Weekly Oil & Gas Notes: Petrobras, Chevron and BP

-44.07%
Downside
14.59
Market
8.16
Trefis
PBR: Petroleo Brasileiro logo
PBR
Petroleo Brasileiro

Oil and gas stocks slightly strengthened this week as benchmark crude oil prices remained largely flat after falling sharply by more than 30% since hitting a short-term peak of $115/barrel in June. The growth in demand for crude oil has been slowing down recently due to moderating economic growth in emerging markets such as China and India and signs of a slower economic recovery in the Euro-zone. In China, the rate of growth in demand for petroleum products has fallen to almost half of what it was a year ago. As a result, the International Energy Agency (IEA) expects the growth in global oil demand this year to hit a 5-year low. It expects demand, which stood at around 91.7 million barrels per day last year, to increase by just around 0.74 million barrels per day this year. The price of the front-month Brent crude oil futures contract on the ICE remained largely flat around $80/barrel this week and is currently trading at the same level. The NYSE Arca Oil & Gas Index (^XOI) has grown by around 1.5% so far this week. [1]

Below, we provide an update on some of the key events that occurred last week related to the oil and gas companies we cover.

Petrobras Updates Production Growth Outlook

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Petrobras (NYSE:PBR) recently updated its 2014 full-year crude oil production growth outlook from Brazil. The company now expects to grow its average daily crude oil production from Brazil by 5.5% to 6.5% over last year, down 150 basis points from the mean level of the earlier estimate. Having delayed the announcement of its third quarter financial results by at least a month last week due to ongoing corruption investigations, Petrobras also divulged some details about the key metrics of its downstream business like refinery throughput capacity, utilization rates and the amount of refined petroleum products produced. Based on these announcements and the recent decline in crude oil prices, we have revised our price estimate for Petrobras to $14/share. The revised price estimate also includes our estimate of the potential write-down the company could face as a result of the ongoing corruption investigations. We will soon publish a detailed analysis describing the key changes to our assumptions. [2]

  • We now have a $14/share price estimate for Petrobras, which is around 35% above its current market price. The company’s share price has decreased by around 2.4% this week.
  • We currently estimate Petrobras’ 2014 diluted EPS to be at $1.37, compared to the consensus estimate of $1.52 reported by Reuters.

See Our Complete Analysis For Petrobras

Chevron’s New Gulf of Mexico Project Starts Up

Chevron (NYSE:CVX) recently announced first production from the Hess Corporation-operated Tubular Bells deepwater project in the U.S. Gulf of Mexico. Tubular Bells is a deepwater oil and gas field located in Mississippi Canyon Block 725 of the United States Gulf of Mexico. The field lies in water depths of approximately 1,310 to 1,400 meters and is situated about 217 km southeast of New Orleans, Louisiana. Hess Corporation, an integrated energy company located in  New York City, holds a  57.14% operating interest, while Chevron, its co-partner in the project, holds the remaining 42.86% interest in the project. Tubular Bells, which is expected to deliver around 50 thousand barrels of oil equivalent per day at its peak, will boost Chevron’s net hydrocarbon production going forward. [3]

  • We currently have a $120/share price estimate for Chevron, which is in line with its current market price. The company’s share price has increased by around 1% so far this week.
  • We currently estimate Chevron’s 2014 Non-GAAP diluted EPS to be at $10.54, compared to the consensus estimate of $10.21 reported by Reuters.

See Our Complete Analysis For Chevron

BP Urges Judge To Limit Oil Spill Liabilities

In an effort to limit its costs associated with the 2010 Deepwater Horizon incident, BP Plc. (NYSE:BP) has reportedly urged the U.S. District Judge, Carl Barbier, to cap the per barrel penalty associated with the Clean Water Act at $3,000, ignoring higher rates set by the Environmental Protection Agency (EPA) and the Coast Guard. The third phase of the ongoing civil trial over the deadly incident in which the judge will evaluate fines for BP and its partners in the failed Macondo well is scheduled to begin in January. On September 4th, the judge ruled that BP was grossly negligent in the lead-up to the incident, which means that the company could be charged a fine as high as $4,300 per barrel. If, however, the company is able to convince the judge to lower the cap, it could potentially escape more than $5 billion in fines. [4]

  • We currently have a $52/share price estimate for BP, which is more than 20% above its current market price. The company’s share price has increased by around 2% so far this week.
  • We currently estimate BP’s 2014 diluted EPS to be at $4.16, compared to the consensus estimate of $4.21 reported by Reuters.

See Our Complete Analysis For BP

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Notes:
  1. Ice Brent Crude Oil Front Month, ft.com []
  2. Petrobras Third Quarter 2014 Operational Performance, investidorpetrobras.com []
  3. Chevron Confirms First Oil Production From Tubular Bells In The Gulf of Mexico, chevron.com []
  4. BP Seeks To Reduce Maximum Fines For Oil Spill Pollution, nola.com []