Sector Update | 1 June 2020
Oil & Gas
Oil & Gas
Please refer our earlier
reports
Global energy markets
facing unprecedented crisis
Crude oil prices – Low
not
for long
The lack of co-operation among OPEC+ countries resulted in Brent slumping to
USD15/bbl by Mar’20 end. To add to this, COVID-19-led global demand destruction
resulted in Brent plunging to a low of USD11/bbl in April’20, with onland/offshore
storage reaching its limit amid continued production.
Latest estimates suggest global demand contraction could be as high as ~8.6mnbopd
for CY20, against the initial estimate of 6–7mnbopd. This would be the sharpest
decline in growth ever witnessed.
However, lockdowns are being eased across the globe and demand for auto fuels has
also seen an uptick. With the easing of product inventories, refiners also appear to
have increased their utilization rates, thus increasing demand for crude oil.
On the supply side, production cuts, both intentional (OPEC++) and unintentional (due
to poor economies/bankruptcies), appear to be putting upward pressure on oil prices.
Our report highlights what we believe is sustainable oil price (of USD40/50/bbl for
FY21/22) for the longer term, and we reiterate Buy on ONGC and Oil India as a result.
Demand and supply projections
Priming a new way to look
at CGDs
Against demand growth of 1mnbopd in CY19, COVID-19 has resulted in global
institutes such as IEA putting demand destruction at ~8.6mnbopd for CY20 (EIA
forecasts de-growth of 8.1mnbopd), the greatest ever witnessed.
The sharpest decline has been witnessed in aviation and transportation fuels,
which account for 58% of the total consumption. However, COVID-19 is also
likely to alter transportation trends, with the focus moving away from shared
mobility. This would certainly further boost demand for transportation fuels
going forward.
Agreed production cuts by OPEC++ amount to ~8mnbopd (staggered) in CY20.
Additionally, few shale oil producers such as Whiting, Diamond Offshore, and
Gavilan Resources have already filed for bankruptcy among the others. The US
oil rig count has slumped to 301, the lowest since the availability of data (2010).
US commercial inventories appear to be at 642m bbls, estimated to have
swelled up by 7m bbls since Dec’19. As per IEA, the global total crude oil storage
capacity is estimated to be ~6.7b bbls, ~4.2b bbls of which is currently utilized.
Low oil prices, coupled with demand uncertainty, have resulted in large-scale
cuts in capex for CY20. Reports suggest ~USD44b (~28%) of capex has been cut
for CY20 in North America only.
Almost 80% of incremental oil production growth in the past five years has
come from US shale oil drillers. They need to drill a much higher number of
wells as production decline is quite sharp in a typical well. Hence, a large share
of capex in the US is put toward sustaining production rather than supporting
growth.
A large part of the incremental production globally is carried out in difficult
fields (high temperatures/pressures/ deep or ultra-deep waters), which also
require a higher breakeven oil price. The capex cut is also likely to keep new
production at bay for longer, which may drive up oil prices going forward.
Global capex cut could result in higher oil prices over next 2–3 years
Swarnendu Bhushan- Research Analyst
(Swarnendu.Bhushan@MotilalOswal.com); +91 22 6129 1529
Sarfraz Bhimani - Research Analyst
(Sarfraz.Bhimani@MotilalOswal.com); +91 22 6129 1566
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
 Motilal Oswal Financial Services
Oil & Gas
Decline in global inventories
Latest data suggests that from the peak of 263.2m bbls in Apr’20, US total petrol
inventories declined to 255m bbls for the week ending May’20. Even the
utilization rates for US refineries have jumped to 71% for the week ending
May’20 (from 67% in Apr’20).
Tanker rates have plunged from the peak of ~USD250k/day in Apr’20 to
USD60k/day as demand for vessels for use as storage has reduced.
Two big economic powerhouses, China and India, appear to be springing back to
life. While Chinese refineries started ramping up their utilization from last
month itself, Indian refiners also appear to have ramped up their utilization in
the last few days. This suggests normalization in oil demand, which would be
reflected in higher oil prices.
The GDPs of most Middle East countries have a high dependency on oil. Saudi
Arabia, the largest oil producer, is estimated to require oil price of USD91/bbl to
achieve budget breakeven.
Iraq, the second largest producer in OPEC, also requires breakeven price of
~USD70–75/bbl for its GDP, while Iran requires breakeven of USD180–190/bbl.
Outside the Middle East, upstream accounts for 30% of Russia’s GDP; hence,
higher oil prices are also a necessity for the Russian economy. Hence, despite
the non-cooperation prior to the Mar’20 meeting, both Russia and Saudi Arabia
agreed for a sharp production cut in their subsequent meeting in Apr’20.
Although there is a lot of confusion related to breakeven prices for shale
producers, they still appear to be at the higher end of the cost curve, along with
deep/ultra-deepwater production.
Few companies such as Whiting, Diamond Offshore, and Gavilan Resources have
announced bankruptcy. The total debt of USD86b is estimated to be due for
payment over CY20–24, and an additional USD123b needs to be refinanced
during this period (link).
The IEA estimates US shale oil production would decline by 3.6mnbopd in 2020
after growth of 4.7mnbopd reported during CY17–19. This production cut would
also provide a base to oil prices.
Breakeven prices for Middle East countries
Shale, the biggest loser
Valuation and recommendations
As a result of capex cuts, demand revival, and better cooperation among
OPEC++ countries, we expect oil prices to stabilize at USD40–50/bbl over the
next few months. We expect oil to trade at USD50–60/bbl in the longer run.
For our projections, we assume Brent of USD40/bbl in FY21 and USD50/bbl in
FY22 (both unchanged).
While no oil production growth is expected for ONGC, the company’s efforts to
arrest decline from age-old fields (accounting for 60–70% of the total oil
production) is commendable. The company is working on 13 projects, which
would help it maintain oil production at 24mmtpa (both domestic and JVs).
Unlike Oil India, ONGC is expected to grow its gas production by ~11%/26% at
27.9bcm/35.2bcm in FY21/FY22. Although domestic gas prices may decline
further from Oct’20, we expect them to be at the bottom during this period. Gas
prices would start recovering owing to better global demand.
2
1 June 2020
 Motilal Oswal Financial Services
Oil & Gas
According to
recent news,
the government is formulating a structure to give
Indian upstream companies some relief in royalty and cess as well as other
reliefs. As per our model calculation, 1% change in cess results in 2% consol. EPS
change for ONGC.
We forecast gas price of USD2.8/mmBtu in FY21 and USD3.0/mmBtu in FY22. A
change of USD1/mmBtu in gas price would result in a change of 18% in the
company’s consolidated EPS.
