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Published on 14/03/2019 11:19:35 AM | Source: ICICI Securities Ltd

Oil And Gas Sector - Permian story turns more robust on Exxon-Chevron’s mega plans By ICICI Securities

Posted in Broking Firm Views - Sector Report| #Oil and Gas Sector #Sector Report #ICICI Securities

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Permian story turns more robust on Exxon-Chevron’s mega plans

Key recent developments / data-points in the oil & gas sector are:

* Chevron (0.9m boepd) and ExxonMobil (1m bpoepd) last week announced plans to boost their Permian output 3.3x to 1.9m boepd by CY23-CY24.

* Libya’s largest oilfield (315k b/d) El Sharara restarted last week; it was shut due to force majeure imposed since early-Dec’18.

* US oil output was down 5k b/d WoW at 12.1m b/d, but inventory was up 7.1m bbls WoW in the W.E. 1-Mar’19; US oil rig count was down by nine last week.

* Singapore GRM at US$2.77/bbl in Q4FY19-TD is down 36% QoQ and 60% YoY; OMCs’ Q4-TD GRM is estimated at US$3.0-3.3/bbl.

* Net auto fuel marketing margin at Rs4.66/l (up 263% YoY) in Q4FY19E (Rs5.14/l in Q4FY19-TD) to boost OMCs’ EPS by Rs3.8-11.5/share QoQ.

 

* Chevron and ExxonMobil plan to boost their Permian output by 3.3x by CY23- CY24:

ExxonMobil last week announced that it plans to boost Permian output to 0.8m boepd by end-CY22 and to over 1m boepd by CY24; this implies 100% YoY volume growth seen in CY17-CY18 continuing up to CY22 and 5x jump by CY24 from CY18 levels. ExxonMobil said its investments in the Permian basin are expected to produce double-digit returns even at low oil prices with average return of over 10% even at oil price of US$35/bbl. Chevron announced plans to boost its Permian output from 377k boepd (up 84% YoY) in Q4CY18 to 600k boepd by end-CY20 and 900k bpoepd by end-CY23. Both ExxonMobil and Chevron also plan to increase their refining capacity to use the light and sweet Shale oil.

 

* Permian story more robust now:

Proved oil reserves in the US jumped 20% YoY in CY17 driven by surge in Permian basin reserves as per EIA. Permian with 8.3bn boe proved oil reserves became the largest tight oil play in the US. USGS has estimated big upside with undiscovered risked oil resources at 27bn-45bn boe in Delaware portion and 20bn boe in the Midland portion of the Permian basin. Now with oil majors driving growth instead of independents with weaker balance sheets, the Permian story is not only getting bigger, but also more robust.

* Singapore GRM recovery continues, but remains at 37-quarter low:

Singapore GRM last week was up 19% WoW and up 154% over the last six weeks to US$4.2/bbl. GRM has been boosted by strong growth in India’s consumption and steep fall in export of auto fuels in Jan’19, US refinery utilisation at 17-month low of 86.6% in Feb’19 and fall in US distillate and petrol inventories in the last three weeks. Saudi Arabia’s 400k b/d Yanbu refinery shutdown for maintenance for 55 days starting early-Mar’19 would also support GRM. However, GRMs are not out of the woods given 2.6m b/d refining capacity addition IEA expects in CY19, rising auto fuel exports from China (up 43%-52% YoY in Jan’19) and US (up 22%-23% YoY in Feb’19). 

 

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