Looking East
Asian upstream firms are growing quickly thanks to their exposure to
profitable projects. They also enjoy higher returns than their international
peers due to lower costs and taxes, a relatively friendly regulatory
environment and easier access to reserves. CNOOC, Inpex, Cairn India
and PTTEP offer good long-term prospects at reasonable prices. Their
solid growth prospects, exposure to oil prices and correlation to Asian
markets make them attractive for global investors.
Joining the club
􀂉 Asia represents a significant portion of accessible non-Opec reserves.
􀂉 The region’s upstream sector offers access to attractive pockets of oil deposits.
􀂉 Asian companies benefit from rising prices, low costs and friendly regulations.
􀂉 They have established a solid track record in recent years and are involved in
exciting projects that are inaccessible through other vehicles.
Success stories
􀂉 Each of our recommended stocks is engaged in a substantial and lucrative project.
􀂉 Bohai Bay in northeast China continues to be CNOOC’s home base and a source of
strong growth.
􀂉 Cairn’s Rajasthan project will account for 20% of India’s output in two to three
years.
􀂉 Thailand’s Arthit and other fields will help boost PTTEP’s production through 2012.
􀂉 The Ichthys project in Australia will be a game changer for Inpex of Japan.
Commodity tailwind
􀂉 A strong oil price is a key assumption behind our preference for upstream plays.
􀂉 We expect crude to trade within a US$75-85/bbl range in 2010-12.
􀂉 We expect Opec to actively control supply in the coming years.
􀂉 Non-Opec supply will be weak due to project cancellations, delays and mature fields.
􀂉 A pickup in global demand is a wild card for oil markets in the coming quarters.
Well ranked
􀂉 Asian oil firms have produced higher returns than global peers in recent years.
􀂉 They have achieved this with less financial risk as leverage is very low.
􀂉 On the downside, Asian companies’ reserves growth has been slower.
􀂉 They are generally involved in lower-cost projects than their US counterparts.
􀂉 We recommend investors take positions in CNOOC, PTTEP, Cairn India and Inpex.