L W A RW ICK P A C O - p G R O U P u o r G OCAPL Night k c i w March 2018 r a W P R E S E N T E R S : M O N D A Y , A P R I L 1 7 , 2 0 1 7
L P A C O The Most Important Things in the World You Need - p u o to Know (Macro Landscape). r G k c i w r a W 2 w w w . w a r w i c k - e n e r g y . c o m | W A R W I C K G R O U P
Too good to be true or global economic machine firing on all cylinders? Record low unemployment • Economic growth here and abroad • L P Economic optimism so strong that Democrats feel better about the A • C O economy than they did during the Obama years. - p u Companies bringing back jobs and money from overseas • o r G k Bank forecasters say a robust 4% GDP growth is possible c • i w r a W Axios, January 2018. 3 w w w . w a r w i c k - e n e r g y . c o m | W A R W I C K G R O U P
Worries about a market top… Main market fears are: • Surge in Inflation as economies overheat • L P Risk-off swing in market sentiment A • C O - Bankruptcy cycle given the amount of cheap, low quality • p u debt extended during the low interest rate cycle since 2008 o r G k Bankruptcy cycle in China would be particularly problematic c • i w r a W 4 w w w . w a r w i c k - e n e r g y . c o m | W A R W I C K G R O U P
Trump Tariffs L P A C These are stiff and they [mega] matter. O - p u o r G 25% on imported steel k c i w r a 10% on aluminium W
Many Congressional Republicans, advisers and businesspeople bitterly oppose the tariffs L P A C O Global markets fell last week, as investors worried - p u o r G about retaliation from trading partners k c i w r a W This move was not in line with most oil & gas lobbying.
Mohammed bin Salman (MBS): you need to know this person L P A C O - p u o r G k c i w r a W 7 w w w . w a r w i c k - e n e r g y . c o m | W A R W I C K G R O U P
Ritz Carlton Riyadh L P A C O - p u o r G k c i w r a W Source: http://www.ritzcarlton.com/en/hotels/saudi-arabia/riyadh 8 w w w . w a r w i c k - e n e r g y . c o m | W A R W I C K G R O U P
Saudi Arabian authorities netted more than $106bn in financial settlements in a wide- reaching anti-corruption drive. The attorney- L P general said they seized properties, cash, A C O securities and other assets; 56 of the 381 - p u suspects questioned remain in custody o r G (though none at the Ritz). Businessmen, k c i w ministers and royals have been caught up in r a W Crown Prince Mohammed bin Salman’s campaign, which he launched in November. The Economist, Espresso, January 31, 2018.
Xi Jinping: in 2 weeks this person probably becomes Chinese President-for-Life, as Chinese collective rule is abolished for the first time since Deng Xiaoping L P A C O - p u o r G k c i w r a W 10 w w w . w a r w i c k - e n e r g y . c o m | W A R W I C K G R O U P
China Pollution: Blue Sky Initiative L P A C O - p u o r G k c i w r a W 11 w w w . w a r w i c k - e n e r g y . c o m | W A R W I C K G R O U P
E&P companies are in the penalty box with public market investors L P A C O - p u o r G k c i w r a W Bloomberg. 12 w w w . w a r w i c k - e n e r g y . c o m | W A R W I C K G R O U P
E&P companies are in the penalty box with public market investors 10 Year Average 2016 2015 2014 2013 L 2012 2011 2010 2009 2008 2007 P Global Data from NYU (Stern business school) A Total Market 12.3% 13.6% 10.4% 10.8% 14.5% 15.7% 12.9% 11.4% 8.7% 9.9% 14.7% C O US Data (Source - 10Ks & Yardeni.com) - p US E&P's -0.9% -22.5% -53.6% 9.2% 7.7% 4.2% 12.6% 11.8% -3.3% 8.1% 17.1% u S&P 500 14.3% 14.1% 13.6% 15.6% 15.4% 15.0% 16.1% 15.2% 11.7% 10.1% 15.9% o r G k c i w r a W Bloomberg. E&P's include APC, APA, COG, CHK, XEC, CXO, COP, DVN, EOG, EQT, MRO, NBL, OXY, PXD, RRC. 13 w w w . w a r w i c k - e n e r g y . c o m | W A R W I C K G R O U P
E&P investment themes ~$7B in E&P Buybacks Authorized so far in 2018 (about 15% of E&P market capitalization overall) Cash used for share • $2.0B buybacks as opposed to $200mm drilling budgets L P A Will result in lower drilling • C O budgets $1.4B $1.6B - p u o r G k c i w $400mm $100mm r a W $100mm $750mm Company press releases. 14 w w w . w a r w i c k - e n e r g y . c o m | W A R W I C K G R O U P
