Energy Capital: Will Wall Street Be There For Energy Financings Next Year? Raymond James Energy...
-
Upload
francine-neal -
Category
Documents
-
view
220 -
download
2
Transcript of Energy Capital: Will Wall Street Be There For Energy Financings Next Year? Raymond James Energy...
Energy Capital: Energy Capital: Will Wall Street Be There For Energy Will Wall Street Be There For Energy
Financings Next Year? Financings Next Year? Raymond James Energy GroupRaymond James Energy Group
Marshall Adkins
[email protected]@RaymondJames.comRaymond James Oilservice GroupRaymond James Oilservice Group(800) 945-6275 (800) 945-6275 June 2004
Will “The Street” Be There? Will “The Street” Be There?
2003 was the biggest equity offering year in two decades2003 was the biggest equity offering year in two decades
The equity window is still openThe equity window is still open
M&A activity (mostly sales by majors) is driving capital demandM&A activity (mostly sales by majors) is driving capital demand
Oil & gas prices will dictate future capital availabilityOil & gas prices will dictate future capital availability
2
E&P High Yield Offerings Driven by Rates E&P High Yield Offerings Driven by Rates
3
E&P High Yield Offerings vs 10-Yr Treasury
-
5
10
15
20
25
30
35
40
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004YTD
Cap
ital R
aise
d ($
MM
)
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
Inte
rest
Rat
e
Deals
10-Yr. Treasury Rate
2003 Record For E&P Equity Offerings2003 Record For E&P Equity Offerings
4
E&P Equity Offerings
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004YTD
Capi
tal R
aise
d ($
MM
)
-
5
10
15
20
25
30
35
Com
plet
ed O
fferin
gs
Capital Raised
Deals
2003 E&P Equity Offering 2003 E&P Equity Offering Performance Has Been Excellent Performance Has Been Excellent
5
2.5%
33.1%
9.9%5.5%
41.4%
86.3%92.7%
26.5%
36.9% 35.9%
57.0%
120.7%
64.8%
-0.5%
17.9%
33.1%
49.3%
29.4%
66.8%
-1.2%
-7.5%
15.7%
46.9%
30.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
XTO PXP DNR CRZO CHK DNR WRC KCS WLL EAC EPL FST BEXP TBI KWK NFX XTO EPL DNR SWN CHK THX APA FST
Ticker
% C
hang
e fro
m O
ffer P
rice
Average Change: 37.2%
E&P Equity Capital Raised vs. E&P Equity Capital Raised vs. Average Natural Gas Prices Average Natural Gas Prices
6
E&P Equity Capital Raised vs. Average Gas Prices
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004YTD
Tota
l Pro
ceed
s ($
MM
)
$1.0$1.5$2.0$2.5$3.0$3.5$4.0$4.5$5.0$5.5$6.0
Pri
ce
Capital Raised
Average Gas Prices
E&P Equity Capital Raised vs. E&P Equity Capital Raised vs. Average Oil Prices Average Oil Prices
7
E&P Equity Capital Raised vs. Average Oil Prices
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004YTD
Tota
l Pro
ceed
s ($
MM
)
$10
$15
$20
$25
$30
$35
$40
Pri
ce
Capital Raised
Average Oil Prices
Energy Prices Will Drive Wall Energy Prices Will Drive Wall Street Capital AvailabilityStreet Capital Availability
Long-term secular up-trend is intactLong-term secular up-trend is intact
Look for a late summer gas price squeeze Look for a late summer gas price squeeze
Oil fundamentals are solidOil fundamentals are solid
– More upside than downside More upside than downside
Is this a 1970’s re-run? Is this a 1970’s re-run?
8
We Are In A Long-Term Secular UpswingWe Are In A Long-Term Secular Upswing(Higher Highs, Higher Lows)(Higher Highs, Higher Lows)
9
OSX Historical Performance
0
20
40
60
80
100
120
140
160
Jan-
95M
ay-9
5S
ep-9
5Ja
n-96
May
-96
Sep
-96
Jan-
97M
ay-9
7S
ep-9
7Ja
n-98
May
-98
Sep
-98
Jan-
99M
ay-9
9S
ep-9
9Ja
n-00
May
-00
Sep
-00
Jan-
01M
ay-0
1S
ep-0
1Ja
n-02
May
-02
Sep
-02
Jan-
03M
ay-0
3S
ep-0
3Ja
n-04
Ind
ex
Source: Bloomberg
Trough 1 Trough 2
Peak 1 Peak 2
Trough 3
456% Return
199% Return
U.S. Rig Fleet Size Shows U.S. Rig Fleet Size Shows Long-Term Secular MovesLong-Term Secular Moves
10
Rig Fleet vs. CPI Adjusted S&P 500
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
6,000
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
Rig
s
25
50
75
100
125
150
175
200
225
250
275
S&
P 5
00
Rig Fleet S&P 500Source: Reed Hycalog, U.S. Dept. of Labor, RJ&A.
