fewer wells),early monetization from to asset sales(which we findhighly unlikely given unfavorable indication from the Campos basin fields and earlyexploratory stage of fields in the other basins).QGEP:We have performed a detailed NAV calculation for QG
40、EP,on a project-by-projectbasis,for all of QGEP prospects mapped by Gaffney,Cline and Associates(GCA).Webelieve that this is the best way to value QGEP at this point,given that the areas arepre-operational.Individual prospect analysis also enables us to respond to the positiveand negative news flow
41、regarding the exploratory results of each prospect.We havealso used a DCF model for QGEPs producing asset Manati.The main risks are:Higher concentration of risk versus peers-QGEP has currently 7blocks on its portfolio,well below its peers.More gassy portfolio versus peers,butthat could change:QGEPs
42、resource estimate is comprised of 75%natural gas and only25%oil,while the portfolio of its peers is more balance and mostly oil based.Exploration risk-QGEPs story is based on the companys ability to successfullydevelop and monetize its blocks.However,its oil and gas resources are estimates.Those est
43、imates are the base of our valuation for the stock.If estimates are provedwrong,there will be a negative impact on our valuation.E&P companies are subject toproduction delays and cost overruns.Partnership with Petrobras and local content risk-Petrobras is,in most cases,the operator of the blocks.The
44、refore,the speed at whicheach project is developed could suffer delays as they compete with other projects thatare part of Petrobras vast portfolio.HRT:We use the$/BOE NAV of each prospect based on assumptions from the D&Mreport which provides estimates for volumes,costs and capital expenditure(adju
45、stedfor the probability of geological success or Pg).Our price target incorporates DBs crudeoil prices estimate of$110/bbl.We are conservatively using a discount rate of 13%.Weassign a zero value for gas in Solimoes and zero for the Namibian portfolio.Main downside risks:HRT is a pre-operational com
46、pany.As such,valuation is based onthird party resource estimate,which could not materialize.Exposure to new frontierNamibia and environmentally sensitive Solimoes basin could prove challenging areasfor oil production.Main upside risks:discovery of commercially viable oil in Solimoesand Namibia,abili
47、ty to monetize both provinces profitably.Petrobras Our PT is derived using DCF analysis.Our DCF assumptions include aUS$110/barrel long term oil price forecast.We use the DCF methodology because weconsider it a superior indicator of value to multiples,as it relies on free cash flowsgenerated over a
48、longer period of time rather than the profitability of a single year.OurWACC of 10.1%is based on 30%leverage and 9.2%after-tax cost of debt.We alsoassume 10.4%cost of equity based on a 1.9%sovereign risk premium that reflectsBrazils risk improvement over the past year,a 3.0%risk free rate and a 5.5%
49、equity riskpremium(historical average),along with a 1.0 Beta to the local market and a 3.0%terminal growth rate(which is below long term inflation expectations for Brazil).,Deutsche Bank Securities Inc.,Page 5,26 November 2012Oil&GasBrazil Oil and GasUpside risks to our Hold recommendation include:1
50、)sooner-than-expected recovery inoil prices and 2)increased flows into Emerging markets,which tend to benefitPetrobras due to its high liquidity.Downside risks include:1)lower-than-expected oilprices,2)delays in Petrobras execution of the production schedule,3)interference fromPetrobras main shareho