ONGC is trading at 3.3x FY22 EV/EBITDA and 4.3x FY22 PE. While for financials
projection, we use USD50/bbl, we raise our PE multiple from 8x to 10x expecting
further increase in oil prices. We reiterate Buy with a target of INR105. We
further highlight that a change of USD1/bbl in oil price impacts the consol.
EBITDA by 2%. Reiterate Buy.
OINL is not expected to show any sharp increase in oil or gas production going
forward. OINL is trading at 3.8x FY22 EV/EBITDA and 5.3x FY22 PE. We value it at
8x FY22 adjusted PE and add the value of investments to arrive at a target price
of INR105. We further highlight that a change of USD1/bbl in oil price impacts
the consol. EBITDA by 3%.
Exhibit 1: Oil price chart – annotation highlighting major events
Crude oil prices (USD/bbl)
Stagflation
Iran-Iraq War
Fed rate 20%
OPEC oil
emargo
ended
Recession end
NAFTA allowed
cheap oil from
Mexico
Iran threatened
Straits of
Hormuz
OPEC cuts
output
OPEC
added to
supply
Gulf
war
Hurricane
Katrina
Afghanistan
War
Great
Recession
US Shale
output
increased COVID-19
Pandemic
Source: MOFSL
Iran Oil Embargo
SPR realeased oil
Recession and 9/11
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Exhibit 2: Long-term price average stands above USD55/bbl
Brent (USD/bbl)
2010-2020 average
150
120
90
60
30
0
2000-2020 :
USD66/bbl
2010-2020 :
USD79/bbl
2000-2020 average
2015-2020 average
Exhibit 3: Indexation price chart – past crude oil crises
Starting Mar'03 - SARS
Starting June'08 - GFC
Starting June'15 - Oil price crisis
Starting Jan'20 - COVID
120
90
60
2015-2020 :
USD57/bbl
30
0
Working days
Source: Bloomberg, MOFSL
Source: Bloomberg, MOFSL
1 June 2020
3
 Motilal Oswal Financial Services
Oil & Gas
OPEC+ cuts – attempt at balancing the markets…
…further aided by economies coming out of lockdown
Global crude oil benchmarks tumbled to multi-decade lows as almost the entire world
went into lockdown, with economies at a complete standstill.
The lack of minimal demand for crude oil resulted in huge surplus in production,
translating to inventories reaching their peak capacities.
OPEC+, as a result, announced a record (voluntary) production cut of 9.7mnbopd
starting May’20; however, the announcement failed to excite the oil markets.
Although, as economies across the globe came out of lockdown in a staggered
manner, the expected OPEC+ cuts seemed magnified, aided by improving demand.
Crude prices rallied quickly from <USD20/bbl to the current ~USD35/bbl.
The challenges remain whether economies just out of lockdown could adapt to the
new normal: a world with a virus; economic activity may be boosted as a result.
Our crude oil price forecast stands at USD30/40/45/45bbl for 1Q/2Q/3Q/4Q of FY21,
averaging at USD40/bbl for FY21; we build in USD50/bbl for FY22.
Unprecedented demand destruction…
Demand in 2020 is expected to see growth destruction of ~8.6mnbopd, the
worst since 1965, as per the IEA (after an upward revision by 0.7mnbopd v/s
9.3mnbopd forecast in its Apr’20 MOMR). April’20 saw a record 29mnbopd
plunge and ~26mnbopd in May.
The sharpest decline has been witnessed in aviation and transportation fuels,
which account for 58% of the total consumption. However, COVID-19 is also
likely to alter transportation trends, with the focus moving away from shared
mobility. This would certainly further boost demand for transportation fuels
going forward.
We believe despite various constraints for the next couple of months, demand
would normalize starting 3QCY20 (S&P Global Platts and the IEA believe
inventory reduction would begin in 3QCY20).
However, we also believe there would be more clarity in terms of real demand
as countries gradually come out of lockdown, supporting prices further.
Exhibit 4: 2020 to see largest percentage decline of ~9% (as per decline of 8.6mnbopd) since 1965
World Consumption (mnbopd)
140
110
80
50
20
-10
Crude oil prices (USD/bbl)
YoY change (%) (LHS)
8.5%
5.0%
1.5%
-2.0%
-5.5%
-9.0%
Source: BP, MOFSL
1 June 2020
4
 Motilal Oswal Financial Services
Oil & Gas
…requires unprecedented supply cuts
The deal announced by OPEC+ on 9th Apr’20 entails a series of phased cuts up
to Apr’22, as follows:
(1)
Production cut by 10mnbopd starting May–June’20
(2) Cuts would be reduced to 8mnbopd during Jul–Dec’20
(3) Eventually, cuts would be reduced to 6mnbopd over Jan’21–Apr’22
(4) The extension of the agreement would be reviewed in Dec’21
The cut is with regard to Oct’18, and baseline production for Saudi Arabia and
Russia has been set at 11mnbopd (in Oct’18, the former produced 10.6mnbopd,
while the latter 11.6mnbopd).
As per May’20 OPEC MOMR, Saudi Arabia (by 1mnbopd), the UAE (100kbopd),
and Kuwait (80kbopd) announced (on 12 May) that they would voluntarily
deepen oil output through adjustments from June in an effort to expedite
draining the global supply glut and rebalancing the oil market.
As per the IEA, May is set to see a massive supply cut of 12mnbopd (the lowest
in nine years) as OPEC+ cuts come into play. On the other hand, the US and
Canada have already seen a drop of 3mnbopd in April v/s the start of the year.
Exhibit 6: Oil supply set to plunge by record 12 mb/d in May
Exhibit 5: OPEC+ production cuts – extend to Apr’22
Source: IEA, MOFSL
Source: IEA, MOFSL
Collapsing demand in 2QCY20 implies that even with supply cuts from May,
stocks could build up by a massive 17.4mnbopd. However, the IEA believes stock
draws in 2H20 could amount to 4.7mnbopd, assuming demand recovers.
Thus, the total average production is set to fall by 2.3mnbopd in 3QCY19 and
5mnbopd by year-end.
The IEA forecasts the US, Canada, Brazil, and Norway to decline by a total of
3.6mnbopd; however, the timing of the cuts may vary.
Similarly, the OPEC estimates 3.5mnbopd decline for Russia, the US, Canada,
and Brazil.
Hence, as per the demand/supply balance chart below, the demand-supply
balance is expected to turn positive ~5mnbopd by the end of 2020, given there
is 100% compliance from OPEC+ and no further demand-led concerns ahead.
