Weekly Oil & Gas Notes: Lower Oil Prices, Exxon’s Arctic Discovery And Petrobras’ Gas Discovery

Oil and gas stocks continued to trend lower last week, as benchmark crude oil prices continued to decline on rising supplies and expectations of slower demand growth. Reuters reported last week that OPEC’s (Organization of the Petroleum Exporting Countries) crude oil supply rose to its highest point since November 2012 last month on recovery in Libya and higher output from Saudi Arabia, the world’s swing producer for crude oil. ^[1] Global benchmark crude oil prices reacted sharply to the news, as it came at a time when the tight oil revolution in the U.S. is already causing a supply glut in one of the world’s largest importer of the black gold. Moreover, earlier last month, the International Energy Agency (IEA) in its latest monthly report also cut its forecast for the growth in global oil demand this year. It now expects global oil demand, which stood at around 90.5 million barrels per day last year, to increase by just around 0.9 million barrels per day this year. ^[2] The price of front-month Brent crude oil futures contract on the ICE declined by more than 4.5% last week and is currently trading around $92.5/barrel. The NYSE Arca Oil & Gas Index (^XOI) also declined by around 4.5% last week. ^[3]

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

Exxon’s Oil Discovery In The Arctic

Exxon Mobil’s (NYSE:XOM) joint venture partner in the Arctic exploration program, Rosneft, confirmed the discovery of oil in Kara Sea (a part of the Arctic Ocean north of Siberia). The commercial viability of producing this oil under current market conditions is yet to be determined but the size of the find (estimated at around 750 million barrels of oil) seems to be huge. While this is great news for both Exxon and Rosneft, the current geopolitical scenario, where the U.S. and European companies are being increasingly banned from cooperating with Russian peers, clouds the development prospects of these reserves with uncertainty. (See: U.S. Sanctions Cloud Oil Discovery In The Russian Arctic With Uncertainty)

• We currently have a $107/share price estimate for Exxon Mobil, which is around 15% above its current market price. The company’s share price decreased by around 1.5% last week.
• We currently estimate Exxon’s 2014 GAAP diluted EPS to be at $7.96, compared to the consensus estimate of $7.69 reported by Reuters.

See Our Complete Analysis For Exxon Mobil

Petrobras’ Gas Discovery In The Espirito Santo Basin

Petrobras (NYSE:PBR) announced that it discovered a new gas accumulation in the Espirito Santo Basin post-salt cluster, off the coast of Espirito Santo state. The company struck gas at a depth of about 2,880 meters while drilling the well “Tanganyika” around 72 km off the coast of Espirito Santo. Petrobras is the operator of the well with a 89.89% stake, while Repsol Sinopec holds the remaining 11.11% stake in the project. ^[4] Despite the new gas discovery, Petrobras’ share price declined sharply last week, primarily due to concerns over the incumbent head of the state returning to power in Brazil’s ongoing elections. Latest poll results signalled that Dilma Rousseff, the current President of Brazil, widened her lead over the pro-business candidate and her key opponent, Marina Silva. ^[5]

• We currently have a $21/share price estimate for Petrobras, which is around 50% above its current market price. The company’s share price decreased by around 15% last week.
• We currently estimate Petrobras’ 2014 diluted EPS to be at $2.1, compared to the consensus estimate of $1.67 reported by Reuters.

See Our Complete Analysis For Petroleo Brasileiro Petrobras

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap

More Trefis Research

1. Oil Futures Slide Sharply On Supply Worries, wsj.com [↩]
2. Oil Prices Slip On Unexpected Supply Rise, wsj.com [↩]
3. Ice Brent Crude Oil Front Month, ft.com [↩]
4. Discovery of gas accumulation in Espírito Santo Basin, investidorpetrobras.com [↩]
5. Brazil Market Rout Deepens as Rousseff Surges in Polls, bloomberg.com [↩]