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Richard Robinson

Richard Robinson. Gorilla View: “Death of Cheap Oil Supply” February 2011. Ashburton European Equity Fund* Ranking among European Equities funds. Top quartile performance. 1 st. 1. 1. 1. Data Source - Lipper. Investment Process.

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Richard Robinson

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  1. Richard Robinson Gorilla View: “Death of Cheap Oil Supply” February 2011

  2. Ashburton European Equity Fund*Ranking among European Equities funds Top quartile performance 1st 1 1 1 Data Source - Lipper

  3. Investment Process

  4. Global themes actively managed in EuropePerformance underpinned by differentiated Investment Process Internal Feedback + Analyst Feedback + Independent + General Research Diverging West Incubator Death of Cheap Oil Supply Austerity Busters Billion Boomers Recovering West Long term • Clean and Green • Innovation • Financials • Others • Oil Services • Oil E&P • Integrated • Alternative Energy • Consumer and Lifestyle • Hard Commodities • Infrastructure • Consumer • Logistics • Deleveraging consumer • Stable Demand • Increased Tax Revenue • Increased Gov. efficiency Mid term Stock selection Qualitative research Relativevaluation Short term Screening model (Valuation & Momentum) Bottom up (CROCI*, P/NAV, DCF) Technical (RSI, Volume, MACD**) Analyst Input Meet management (where possible) Inventories, sector indicators, etc.

  5. Long term Gorilla View: “Death of Cheap Oil Supply” Death of Cheap Oil Supply

  6. Demand

  7. Demand Recovery leading to tighter future spare capacity • Normally the world operates with a ‘cushion’ of spare capacity. • Draw downs have brought spare capacity down to ‘average levels’ • But… by 2015 spare capacity to disappear Production (mn boe/day) Spare capacity (%) Source: The IEA, June 2009

  8. Demand Recovery leading to tighter future spare capacity • Normally the world operates with a ‘cushion’ of spare capacity. • Draw downs have brought spare capacity down to ‘average levels’ • But… by 2015 spare capacity to disappear Production (mn boe/day) Source: The IEA, June 2009

  9. GDP is set to grow at a healthy 4-5% for the next 5 years GDP is forecast to grow at a higher pace Source: IMF and Bernstein estimates and analysis

  10. GDP is set to grow at a healthy 4-5% for the next 5 years We believe IEA estimates are conservative as oil demand tends to grow faster when GDP growth averages 4-5% Global Oil Demand vs GDP Global Oil Demand Growth Global GDP Growth Source: IMF and Bernstein estimates and analysis

  11. Death of cheap oil supply Increased oil demand from developing countries to more than offset OECD demand decline…. IEA oil demand forecasts, 2008-2030E in Mtoe Source: IEA, Pareto, October 2009

  12. Where is the demand growth coming from? 94 87.5 US China 2010 2015 Africa Europe Oceania Other Asia Middle East Latin America Other Europe Former Soviet Union North America (ex-US) Source: Bernstein (Dec 2010)

  13. China Over 1m cars a month were bought last year • Approx. 1/10th US per capita demand Annual per capita demand from China is currently 2.5bbls. …and the gap in per capita consumption should narrow Per Capita Oil Consumption 30.0 25.0 20.0 15.0 10.0 5.0 0.0 bbl/capita/yr 2000 2010E 2020E Source: BP Statistical Review, Global Insight, Bernstein estimates

  14. China Over 1m cars a month were bought last year • Approx. 1/10th US per capita demand Annual per capita demand from China is currently 2.5bbls. Source: China NBS, Bernstein analysis

  15. China Over 1m cars a month were bought last year • Approx. 1/10th US per capita demand Annual per capita demand from China is currently 2.5bbls. US (No.1): 842 /1000 UK (No.22) : 458/1000 China (No. 143) 128 /1000

  16. China Over 1m cars a month were bought last year • Approx. 1/10th US per capita demand Annual per capita demand from China is currently 2.5bbls. Transport now represents 36% of China demand… …up from 15% in 1990 Source: China NBS and Bernstein estimates and analysis

  17. Production Depletion Oil Production 1999 – 2020e, existing and new production needs Source: IEA; Pareto

  18. Production Depletion • We are more reliant on offshore oil + offshore oil is getting deeper • Onshore production declines at 3.4% annually • Offshore production declines at 7.3% annually • Deepwater production declines at 13.3% annually 89% Offshore

  19. Supply

  20. Long term Mid term “Death of Cheap Oil Supply: Oil Services” Death of Cheap Oil Supply • Oil Services • Oil E&P • Alt. Energy • Integrated

  21. “Death of Cheap Oil Supply: Oil Services” Source: MMS, BERR and Bernstein estimates, 2009.

  22. “Death of Cheap Oil Supply: Oil Services” Source: MMS, BERR and Bernstein estimates, 2009.

  23. “Death of Cheap Oil Supply: Oil Services” Source: MMS, BERR and Bernstein estimates, 2009.

  24. “Death of Cheap Oil Supply: Oil Services” Frontier drilling getting deeper Source: Bernstein Source: The Swordpress

  25. “Death of Cheap Oil Supply: Oil Services” Deteriorating quality Source: Bernstein

  26. “Death of Cheap Oil Supply: Oil Services” Deteriorating quality Deteriorating quality Source: Bernstein Source: The Swordpress

  27. Change in E+P Spending Budgets • Strong pick up in project spend Growth % $30 ‘BUFFER’ USD/BBL • Predicated on a $65 oil price Source: Pareto

  28. Projects are not coming on in time... Non-OPEC annual gross capacity added 1991-2013e Source: IEA; Wood Mackenzie; BP; Pareto

  29. Oil E&P, 1.4 Death of Cheap Oil Oil Services, Integrated 1.7 Supply, 31.12 28.02 Oil service companies best positioned to benefit from capex cycle • Integrated companies (RDS, Total, BG, Repsol) – strong balance sheets offering high yields, not that geared to oil price • E+P Companies (Tullow) – strong focus on oil finds in Brazil and West Africa with potential angle on consolidation • Oil services (Saipem, Seadrill, Acergy, Subsea, Technip, Petrofac, Amec, BWOffshore) – offshore and onshore exposure to capex cycle • Alternative Energy – prefer specialist, non-commoditised part suppliers Source: Thomson Financial Datastream, MFG, March 2010 Portfolio allocation Death of Cheap Oil Supply (as at 31.12.2010) Source: Ashburton

  30. Gorilla View - Europe

  31. Conclusion

  32. Summary of key points • Oil demand correlation to Global GDP is likely to strengthen, as high growth (stronger macro) economies become demand driver. • Demand to grow circa 2-3% (accelerating in 2nd half of decade). • Field Attrition to accelerate past 4.5% in the second half of decade. • Replacement needs for oil will move past 7.5%. • Supply to become very tight 2013 onwards. • Oil Companies capex needs to grow in order to meet demand in 2nd half of decade. • Projects take 4yrs + to complete • Oil Services to experience strong demand. As oil deteriorates in quality, flow rates decline and we move deeper and deeper offshore

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