14 January 2009
Australian Equities
Energy 2009 Outlook - low oil
prices and funding uncertainty
John Hirjee
Research Analyst
(+61) 3 9270-4318
john.hirjee@db.com
Hugh Morgan
Research Analyst
(+61) 3 9270-4385
hugh.morgan@db.com
Overview
We start 2009 with some minor downgrades to our 2009 oil price assumptions,
although our long term US$80/bbl remains unchanged. We see 2009 as a
challenging year for the energy sector. Weak oil prices and continuing credit
tightness will challenge the viability of major projects critical to value and growth.
However, companies that meet project targets on time and budget should offset
oil price weakness in 2009. This report changes profit estimates, price targets and
ratings for companies under our coverage.
Deutsche Bank AG/Sydney
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1.
Forecast change
Top picks
Origin Energy (ORG.AX),AUD15.36 Buy
Santos (STO.AX),AUD13.78 Buy
Companies featured
Woodside Petroleum (WPL.AX),AUD34.77 Hold
2007A 2008E 2009E
P/E (x) 25.2 10.6 20.1
Div yield (%) 2.4 3.8 4.1
Price/book (x) 6.8 3.8 3.2
Origin Energy (ORG.AX),AUD15.36 Buy
2008A 2009E 2010E
P/E (x) 20.1 25.2 23.3
Div yield (%) 2.5 4.0 2.6
Price/book (x) 3.5 1.2 1.2
Santos (STO.AX),AUD13.78 Buy
2007A 2008E 2009E
P/E (x) 15.2 19.4 70.0
Div yield (%) 3.2 2.9 1.9
Price/book (x) 2.5 1.9 1.9
Caltex (CTX.AX),AUD7.48 Hold
2007A 2008E 2009E
P/E (x) 14.0 10.5 4.9
Div yield (%) 3.4 4.8 10.0
Price/book (x) 1.9 0.7 0.7
AWE (AWE.AX),AUD2.41 Buy
2008A 2009E 2010E
P/E (x) 6.1 7.0 8.7
Div yield (%) 0.0 4.1 0.0
Price/book (x) 2.4 1.0 0.9
AED Oil Ltd (AED.AX),AUD1.00 Hold
2008A 2009E 2010E
P/E (x) – – –
Div yield (%) 0.0 20.8 0.0
Price/book (x) 1.4 0.6 0.8
Upcoming events
Company results reporting Date
WPL full year 18 Feb
STO full year 19 Feb
CTX full year 20 Feb
OSH full year 24 Feb
AWE full year 24 Feb
ORG full year 26 Feb
DB Forecasts
CY09 CY10 CY11
WTI (US$/bbl) 45.00 55.00 80.00
USD/AUD ex rate 0.676 0.660 0.668
SWAM (US$/bbl) 4.00 4.50 5.00
Global Markets Research Company
Sector summary – challenging macro outlook
Following a rollercoaster ride in 2008, where oil prices averaged US$99.51/bbl
(CY07 US$72.33/bbl), we expect oil prices to average around US$45/bbl for much
of 2009 due to weakness in the global economy continuing to impact oil demand.
However we believe a global recovery in 2011 and associated incremental
demand will drive prices sharply higher, as supply will have already responded to
low oil prices. Despite this challenging macro outlook, the Australian Energy
sector’s performance will also be characterised by progress on major LNG
projects. In 2009 we are expecting key milestones for major projects such as Pluto
2, PNG LNG, and GLNG. The share price performance of companies that can meet
these targets should offset our expected oil price weakness. Therefore we also
see defensive qualities such as Origin Energy’s utility business and Santos’
domestic gas portfolio as important given this challenging macro environment.
Origin remains our preferred exposure, Woodside downgraded to Hold
Our preferred exposures in 2009 have sound balance sheets, emerging or existing
LNG exposure and defensive characteristics. Origin Energy (Buy) has emerging
LNG exposure from its significant coal seam gas (CSG) reserves, coupled with a
large cash balance and defensive underlying utility business. Santos (Buy) has a
defensive portfolio of domestic gas contracts, while GLNG is a potential company
maker. We have downgraded Woodside Petroleum from a Buy to a Hold and see
the stock fairly valued at current levels. Given Woodside’s high correlation to oil
prices and our Macro team’s view that oil prices are unlikely to materially rally in
2009, we therefore expect little outperformance. We note news flow on
exploration success and major LNG projects will be important in 2009. Amongst
the smaller names we like AWE (Buy) given its large cash balance from the highly
successful Tui project. We remain restricted on Oil Search and Nexus Energy.
Valuation
We value the sector using DCF analysis to estimate a net asset value (NAV) using
DB oil price assumptions. In addition, we also assess the NAV using the crude oil
futures curve. We set our price targets by taking the mid point of the two NAVs
and add a risk adjusted exploration potential for those that we can identify. Sector
risks include: oil price volatility, production delays, and sector cost inflation. Stock
specific valuations and risks are discussed on p.24-35.