Shiv Kapoor

BP Reports Earnings, Expects Soft Demand for Oil

I do not think it is surprising to expect demand weakness just now. Energy as a sector rarely outperforms immediately after the end of a recession. It is a late cyclical which starts outperformance roughly 12 months after the end of a recession; during the next two quarters we should start seeing stability - but for growth I think we need to wait until q3/q4 next year; sector should start outperforming in q2 next year in anticipation of demand growth. Reversal of deep production cuts and operation at capacity in the basic material and industrial sectors are necessary before energy demand can strengthen.

Boring BP? Not for Your Wallet

Edits to this article - A twelve month price target of $65 should be achievable with relative ease.

OPEC and Production Cuts: Why Now's the Time to Buy

I think RIG, NOV & SLB are now attractively valued. Expect bottom on SLB of $32-$33; RIG of $38-$39 and NOV of $17-$18. Earnings flows for SLB should be fairly negative for the next 2/3 qtrs so it will likely give a buy on declines opportunity. The same holds true for RIG/NOV but these two are somewhat insulated because of excellent backlog.


On Dec 02 08:34 AM yank wrote:

> ""Valuations might get better"-
> You have to be kidding right? RIG, NOV, and others are trading at
> P/Es of 3 or 4, with a PEG ratio of 0.3 It doesn't get any cheaper
> than that. Basically, these cos are being valued at $15 oil. As you
> say that will never happen. Yes sentiment is poor. But much of that
> is tied to the strong US dollar (USD). I cannot see the current rally
> in the USD as being sustainable. When it cracks oil prices will adjust
> upward.

OPEC and Production Cuts: Why Now's the Time to Buy

I would say projects now coming to fruition were based on oil projections at $40-$45. With opex inflation running at 6% and capex inflation running at 12%, average project inflation is 9%; which is some 6% over CPI based inflation of 3%. $40 compounded at a 4% inflation premium for the industry calls for $60 oil.


On Dec 04 01:41 AM M3 wrote:

> Good aricle. But the whole basis for your arguement is that USD60/bbl-USD75/bbl
> is the price needed to cover the marginal cost of production for
> the additional 7mbd needed now to keep the world running. Why would
> you think its USD60-75/bbl and not lower like USD30-45/bbl? Oil fields
> keep pretty tight-lipped about production costs so the actual marginal
> costs are anyone's guess. However, its a fact that a lot of the increases
> in production that is coming online now were based on oil prices
> forecasts of USD30-45/bbl made 10 years ago. Not alot of people had
> the vision back then that oil would go this far up (especially when
> oil was trading at around USD15-20/bbl). USD60-75/bbl might be needed
> for future projects but those that will be coming online in the next
> 2 years definately have lower costs. Hence, although prices probably
> won't go too far down, it might be 2-3 years before they rebound
> to the USD70's/bbl level.

OPEC and Production Cuts: Why Now's the Time to Buy

SLB is a top notch company. Risks are marginally higher because the impact on earnings cannot be assessed until producer capex budgets are adjusted for lower oil prices; i.e. less visibility. Also while the dividend yield on this stock is good and very secure, BP's is as secure and higher. The BP yield gives you the long term market returns and this mitigates risks greatly. Finally, market is not fully pricing in BP's recovery from its Alaska/GoM problems of the past. SLB is excellent value here and I will likely accumalate on dips.


On Dec 02 02:37 PM mannheim wrote:

> Why are the Oilfield Services companies like SLB higher risk?

OPEC and Production Cuts: Why Now's the Time to Buy

Taken into consideration. New production coming on line replaces reduction from existing production and then some. This cannot continue for ever, but as of now, there are enough new production fields to replace falling production from older fields.


On Dec 02 03:12 PM melfsh wrote:

> Did I miss it, or did Mr. Kapoor not take into consideration that
> the fields that are currently produceing the 86 million barrels a
> day are declining at a 4-5% rate per year?

OPEC and Production Cuts: Why Now's the Time to Buy

you can get the numbers from EIA's website. This www.eia.doe.gov/steo links to an EIA article; numbers are largely from files available on the bottom right hand corner of thw webpage.


On Dec 02 09:01 AM bertil wrote:

> Excellent clear thinking backed up with (hopefully reliable?) facts.
>
> My question: Why do you prefer BP to other integrated oil companies?

OPEC and Production Cuts: Why Now's the Time to Buy

mainly div yield & turn-around potential; in prior upcycle they were plagued with misfortune & qhse problems - I think the right steps have been taken to effect a powerful turn-around.


On Dec 02 09:01 AM bertil wrote:

> Excellent clear thinking backed up with (hopefully reliable?) facts.
>
> My question: Why do you prefer BP to other integrated oil companies?

OPEC and Production Cuts: Why Now's the Time to Buy

WTI = $75. Rest get penalty or premium on WTI depending of it is heavy or light sweet crude.


On Dec 02 08:39 AM paultaut wrote:

> Opec crude is priced about $5 below WTI because it is a basket of
> oil grades. Meanwhile the garbage crude produced by Iran and Venez.
> is about $10 below.
>
> When the target of $75 is bandied around, are the Marginal suppliers
> getting $65 or does the $75 refer to Iran/Venez. and WTI is really
> $85?
>
> Can you clarify?

Sectors Benefiting from BRICs' Growth

Kingsley - I feel you are correct on POT re-testing $60. In fact I am not sure that that price level will hold. As a worst case scenario I cannot rule out $50 to $55. Eventually the remaining downside is not significantly higher than the broad market downside. On the upside, I have a high degree of confidence to a level of $140 over 5 years. Over a longer period, the sky is the limit - this is why I feel MON/POT have multi decade potential; yet in terms of a single economic cycle they have not quite made it to my portfolio.


On Nov 17 08:09 AM Kingsley wrote:

> While I respect your thoughtful commentary and do not dispute the
> notion that Potash and Monsanto will eventually rise, now is not
> the time to be purchasing shares of either. In regards to Potash,
> it looked like it be forming an inverted head and shoulders pattern,
> but then the price crashed back down. POT looks like it will be
> retesting the 60.

Sectors Benefiting from BRICs' Growth

Zenstar66 - POT, MOS, AGU & IPI are all good stocks. It is just that the portfolio was designed to look for capital appreciation backed by handsome yields. Combining the two criteria, these stocks never made it into my final selection.



On Nov 17 07:35 AM zenstar666 wrote:

> You stated the "capital appreciation" for POTand MOS does not look
> attractive. Except for the financial crisis which unjustifiably brought
> their share prices down along with the entire commodity sector,
> their fundamentals, along with those of AGU and IPI, going forward
> appear to be decoupled from their share prices and tell a much different
> story. Am I missing something???