New-Builds
Rig Fleet Attrition & Bull Market Begin
S&P 500
Drilling Success Rates Are UpDrilling Success Rates Are Up
11
U.S. Total Drilling Success Rate
60%
65%
70%
75%
80%
85%
90%
95%
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Source: EIA
New Drilling Techniques Are Here To StayNew Drilling Techniques Are Here To Stay
12
Directional and Horizontal Rigs % of Total Rigs
20%
24%
28%
32%
36%
40%
Jan-
94
Jul-9
4
Jan-
95
Jul-9
5
Jan-
96
Jul-9
6
Jan-
97
Jul-9
7
Jan-
98
Jul-9
8
Jan-
99
Jul-9
9
Jan-
00
Jul-0
0
Jan-
01
Jul-0
1
Jan-
02
Jul-0
2
Jan-
03
Jul-0
3
Jan-
04
Source: Baker Hughes.
New Areas Are Now AccessibleNew Areas Are Now Accessible
13
Percent of Gulf of Mexico Wells Drilled in the Deepwater
0%
5%
10%
15%
20%
25%
30%
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
YT
D
Deepwater > 600 feetSource: Minerals Management Service.
But, We Are Drilling DeeperBut, We Are Drilling Deeper
14
Average U.S. Well Depth
4,000
4,500
5,000
5,500
6,000
6,50019
7319
7419
7519
7619
7719
7819
7919
8019
8119
8219
8319
8419
8519
8619
8719
8819
8919
9019
9119
9219
9319
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
04
Wel
l Dep
th (
in f
t.)
Source: EIA
40%
Searching For Smaller ReservesSearching For Smaller Reserves
15
Mean GOM Field Discovery Size
0.00
0.05
0.10
0.15
0.20
0.2519
47
1954
1959
1964
1969
1974
1979
1984
1989
1994
1999
Fiel
d S
ize
(BB
OE
)
Source: Minerals Management Service.
Which is Driving Decline Rates HigherWhich is Driving Decline Rates Higher
16
U.S. Natural Gas Production History Indicates 28% 2003 Decline Rate
15%
17%
19%
21%
23%
25%
27%
29%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
E
2002
E
2003
EPro
duct
ion
Dec
line
Rat
e of
Bas
e
Source: EOG Resources* Includes Data supplied by the P etroleum Information Corporation
How Will More Rigs Affect Production?How Will More Rigs Affect Production?
17
U.S. Oil Rigs vs. "Lower 48" Oil Production
0
500
1,000
1,500
2,000
2,500
3,000
3,50019
70
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
Source: DOE
Rig
s
6,000
6,500
7,000
7,500
8,000
8,500
9,000
9,500
10,000
MB
bls
Pe
r D
ay
Oil Rigs Oil Production
Oil Rigs
"Lower 48" Oil Production
Today’s U.S. Gas Production Is Today’s U.S. Gas Production Is Replay Of 1970’s Oil ProductionReplay Of 1970’s Oil Production
18
200
300
400
500
600
700
800
900
1,000
1,100
12/9
6
5/97
10/9
7
3/98
8/98
1/99
6/99
11/9
9
4/00
9/00
2/01
7/01
12/0
1
5/02
10/0
2
3/03
8/03
1/04
6/04
E
Rig
s
48.0
49.0
50.0
51.0
52.0
53.0
54.0
Bcf
/d
U.S. Gas Rig CountU.S. Company-Reported Production (12 MMA)EIA Reported Production (12 MMA)
U.S. Gas Rig Count vs. Reported Gas Production Forecast
EIA Reported Production
U.S. Gas Rigs
Source: EIA, BHI, RJ&A Est. Note: U.S. Gas Production incorporates a 6-month lag
U.S. Company-Reported Production
Recently Revised Down
Q1 Natural Gas Production Still DownQ1 Natural Gas Production Still Down
19
U.S. Natural Gas Production (MMcf/d)Category 1Q:04 4Q:03 1Q:03Majors & Gas Utilities 12,414 12,545 13,666
Estimated Sequential Change -1.0%Estimated Y-Y Change -9.2%
Independents 13,501 13,507 13,390 Estimated Sequential Change 0.0%Estimated Y-Y Change 0.8%
Total 25,915 26,052 27,057 Estimated Sequential Change -0.5%Estimated Y-Y Change -4.2%
Source: Company reports, JS Herold (all numbers pro forma for acquisitions and divestitures)
The Gas Market Is Working!The Gas Market Is Working!(Approaching 4 Bcf/day less gas vs. last year)(Approaching 4 Bcf/day less gas vs. last year)
20
Weather-Adjusted YOY Supply/Demand Change
(6.0)
(4.0)
(2.0)
0.0
2.0
4.0
6.0
3-Ja
n
24-J
an
14-F
eb
7-M
ar
28-M
ar
18-A
pr
9-M
ay
30-M
ay
20-J
un
11-J
ul
1-A
ug
22-A
ug
12-S
ep
3-O
ct
24-O
ct
14-N
ov
5-D
ec
26-D
ec
16-J
an
6-F
eb
27-F
eb
19-M
ar
9-A
pr
30-A
pr
Y-O
-Y W
ithd
raw
al D
iffer
entia
l
4 Week Moving Avg
Source: EIA, RJ&A.