1 June 2020
5
 Motilal Oswal Financial Services
Oil & Gas
Exhibit 7: Supply declines to be >5mnbopd by year-end
Exhibit 8: Demand/Supply to balance in 2HCY20
Source: IEA, MOFSL
Source: IEA, MOFSL
Globally, ~60% of fuel is used for transportation, which was completely shut
during lockdown; it has started seeing a ramp-up for logistical purposes as the
economy revives.
China saw a 22% YoY jump in Apr’20 in both road and air traffic. Key macro
indicators, such as work at large industrial enterprises, freight turnover, and car
sales, returned to near prior-year levels in April.
The forward Brent curve in May’20 is tuning flat (from being into a contango in
Apr’20) as various countries plan on lifting their lockdowns. The curve was in
backwardation in Jan’20 with the first COVID-19 outbreak and risk of huge
demand destruction globally.
The COVID-19-led impact on prices was much higher than other oil price crises
(refer exhibit 3); however, revival has also been strong, with improvement seen
in transportation and logistical requirements.
Also (refer exhibit 2), in the long term, historical prices have hovered at
>USD55/bbl in the last five years despite witnessing two major crises (2016 oil
crisis and COVID-19 demand destruction).
Exhibit 10: Forward curve is turning flat from steep
contango
USD/bbl
65 65 64
63 63 62
62 61 61 61 60
60 60 59
Jan'20
Apr'20
May'20
26
30
43
41 41 42 42
39 39 39 40 40
38 38
37 38 38 38 39
35 36 36
32 34
Exhibit 9: Transportation constitutes >60% of oil demand
50
Aviation
Rail & others
Electricity generation
14
9
% share of oil demand
Marine Bunkers
Other Industries
Total
13
2
3
8
Other
transport
14
2
11
Other
Industry
Road
Petchem
Res. / Com.
Source: Statista
(Note:
OECD in 2017)
, MOFSL
Source: Bloomberg, MOFSL
1 June 2020
6
 Motilal Oswal Financial Services
Oil & Gas
Involuntary cuts: US the facilitator
OPEC++ (the US, Canada, Brazil, China, Norway, and others) potential
involuntary cuts would largely be due to the closure of uneconomical fields
(already being witnessed in Brazil and Canada).
As per the IEA, the US and Canada have already posted a drop of 3mnbopd in
April v/s the start of 2020.
This phenomenon would strongly support global crude prices as some of the
older fields may not be able to return to production once they have been
closed.
Also, along with the plunge witnessed in the rig count (down 62% since 28th
Feb’20 levels), US oil producers have cut capex by ~27% (USD38b) for 2020 as it
would be impossible for US producers (with high breakeven of USD48–54/bbl)
to sustain at current oil prices.
Companies have cut their production outlook, delayed new activity, and/or
lowered their dividend payout plans.
The EIA forecasts US crude oil production to decline, averaging ~11.7mnbopd in
2020, and further drop to 10.9mnbopd in 2021 (v/s 12.2mnbopd in 2019).
US being a net exporter saw some relief on the demand side as the economy
came out of lockdown and demand saw revival.
However, the Permian basin accounts for 20% of the total US oil production;
also, because they have lower breakeven, drillers would be the last to close and
first to lead new output if oil prices collapse or improve.
Exhibit 12: While, US rigs move in exact tandem with global
crude oil prices (currently even below 2016 levels)
2400
1800
1200
600
0
US Rigs (LHS)
Brent (RHS)
160
120
80
40
0
Exhibit 11: US shale rigs in service reduced after 2016 crisis
as producers improved efficiencies of their wells
2400
1800
1200
600
0
US Rigs (LHS)
US (mbopd) (LHS)
14
12
9
7
4
Source: Baker Hughes, MOFSL
Source: Baker Hughes, MOFSL
Exhibit 13: US shale – average crude oil price breakeven
according to various regions
Play
Permian Basin – Midland
Other U.S. (Shale)
Permian Basin – Delaware
Other U.S. (Non-shale)
Eagle Ford
Oklahoma – SCOOP/STACK
Permian Basin – Other
Average
48
49
49
49
51
53
54
Minimum Maximum
23
35
40
20
40
48
40
65
60
65
75
75
60
70
Exhibit 14: Change in rig counts
Rig count
-19%
1085
Feb
May
May YoY % change
2125
915
249
-67%
23
791
348
-65%
U.S.
1286
-41%
Source: Dellas Fed Energy Survey, EIA, MOFSL
Total Intl.
Canada
Total World
Source: Baker Hughes, MOFSL
1 June 2020
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 Motilal Oswal Financial Services
Oil & Gas
Exhibit 15: US rig count is down more than 50% since Mar’20
US
1,047 1,045 1,035 1,030 996
967
870
782
CANADA
Total
North America Rig Count
Change since Mar'20 :
Total NorthAm: -68%
US: -62%
Canada : -90%
705 637
559 491
435 400
362 339 321
Source: Baker Hughes, MOFSL
Exhibit 16: US total crude oil reserves increases by 3% in last five weeks
1,300
1,150
1,000
850
700
US total crude oil reserves (mn bbl)
Lack of demand sharply drives total inventory up; additionally,
the expectation on demand remains grim
Source: EIA, MOFSL
Exhibit 17: While US refinery utilization improves back to
71.3%...
Weekly U.S. refinery utilization lowest since 1990, except
for Sep'08 (66.7%, but only for one week)
108
96
84
72
60
Exhibit 18: …all-time high inventory of gasoline saw dip of
3% in last five weeks
270
250
230
210
190
170
2007
2009
2011
2013
2015
2017
2019
US total petrol inventory (mn bbl)
Source: EIA, MOFSL
Source: EIA, MOFSL
1 June 2020
8
 Motilal Oswal Financial Services
Oil & Gas
What are the major E&Ps doing…
…in the current crises of low oil price, forced production cuts, and poor
demand outlook?
Saudi Aramco
It has reaffirmed its commitment to pay dividend of USD75b this year. However,
it also needs to pay the first installment for the USD70b acquisition of Saudi
Basic Industries Corp (SABIC).
The Kingdom is expected to cut a total of 4.8mnbopd of oil production as per
reported news, which would severely impact its profits in 2020.
News suggests the company is contemplating raising USD10b through a pipeline
stake sale amid capex of USD25–30b for 2020. On the other hand, capex for the
next two years may reduce.
The company also appears to be in talks to raise USD10b in debt to fund its
SABIC acquisition.
Exxon Mobil
It wrote off USD3b, resulting in loss of USD610m in 1QCY20, against profit of
USD2.4b last year.