The big question facing E&P’s is what to do with higher revenues coming from the oil price rally. Will more money go to shareholders in the form of L P A dividend increases and buybacks, or will spending C O (drilling) pick up? - p u o r G Some analysts are worried E&P’s will waver from hard- k c i w fought financial discipline now that oil prices have r a W improved. 15 w w w . w a r w i c k - e n e r g y . c o m | W A R W I C K G R O U P
5 Tech Giants are 15% of the entire stock market The tech giants’ collective market share of ~$3.6 trillion is ~15% of the value of all firms in the S&P 500 Apple: $900 billion L Alphabet: $762 billion P A Amazon: $738 billion C O Microsoft: $723 billion - p Facebook: $525 billion u o Total: $3.6 trillion r G k c i w r Exxon: a $324 billion W Shell: $285 billion Chevron: $216 billion Total SA: $143 billion Total: $1.0 trillion The Economist, Espresso, Wednesday, January 31, 2018. Market Caps are as of 3/5/2018 from Google Finance 16 w w w . w a r w i c k - e n e r g y . c o m | W A R W I C K G R O U P
L P A Natural Gas Market Update C O - p u o r G k c i w r a W 17 w w w . w a r w i c k - e n e r g y . c o m | W A R W I C K G R O U P
L North America is the Saudi Arabia of natural gas. P A C O - p u o r G Abundance of natural gas supply is scaring the market. k c i w r a W
But Natural Gas Prices are having a tough time… L P A C O - p u o r G k c i w r a W Aegis Energy Risk, February 16, 2017. 19 w w w . w a r w i c k - e n e r g y . c o m | W A R W I C K G R O U P
Inventories below 5 year average…. End of winter natural gas inventories are projected at 1.4 tcf which is below the 5 year average and below 2017. However the market is shrugging it off given current production robustness. L P A C O - p u o r G k c i w r a W Aegis Energy Risk, February 16, 2017.
L P A Crude Market Update C O - p u o r G k c i w r a W 21 w w w . w a r w i c k - e n e r g y . c o m | W A R W I C K G R O U P
Commodity price environment – crude oil update Crude Oil Forward Curve as of March 2017 and 2018 ($/bbl) $65 $60 L P A C O $55 - p u o r $50 G k c i w r $45 a W $40 $35 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19 Mar-20 Sep-20 Mar-21 Sep-21 Mar-22 Sep-22 Forward Curve @ Mar 2017 Forward Curve @ Mar 2018 Source: www.ino.com/exchanges. “NYMEX Crude Oil” (monthly pricing). 2017 and 2018 pricing as of March 6, 2017 and March 5, 2018, resp ectively. 22 w w w . w a r w i c k - e n e r g y . c o m | W A R W I C K G R O U P
U.S. Crude Oil Stocks US oil production remains at 10.3 million barrels a day US still importing 7 million barrels a day of oil L P A C O - Millions of Barrels p u o r G k c i w r a W Aegis Energy Risk, February 25, 2018. 23 w w w . w a r w i c k - e n e r g y . c o m | W A R W I C K G R O U P
Oil price upside risks: L P decline rates, geopolitics & inflation A C O - p u o r G Downside risks: k c i w r a shale efficiency, EV’s & OPEC discord W
The long-term good news? Oil discoveries hit a 60 year low in 2015, then dropped again in 2016 • 174 discoveries last year, versus 400-500 per year up to 2013 • E&P’s have cut exploration spending and large fields have become • L P rarer to find A C O - Typical time from discovery to production is 5-7 years • p u o r G World is likely to become increasingly reliant on unconventional • k sources such as US shale c i w r a W Shortfall of discoveries today may lead to tighter supplies over the • next decade IHS, December 2017. 25 w w w . w a r w i c k - e n e r g y . c o m | W A R W I C K G R O U P
US eclipsed Saudi Arabia and Russia 5 years ago as largest oil producer in the world L P A Since 2013, US has produced more oil supply than C O any other country, calculated as crude, NGL’s, - p u biofuel and refinery progress gain o r G k c i w In 2017 we produced ~4 million barrels a day more r a W than Russia and 3 million barrels a day more than Saudi Arabia IEA, Fatih Birol, February 26, 2018. The Economist, Morning Espresso, February 17, 2018.
Total Oil Production L P A C O - p u o r G k c i w r a W Mike Rothman, Cornerstone Analytics, February 27, 2018. 27 w w w . w a r w i c k - e n e r g y . c o m | W A R W I C K G R O U P
OPEC 12 Monthly Production L P A C O - p u o r G k c i w r a W Mike Rothman, Cornerstone Analytics, February 27, 2018. 28 w w w . w a r w i c k - e n e r g y . c o m | W A R W I C K G R O U P
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