LO
OS
ER
TIG
HT
ER
Y-O
-Y G
as S
up
ply
/Dem
and
Ch
ang
e
Reduced Demand
Increasing Demand
What Happens This Summer?What Happens This Summer?
2003 Injections2003 Injections 2,450 Bcf2,450 Bcf
- Supply - Supply DownDown 2% (1 Bcf/day) 2% (1 Bcf/day) - 215 Bcf - 215 Bcf
- Economy/Ind. Demand (1 Bcf/day) - 215 Bcf- Economy/Ind. Demand (1 Bcf/day) - 215 Bcf
- Weather* ??? (Normal)- Weather* ??? (Normal) 0 Bcf 0 Bcf
- Fuel Switching ???- Fuel Switching ??? 0 Bcf 0 Bcf
- Electric Consumption ???- Electric Consumption ??? 0 Bcf 0 Bcf2004 Injections 2004 Injections 2,020 Bcf2,020 Bcf April Beginning Storage April Beginning Storage 1,000 Bcf1,000 BcfOctober Ending StorageOctober Ending Storage 3,020 Bcf 3,020 Bcf
* Weather impact: +/- 1/2 Bcf/day per 1% change in temperature* Weather impact: +/- 1/2 Bcf/day per 1% change in temperature
21
U.S. Gas ConclusionU.S. Gas Conclusion
22
Falling supply will continue to drive prices higherFalling supply will continue to drive prices higher
Look for a mid-summer squeezeLook for a mid-summer squeeze
Oil prices will set gas price rangeOil prices will set gas price range
– Divide oil price by 5 ½ for the midpointDivide oil price by 5 ½ for the midpoint
– Gas prices should fluctuate $1/Mcf around the midpointGas prices should fluctuate $1/Mcf around the midpoint
RJ estimate: 2004 ~ $5.92/Mcf RJ estimate: 2004 ~ $5.92/Mcf 2005 ~ $6.00/Mcf2005 ~ $6.00/Mcf
These estimates will probably prove too lowThese estimates will probably prove too low
Oil Market Continues To Tighten, Big WildcardsOil Market Continues To Tighten, Big Wildcards
23
Oil Inventories suggest low $30 oil pricesOil Inventories suggest low $30 oil prices
Nigeria/Venezuela/OPEC/Middle East wild cardsNigeria/Venezuela/OPEC/Middle East wild cards
Missing Barrels: Part 2Missing Barrels: Part 2
– Larger oil demand (China, Global Economy)Larger oil demand (China, Global Economy)
– Smaller oil supply (Venezuela, Russia)Smaller oil supply (Venezuela, Russia)
Dollar weakening is having an impact Dollar weakening is having an impact
OPEC resolve is stronger at sub $30 oilOPEC resolve is stronger at sub $30 oil
Our Oil Model Suggests Low $30 Oil PricesOur Oil Model Suggests Low $30 Oil Prices
24
WTI Front-Month Contract Price vs. Total Petroleum Inventories590
610
630
650
670
690
710
730
1/7/
2000
3/17
/200
0
5/26
/200
0
8/4/
2000
10/1
3/20
00
12/2
2/20
00
3/2/
2001
5/11
/200
1
7/20
/200
1
9/28
/200
1
12/7
/200
1
2/15
/200
2
4/26
/200
2
7/5/
2002
9/13
/200
2
11/2
2/20
02
1/31
/200
3
4/11
/200
3
6/20
/200
3
8/29
/200
3
11/7
/200
3
1/16
/200
4
3/26
/200
4
To
tal
Pet
role
um
In
ven
tori
es (
MM
Bb
ls)
$16
$18
$20
$22
$24
$26
$28
$30
$32
$34
$36
$38
$40
$42
WT
I P
rice
s ($
/Bb
l)
Total Pet. Inventory (Inverted)*
Oil Price
Sources: Reuters, DOE, RJ&A Estimates.