It is expected to cut production by ~0.4mnbopd in 2QCY20 through shut-ins and
curtailments. The Permian drilling rig count is expected to be cut by as much as
75% by 2020-end.
It is expected to lose total revenue of USD70b in 2020, against total revenue of
USD265b reported in 2019.
It targets a 15% cut in operating expenditure and 30% cut in capex for 2020.
Chevron
It has cut its capex by USD4b as well as suspended its share buyback plans. The
cuts include USD2b in expenditure in shale. So-called cash capital and
exploratory expenditures are seen dropping by USD3.3b to USD10.5b in 2020.
Production this year is seen as roughly flat relative to 2019.
The company says it would shut as much as 400k barrels of daily output.
Royal Dutch Shell
It has suspended its share buyback plans.
The company has surprised investors with a two-thirds cut to its dividend to 16
cents per share from 47 cents for the first time since the Second World War.
Shell would use measures, including voluntary severance for staff, to bolster its
finances as the COVID-19 pandemic batters net profits, which halved in the first
three months of 2020 to USD2.9b.
Shell has forecast that its refineries would not run at more than 70% of their
capacity in the current quarter.
It would reduce capex this year to USD20b at most from the planned level of
about USD25b, and cut an additional USD3–4b in operating costs over the next
12 months.
Trefis expects Shell’s total revenues to be negatively impacted by slow economic
recovery in the latter half of the year and stand at roughly USD232b in FY20.
9
1 June 2020
 Motilal Oswal Financial Services
Oil & Gas
British Petroleum
Upstream second-quarter reported production is expected to be lower than in
the first quarter. There is significant uncertainty with regard to the
implementation of OPEC+ restrictions, price impact on entitlement volumes,
divestments, market restrictions (given the lack of demand for oil), and the
COVID-19 operational impact.
During the second quarter, BP also expects to make an annual payment of
around USD1.2b toward the Gulf of Mexico spill settlement.
It remains committed to selling its Alaska business to Hilcorp for a total
consideration of USD 5.6b. This transaction is part of BP’s divestment program
to deliver USD15b worth of announced divestments by mid-2021.
The company expects organic capex to be around USD12b for 2020, around 25%
below the prior full-year guidance. In Upstream, this includes a reduction of
around USD1b in spend on short-cycle onshore activity, including BPX Energy, as
well as the deferral of certain exploration and appraisal activities and the
optimization of its major project spend.
Underlying replacement cost profit, the company’s definition of net income was
USD800m (GBP645m) in the first three months of 2020, down from USD2.4b a
year earlier, following a sharp reduction in demand for its products.
New
Capex
1.1
12.0
16.0
2.0
5.9
1.0
1.7
4.5
23.0
1.9
1.2
2.8
2.2
1.0
0.8
1.8
20.0
1.3
3.2
103.4
2.0
1.7
1.0
2.9
4.63
12.3
115.7
Exhibit 19: Companies in North America have cut their capex plan for 2020 by ~28% to USD44b (thus far)
Permian Basin drillers
Old
(USD b)
Capex
Apache Corp
1.7
BP
16.0
Chevron
20.0
Concho Resources
2.7
ConocoPhillips
6.6
Devon Energy
1.8
Diamondback Energy
2.9
EOG Resources
6.5
ExxonMobil
33.3
Marathon Oil
2.4
Noble Energy
1.7
Occidental Petroleum
5.3
Ovintiv
2.7
Parsley Energy
1.7
PDC Energy
1.1
Pioneer Natural Resources
3.3
Royal Dutch Shell
25.0
WPX Energy
1.7
Others
5.2
PERMIAN BASIN TOTAL
141.7
Canadian producers
Canadian Natural Resources
2.8
Husky Energy
2.4
Kelt Exploration
1.6
Suncor
3.9
Others
7.6
CANADA TOTAL
18.2
TOTAL NORTH AMERICAS
159.9
Cuts
-37%
-25%
-20%
-26%
-11%
-44%
-41%
-31%
-31%
-21%
-29%
-47%
-19%
-41%
-23%
-45%
-20%
-23%
-39%
-27%
-27%
-27%
-36%
-26%
-39%
-33%
-28%
Remarks
Suspended all drilling
Cuts production by 14% to 430kbopd, cuts capex at BPX shale
Cuts production by 20% to 125kbopd, cuts capex in Permian basin
Cuts at Permian pure play
Cuts production by 2% to 1.23mbopd, delays activity
Cut capex from STACK and Powder river basin, defer Eagle Ford activity
Cuts production by 10% to 188kbopd, pulls out 2/3 of the rigs
Cuts production by 12% to 456kbopd, does only focused drilling
Cuts capex in Permian basin, delays activity in Rovuma LNG and Guyana
Pulls all rigs from Oklahoma, reducing Delaware activity
Major cuts from Delaware Basin
Cuts production by 6% to 1.29mbopd, cuts dividend by 6%
Pulling 16 rigs from Permian, Anadarko, Montney
Pulling 75% rigs from Permian pure play
Cuts production by 5% to 200kbopd, reduces rigs largely
Cuts production by 12% to 211kbopd, reduces 50% rigs at Permian pure play
Cuts operating expenses
Cuts production by 6% to 150kbopd
US PRODUCERS CUT CAPEX BY ~USD38b
Delay new activity
Suspended Western Canada drilling
Delay Canada (country) drilling
Delayed drilling/offshore
US PRODUCERS CUT CAPEX BY ~USD6b
TOTAL CAPEX CUT IN NORTH AMERICAS IS ~USD44b
Source: S&P Platts, MOFSL
1 June 2020
10
 Motilal Oswal Financial Services
Oil & Gas
Global crude storage – key factor in COVID-19...
…oil embargo prominent reference in global oil market
In 1971, President Richard Nixon prompted an embargo when he decided to take the
US off the gold standard. Countries were now unable to redeem US dollars for gold in
their foreign exchange reserves.
OPEC countries were hurt by the plummeting value of the dollar as their government
revenues depended on the petrodollar. Oil contracts were also priced in US dollars,
which meant decline in revenues. The OPEC even considered pricing oil in gold,
replacing dollars, to keep revenue stable.
In Oct’1973, OPEC members decided on an oil embargo, the decision to stop exporting
oil to the US.
The oil embargo lasted for the next six months, and oil prices quadrupled (to
USD11.7/bbl from USD2.9/bbl) during the period. Prices still remained at higher levels
after the embargo ended in Mar’74.
US SPR is the world’s largest
reserve (Bayou Choctaw – 76m
bbls, Big Hill – 170m bbls, Bryan
Mound – 247m bbls and West
Hackberry – 221m bbls).
China holds the second largest
reserve (of 511m bbls).
Among other oil-consuming
nations, Japan has 324m bbls,
South Korea 146m bbls, Spain
120m bbls, and India 39.1m bbls.
Birth of strategic petroleum reserves
In response to the oil embargo, the US created a strategic petroleum reserve
(SPR) in 1973.
Four underground salt caverns (with maximum capacity of 714m bbls) on the
coast of the Gulf of Mexico store the oil. The federal government owns all the oil
in the SPR, and it has been filled to capacity only once in Dec’09.
Salt caverns are carved out of underground salt domes through a process called
‘solution mining’. Essentially, the process involves drilling a well into a salt
formation, then injecting massive amounts of fresh water (to dissolve the salt).
At the end of CY19, the US SPR’s crude oil inventory was 635m bbls (equivalent
to ~1,069 days of supply of the total US petroleum net imports). This increased
to 642m bbls as of 15
th
May’20 (link).
SPR is now mandated by governments to provide a cushion in the event of an
energy crisis. As per the IEA’s
first criteria for membership,
applicants must have
crude oil or product inventory equivalent to 90 days (of the previous year’s net
imports).
Exhibit 21: US SPR locations
Exhibit 20: Storage cavern development
Source: Industry, MOFSL
Source: Medium, MOFSL
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Global crude storage – favorite for steep contango
As per the IEA, global total crude oil storage capacity is estimated to be ~6.7b
bbls (i.e., including commercial and strategic storage), ~4.2b bbls of which is
currently utilized. Due to various technical reasons, only ~80% of the nameplate
capacity can be filled (rest is reserved as contingency space), thus leaving only
1.2b bbls of effective spare capacity, which would run out by June.
Steep contango in oil prices, led by the current demand (halt) destruction, is
driving storage demand. As stated above, the US SPR has just 11% of spare
capacity, barring the contingency.
The COVID-19 demand destruction has resulted in a huge supply glut; various
countries are exploring different options to use SPR for storing cheaper crude to
take advantage of opportunity cost.
However, the IEA estimates OECD stockpiles (including SPR) which represents
~60% of the world's petroleum reserves, normalizing of the spike in the
following charts is a crucial indicator of returning normalcy.
Exhibit 23: US SPR short of just 11% to the brim
650
590
530
470
410
US commercial crude oil inventory - m bbls
FORECAST
Exhibit 22: OECD inventories jumped to 94 days in Apr’20
OECD inventories - days of supply
98
86
74
62
50
FORECAST
2015
2016
2017
2018
2019
2020
2021
350
2015
2016
2017
2018
2019
2020
2021
Source: EIA, MOFSL
Source: EIA, MOFSL
China is taking advantage of
stocking up on the cheapest crude
oil as demand starts to return.
A total of 117 VLCCs – holding
~230m bbl of oil – are likely to be
delivered to the ports of China by
August.
According to an article,
the fleet
en route to China could be the
largest number of supertankers
traveling to the world’s top oil
importer at one time ever.
Oil on water – traditionally used modern strategy
Companies and governments have historically held petroleum stocks in floating
supertankers when oil prices have been in contango.
In current times, when onshore storage capacities are filling fast, a spike has
been seen in the use of offshore tankers as storage facilities. This has led to a
huge spike in tanker freight rates by 8–10x in the last couple of months.
Normally, floating storage uses very large crude carriers (VLCC), which can hold
about 2 million barrels (~802 VLCCs active globally).
According to Rystad data, the entire global fleet is projected to have a total
capacity of 630m dwt, or 4.6b bbls (including VLCC and the smaller Suezmax and
Aframax vessels). However, ~50% of cargo is required to fulfill flowing demand
across the globe. Thus, logically, of the 2.3b bbls in available capacity, 1.3–1.4b
bbls is already full.
However, China, the second largest importer, is showing some signs of recovery.
Independent refiners in China are running at rates of 68% currently, which has
led to its inventory peaking in late March / mid-April.
Although, the improvement in crude oil price would cap as soon as global
inventories start entering the markets.
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China – Heading recovery…
…probably first country globally to lift lockdown
China is the second largest consumer and largest importer of crude, with consumption
at 13.6mnbopd in 2019. It imports ~8.7mnbopd (~64% of its consumption).
The country is heading recovery in oil demand across the globe, as several indicators
of demand registered spikes as the country lifted its lockdown in April.
Key macro indicators, such as work at large industrial enterprises, freight turnover,
and car sales, returned to near prior-year levels in April.
Road traffic has returned to normal for personal mobility vehicles; road traffic on the
weekdays is now at pre-lockdown levels.
IHS Markit now expects a Base Case scenario real GDP growth for China in 2020 at
0.45%, compared with 6.2% on a pre-COVID-19 basis. On the other hand, oil demand
growth for the year is expected to decline by 1.2mnbopd (or -8%) in 2020.
China comes out of lockdown strongly…
China’s oil demand has seen a sharp rise after the country’s lockdown was lifted.
Oil demand for April’20 was down by just 11% YoY (v/s -40% YoY in Feb’20) at
~12.7mnbopd v/s ~14.3mnbopd in April’19.
IHS expects demand to improve further and demand destruction to be in the
single digits at -8% YoY in May’20 as personal mobility and economic activity
resume. Thus, for the full-year 2020, oil demand growth is expected to decline
by 1.2mnbopd (or -8%).
Demand for products would be more varied as the severity of COVID-19 has
induced changes in consumer preferences and behaviors (e.g., prolonged revival
in jet fuel demand as seen during SARS outbreak in 2003).
Also, the use of public transportation and cab services remains depressed, along
with “holiday peaks” for road traffic, indicating a prolonged aftermath on
Leisure and Tourism.
However, in the last month, China’s oil refiners (which saw a jump in utilization
rates to 76% in May from 39% in Feb) bought spot cargo from Alaska, Canada,
and Brazil, taking advantage of the deep discounts due to non-existent demand
elsewhere.
…spikes futures curve above Brent
China has filled ~68% of its commercial storage capacities (i.e. 164mn bbls.
Chinese financial investors are betting heavily on its inventory and filling
commercial storage tanks held by the Shanghai Futures Exchange. Buying has
pushed Shanghai crude futures prices above global Brent prices.
China is taking advantage of stocking up on the cheapest crude oil as demand
starts to return. A total of 117 VLCCs – holding ~230m bbl of oil – are likely to be
delivered to the ports of China by August.
According to an article, the fleet en route to China could be the largest number
of supertankers traveling to the world’s top oil importer at one time ever.