Inverted Oil
Inventories
Chinese Oil Demand Is Going Insane!Chinese Oil Demand Is Going Insane!
25
Chinese Oil Demand Growth (Year-Over-Year)
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1999 2000 2001 2002 2003 2004E Feb-04
Mill
ion
bar
rels
per
day
Source: IEA, RJ&A Estimates
4 Year Average = .23
Russian Oil Production Growth SlowsRussian Oil Production Growth Slows
26
Russian Oil Production Growth (Year-Over-Year)
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1998 1999 2000 2001 2002 2003 2004E 2005E 2006E
Mill
ion
bar
rels
per
day
Source: IEA, RJ&A Estimates
OPEC Excess Capacity Is Tightening!OPEC Excess Capacity Is Tightening!
27
Average Excess OPEC Capacity
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
E
Ex
ce
ss
OP
EC
Ca
pa
cit
y (
mm
bo
pd
)
Sources: IEA, RJ&A, Bloomberg
No Room For Error No Room For Error
28
OPEC Global Over/Under Supply
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
Est
imat
ed P
rod
uct
ion
('0
00 B
/day
)
Estimated Additional Capacity
Estimated March Production
Source:: Blomberg, RJ&A
Oil ConclusionOil Conclusion IEA miss-calculations have confused the market
Implied oil demand growth is huge!
Russian supply growth should slow in 2005
Oil markets should tighten in late 2004
When will we hit the wall?
OPEC wants $30+ oil prices
RJ estimates: 2004 ~ $34.36/Bbl 2005 ~ $33.00/Bbl
29
ConclusionConclusion
30
2003 was an outstanding year for energy equity 2003 was an outstanding year for energy equity
offeringsofferings
““Window” is open for energy equity dealsWindow” is open for energy equity deals
Strong oil and gas fundamentals should allow Strong oil and gas fundamentals should allow
energy access to Wall Street’s capitalenergy access to Wall Street’s capital
DisclaimerDisclaimer
Important Investor Disclosures. Stock Ratings: Within our four-tiered rating system, Strong Buy means that the stock is expected to appreciate and produce
a total return of at least 15% and outperform the S&P 500 over the next six months; Outperform means the stock is expected to appreciate and outperform the S&P 500 over the next 12 months; Market Perform means the stock is expected to perform generally in line with the S&P 500 over the next 12 months and is potentially a source of funds for more highly rated securities; and Underperform means the stock is expected to underperform the S&P 500 or its sector over the next six to 12 months and should be sold.
Out of approximately 519 stocks in the Raymond James coverage universe, 52% have Strong Buy or Outperform ratings, 35% are rated Market Perform and 12% are rated Underperform. Within those rating categories, 25% of the Strong Buy- or Outperform-rated companies either currently are or have been Raymond James Investment Banking clients within the past three years; 17% of the Market Perform-rated companies are or have been clients and 9% of the Underperform-rated companies are or have been clients.
Analyst Holdings and Compensation: Equity analysts and their staffs at Raymond James are compensated based on a salary and bonus system. Several factors enter into the bonus determination including the analyst’s success in rating stocks versus an industry index, support effectiveness to the retail and institutional sales forces, traders, and investment bankers, institutional research votes, as well as overall productivity and revenue generated in covered stocks.
Raymond James Relationships: Raymond James & Associates may make a market in stocks mentioned in this report and may have managed/co-managed a public/follow-on offering of these shares or otherwise provided investment banking services to companies mentioned in this report in the past three years.
RJA or its officers, employees, or affiliates may (1) currently own shares, options, rights or warrants and/or (2) execute transactions in the securities mentioned in this report that may or may not be consistent with this report's conclusions.
Disclosure information, as well as more information on the Raymond James rating system and suitability categories, is available at www.rjcapitalmarkets.com/SearchForDisclosures_main.asp. Copies of research can be obtained by contacting any Raymond James & Associates or Raymond James Financial Services office (please see www.rjf.com for office locations) or by sending a written request to the Equity Research Library, Raymond James & Associates, Inc., Tower 3, 6th Floor, 880 Carillon Parkway, St. Petersburg, FL 33716.
Additional information is available on request. This document may not be reprinted without permission.
31