Shandong province is all set to expand its crude storage capacity by 64.5mn bbl
mostly as early as July’20, according to S&P Global Platts.
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Exhibit 24: New crude tankers at Shandong province in China
Owners
Sinopec
Baogang International
PetroChina
Zhenhua Oil
Qingdoa Port
Hongrun
Dekun
Total
Location
Dongjiakou
Dongying
Dongjiakou
Dongjiakou
Dongjiakou
Binzhou
Rizhao
Capacity (m bbls)
10.1
7.3
3.8
5.0
10.1
15.7
12.6
64.5
Start-up
Started
Started
Jul-20
Jul/Aug-20
2HCY20
Jul-20
Jul-20
Source: S&P Platts, MOFSL
Exhibit 25: China’s oil storage utilization rates climb to more than 60% as the country lifts the lockdown
Source: Industry, MOFSL
Exhibit 26: China refinery utilization up to 76% in May from 39% in Feb, while Net exports from China jump over 2.5mmt
000'mt
3,200
2,400
1,600
800
0
Net export from China
China teapot refiners utilisation rate (%)
(%)
80
65
50
35
20
Source: Bloomberg, MOFSL
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India – third largest consumer
…beneficiary of price wars between countries for share of its oil market
India is the third largest crude oil consumer, with consumption at ~4.4mnbopd. Its
imports from the US increased to 5% in 2019 from 2% in 2018.
Also, India’s imports from GCC countries increased to 39% in 2019 from 34% in 2018
(Saudi Arabia jumped to 23% in 2019 from 20% in 2018), led by the various steep
discounts provided by these countries.
Despite OPEC+ cuts and calling it truce with global price war, Saudi Arabia continues to
offer huge discounts to Asian buyers. Saudi Aramco set its official OSP for Arab Light
Crude to Asia at USD5.9/bbl below the benchmark. This price is up from a discount of
USD7.4/bbl in May, but still down v/s April OSP at USD4.4/bbl.
Indian refiners also appear to have ramped up their utilization in the last few days. In
Apr’20 total refinery utilization in India stood at 70%, with utilization of IOCL and BPCL
refineries at 52-63%, while strong utilization from HPCL and RIL at 83-92%.
With gradual lifting of lockdown in India, we believe that the refineries would see
huge revival in refinery utilization rates in May-June as transportation demand picks.
A major rebound in demand for Petrol and ATF is expected in May, as various states in
India have lifted most of the lockdown restrictions, thus increasing the demand for oil
petroleum consumption in India.
Exhibit 27: India’s crude oil imports, destination-wise
mmt
Iraq
Saudi Arabia
UAE
Nigeria
Venezuela
Kuwait
Mexico
US
Iran
Angola
2018
47.71
39.27
16.06
16.8
17.3
11.38
8.88
4.86
25.7
6.47
2019
49.2
42.59
19.57
18.49
15.9
10.63
10.04
9.13
6.13
5.78
YoY change
1.49
3.32
3.51
1.69
-1.4
-0.75
1.16
4.27
-19.57
-0.69
Source: FT, MOFSL
According to recent media articles, India’s strategic crude oil reserves would be
at capacity by mid-May, Petroleum Minister Dharmendra Pradhan stated.
The minister revealed that we have nearly 38mmt of product and crude oil
storage facilities, constituting ~18% of India’s annual energy requirement.
India has SPR of 5.3mmt (equivalent to 9.5 days’ worth of imports) at
Visakhapatnam (1.33mmt), Mangaluru (1.5mmt), and Padur (2.5mmt).
Indian companies have ~7mmt of floating oil in their contracts.
Domestic online capacity in crude oil or products comprises storage of ~25mmt.
In addition to the aforementioned capacities, the government has approved the
construction of an additional 6.5mmt of strategic crude oil reserves at
Chandikhol (4mmt) in Odisha and Padur (2.5mmt) in Karnataka.
Thus, India would have oil reserves equivalent to at least 87 days’ worth of net
imports, once the second phase of ISPR turns operational.
IEA members maintain emergency oil reserves equivalent to at least 90 days’
worth of net imports.
Taking advantage of lower crude oil prices
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GCC countries – lack of aggression
Lower oil prices to impact oil-exporting countries the most
GCC has been the backbone for balancing the global crude oil market since its
formation in 1981. Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab
Emirates (UAE) are also prime members of the OPEC.
GCC countries constitute around 83% of the total OPEC production and ~23% of the
total global production.
The OPEC has always been quite clear about its motives/goals of keeping oil prices
stable, reducing volatility, and balancing the markets. Lately, these efforts are
primarily supported by Saudi Arabia, which carries the entire burden of the OPEC on
its shoulders.
However, these countries with treasures of oil aim to find a reasonable price that
could strike a balance for running their economies, which are primarily and largely
based on oil revenues.
Moody's estimates
that fiscal revenue and exports as a percentage of GDP would
decline in oil-exporting sovereigns due to lower oil prices: Iraq and Kuwait by >10%;
Oman, Qatar, Azerbaijan, Saudi Arabia, the Republic of the Congo, and Bahrain around
4–8%; and Russia, Kazakhstan, Trinidad and Tobago, Nigeria, and Gabon by <3% in
2020.
The OPEC – core GCC
The OPEC was formed in 1960 with five members: Iran, Iraq, Kuwait, Saudi
Arabia, and Venezuela (i.e., three GCC members). The OPEC was registered with
the United Nations (UN) on 6
th
Nov’1962.
The OPEC's objective is to co-ordinate and unify petroleum policies among
Member Countries, to secure fair and stable prices for petroleum producers; an
efficient, economic, and regular supply of petroleum to consuming nations; and
fair return on capital to those investing in the industry
(from the OPEC website).
The OPEC held its first meeting over 10–14
th
Sept’1960 in Baghdad (Iraq), with
the motive to regulate supply and price of oil.
In 1968, it adopted a ‘Declaratory Statement of Petroleum Policy in Member
Countries’ on the realization that the importance of non-renewable resources
(oil) and competing with each other would drop oil prices, with the risk of the
finite commodity running out sooner.
Exhibit 28: OPEC adjustments to production changes – excluding the unprecedented cuts announced recently
mnbopd
OPEC
OPEC+
OPEC volumes
33
30
27 28 28 26 26 27 29 27 25
26 25
25 25 26 27 25 24 23
25 25 25 24 26 26
23
22 23
1.7
0.7 0.8 0.5
-1.5 -1.0 -1.0 -1.5
1.3 1.5 0.9
-0.9 -1.0
2.0
0.5 1.0 0.5 0.5
-1.2
-0.5
0.5
-0.5
-1.5
26 25
-1.4 -1.3 -1.7
-2.2
-0.8 -1.2 -0.8 -0.8
Source: Reuters, OPEC, MOFSL
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Exhibit 29: OPEC countries’ crude flow to various other regions across the globe
Source: OPEC, MOFSL
Breakeven (fiscal) has started to hurt
The economies of the GCC – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and
the UAE – are suffering from oil prices well below the fiscal breakeven.
The members are also impacted by the collapse in oil demand (the key export
commodity). Despite various efforts to diversify their revenue streams, oil
remains the primary revenue stream.
Most GCC countries such as Bahrain and Oman (30% of GDP), the UAE and Qatar
(10% of GDP), and Saudi Arabia (over 4% of GDP).
The countries are forced to find various ways to fund stimulus packages and
mitigate the pain from oil prices, which are two (and even three) times lower
than their budget breakeven.
Oil & Gas contributed 83.3% to Qatar’s total revenue and 34% to the total
nominal GDP in 2018; it recently sold USD10b in three different tranche (5-10-30
year) bonds in the backdrop of lower oil prices and COVID-19-led challenges.
The fund received subscription of USD44b (4x the offer) as Qatar offered
incentive 300–440 bps interest over US Treasuries.
Nevertheless, Qatar’s ruler has also asked the government to postpone USD8.2b
in capital expenditure despite the country having the lowest fiscal breakeven of
USD55/bbl.
The IMF has also said that Kuwait could need ~USD180b in financing over the
next six years in the absence of more serious drastic fiscal measures.
Also, various other GCC members have witnessed expenditure cuts; e.g., Oman
(5%) and Saudi Arabia recently announced a further 5% cut in spending (in
addition to 3% per year over 2021–23 announced in the 2020 budget).
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Exhibit 30: GCC countries – public sector balance sheet
as % of
GDP
521
246
Government debt (2020)
Govern related entity debt (2018)
Sovereign net foreign assets
162
Exhibit 31: GCC countries – fiscal balances
Fiscal
balances as
% of GDP
1.2
2019
2020 forecast
2020 (fitch Dec'19 forecast)
1.1
-1
-3.2
-7.7
-4.5
-10
Saudi
Arabia
-9.4
-7.9
-13
Oman
3.6
0.6
72
-13
73 43
Oman
-47
119 34
Bahrain
-4.1
-5.1
-11.4
Qatar
-7.6
-13.5
15 53
17 48
79 67
Qatar
31 24
Saudi
Arabia
-14.7
Kuwait
Kuwait Abu Dhabi
Abu Dhabi Bahrain
Source: Fitch ratings, MOFSL
Source: Fitch ratings, MOFSL
Saudi Arabia – more vulnerable
The Saudi government announced its
own budget forecast,
fiscal deficit at 6.5
percent of GDP for 2020, which it plans to fund via reserves, loans, or bonds.
Despite the Kingdom’s various efforts to be less dependent on oil revenues, as
in 2019, non-oil revenues stand at 50% of the total revenue.
Also, price wars have impacted Saudi Arabia and the OPEC more in the past as
well. The last time in 2014, Saudi Arabia had tried a similar strategy to flood the
markets to destroy US shale; during the two years alone (2014–16) that this
strategy had lasted, OPEC member states had lost ~USD450b in total oil
revenues from the lower price environment, according to the IEA.
US shale producers are, in fact, in a better production profile now with
technological improvements driving down their breakeven prices.
Oil & Gas as a percentage of GDP in the US is only ~8%, with much lower crude
oil field breakeven of USD48–54/bbl v/s Saudi’s budget breakeven 2x at
~USD91/bbl.
Nevertheless, in 2016, Saudi Arabia’s economic and political situation was so
bad the Kingdom’s Deputy Economic Minister Mohamed Al Tuwaijri stated, “If
we [Saudi Arabia] don’t take any reform measures, and if the global economy
stays the same, then we’re doomed to bankruptcy in 3-4 years.”
Exhibit 33: GCC countries have higher % of O&G in GDP
Oil and Gas as a % of GDP
30% 30% 34%
50%
60%
65%
Exhibit 32: Budget breakeven of crude oil prices – for GCC
countries
Country
Nigeria
Bahrain
Saudi Arabia
Oman
Kuwait
Abu Dhabi
Qatar
Break-even Oil Price
144
96
91
82
68
65
55
Source: Fitch Ratings, MOFSL
8%
9% 10% 10%
20%
Source: Saudi Arabia MoF, MOFSL
1 June 2020
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Russia – Better-off than Saudi Arabia…
…based on (budget) breakeven
Russia is the third largest oil producer in the world, with production of ~11.4mnbopd,
and the top fifth oil consumer at ~3.4mnbopd.
Russia relies on oil sales for ~66% of its export earnings and 40% of its revenue,
clocking ~30% of its GDP from Oil & Gas.
With its rising significance in the global oil supply scheme, it is the newest member of
the extended group called the OPEC+. As per COVID-19-led unprecedented cuts
announced in Apr’20, Russia was producing ~11mnbopd and was supposed to reduce
production by 2.5mnbopd starting May’20.
According to Reuters’ sources, Russia’s crude oil production averaged 8.72mnbopd in
May (close to the 8.5mnbopd quota given in the Apr’20 cuts).
Russia has some edge over Saudi in price war
Since Russia joined the OPEC in its production cut plans, the group called OPEC+
saw disagreement for the first time, just before the global outbreak of COVID-19
in the first week of March.
Saudi Arabia in the spur of the moment entered into a price war, stating it
would flood the markets with crude oil supply. The Kingdom then increased its
output from <10mnbopd to >13mnbopd over the next couple of weeks to gain
market share.
Russia, in a tussle back, announced it would increase production by 0.5mnbopd
on its already high production rates (producing ~11.5mnbopd at the time).
Russia has a budget breakeven price of USD40/bbl, almost 50% lower than Saudi
Arabia at USD91/bbl (and a 20–40% lower budget breakeven v/s shale oil field
breakeven in the US).
Also, even in terms of production, Russia’s (total CIS) production in the last two
decades averages at around ~11.6mnbopd, ~12% higher than Saudi’s average of
~10.4mnbopd.
Another advantage for Russia is the nation’s flexible fiscal tax scheme. Last year,
when oil prices averaged USD50–60/bbl, government levies formed the bulk of
expenses for Russian producers (which paid USD34–42/bbl to the state in
extraction taxes and export duties).
Exhibit 34: Revisions in US shale reserves have been in line with changes in oil prices
Incremental crude oil
production in last couple of
years has been from US.
16
12
8
4
0
Oil production - mnbopd
Saudi Arabia
Total CIS
US
Source: BP, MOFSL
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US shale – the biggest loser?
Is this the end of the second shale boom?
As per the EIA, in Nov’19, total crude production jumped 11% YoY and reached
milestone peak production of 12.87mnbopd.
In 2019, the US became the top producer of oil globally, with average production of
12.2mnbopd.
In the current year, this was further expected to rise by 0.5mnbopd and reach
13.3mnbopd and a further 13.6mnbopd in 2021.
Unfortunately, COVID-19 put the brakes on the steep climb enjoyed by the US in crude
production. Production is now expected to fall to 11.7mnbopd in 2020 and
10.9mnbopd in 2021 as the steep climb reverses.
The shale boom: 2010–14 and 2017–20
Three reasons for the US shale boom are: stable and higher oil prices, continued
improvement in technology, and cheap credit (lower interest rate). This led to a
quick rise in US shale output, changing the dynamics of the global crude oil
market.
Stable and higher oil prices
Shale boom 1:
Oil prices averaged higher than USD90/bbl over 2011–14,
giving shale producers enough space and room to expand and turn
profitable.
Shale boom 2:
This was fueled by voluntary cuts by the OPEC (starting from
2017), which supported crude oil prices, favoring the conditions for shale
production.
Thus, production increased meaningfully in 2019, led by stable crude prices.
In 2019, the US turned the top producer of oil globally (~12.2mnbopd).
Cheap credit availability
A low interest rate environment gave banks and private equity investors’
strong incentive to lend to shale oil companies.
Shale oil has advantages in terms of quick start (very less time to commence
production, i.e., one–three years v/s conventional wells of more than three
years), which resulted in quick investments in these projects.
However, with these advantages came the disadvantage in terms of the
nature of its wells. Shale wells are fracked wells and tend to deplete faster;
thus shale oil producers have to keep drilling new wells to maintain
production levels, making extraction expensive.
US shale production is directly related to capital deployment.
Continued improvements in technology
The above-stated issue is seeing continuous resolution as producers have
been driving down breakeven cost through technological improvements and
shedding away less-productive wells, thus improving production with a
reduced number of rigs.
Lower crude oil prices hamper both major improvements in new
technologies and capex of these companies.
In the exhibit below, well productivity increased by 18kbopd in the latter part of
2019, reflected in the upward-sloping 2019 data set (v/s downward-sloping data
sets in other comparable periods).
20
1 June 2020
 Motilal Oswal Financial Services
Oil & Gas
Exhibit 35: Bankruptcy filings in US over 2015–20, region-wise
Source: Oil sands magazine, MOFSL
Exhibit 36: Clear inflection and change in US crude oil market dynamics after 2010
Since 2010, when the shale
boom began, the US saw a
production CAGR of 8%
over 2010–19, while
consumption grew at a 1%
CAGR.
This led to an export CAGR
of 16%, resulting in a net
import CAGR of -25% over
the past decade.
mnbopd
24
18
12
6
0
consumption
exports
production
net imports
imports
Source: EIA, MOFSL
Exhibit 37: US’ export destinations
Total
Petroleum
14%
12%
7%
7%
6%
46%
Mexico
Canada
South Korea
Japan
Brazil
Total
Canada
South Korea
Netherlands
India
UK
Total
Crude
Oil
15%
14%
9%
9%
8%
55%
Source: EIA, MOFSL
Exhibit 38: US’ import destinations
Total
petroleum
49%
7%
6%
6%
4%
72%
Canada
Mexico
Saudi Arabia
Russia
Colombia
Total
Canada
Mexico
Saudi Arabia
Iraq
Colombia
Total
Crude
oil
56%
9%
7%
5%
5%
82%
Source: EIA, MOFSL
1 June 2020
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Oil & Gas
The shale bust – will 2014 repeat itself?
With a huge slump in oil
prices, bankruptcies jumped
to 65 in a single quarter in
2QCY16 (after crude price
bottomed in 1QCY16),
showing the immediate
stress faced by shale
producers.
Exhibit 7 highlights the
direct correlation between
bankruptcies and crude oil
prices. 2016 saw the highest
bankruptcy with 155 filings,
while 2019 clocked 65
fillings (in the final months)
as crude oil price declined.
E&P companies led the pack
in terms of bankruptcies,
followed by services
companies.
Owing to the characteristics of shale oil production (continuous fracking –
increasing cost), the industry is highly capital-intensive. Thus, companies have to
turn to banks for aid with capital.
Oil price averaged higher than USD90/bbl over 2011–14; however, it fell to
~USD30/bbl in 2016 from more than USD100/bbl.
However, with the aforementioned advantages (lower credit cost) and
advancements (better cost efficiencies), shale producers continued drilling,
which led to a spike in crude oil supplies.
The OPEC also kept pumping oil to maintain market share.
Bankers/Lenders used oil reserves as collateral; as prices slumped, the value of
the collateral declined. As a result, the scenario turned on its head immediately.
The impact on US shale producers was a double whammy as revenue
recognition took a hit and lenders also became less willing to roll over debt.
Many smaller shale companies had mortgage payments against ~40% of their
revenue in 2015. Thus, as prices kept low, many companies filed for bankruptcy
and went out of business.
Once again in 2017, the second US shale oil boom began with recovery in crude
oil prices. Continental Resources’ Harold Hamm
warned his fellow producers,
"While this period of adjustment is going on, drillers don't want to drill
themselves into oblivion. Back up, and be prudent and use some discipline."
Reports
state US oil & gas companies have more than USD200b in debt maturing
over the next three–four years, with ~USD40b in debt by US oil companies
maturing in 2020.
Exhibit 39: US bankruptcies v/s Brent prices
E&P
62
50
30
16
29
44
34
35
SERVICES
65
46 46 49
30 25
MIDSTREAM
62
67
TOTAL
75 75
BRENT (USD/BBL)
67 63 69
62 63
54
54 50 52
51
23 23 17 20
11
16
27
7
8
8
15
15 17
Source: Haynes and Boone, MOFSL
Exhibit 40: Yearly bankruptcies in the US…
E&P
MIDSTREAM
52
75
4
33
38
2015
155
13
44
72
70
2016
54
83
7
52
24
2017
SERVICES
BRENT (USD/BBL)
64
51
65
2
21
42
2019
Exhibit 41: …with total debt when filing for bankruptcy
Total debt while filing bankrupty (USD b)
E&P SERVICES MIDSTREAM TOTAL
83.2
12.8
13.5
27.2
4.5
5.3
17.4
2015
56.8
2016
46.8
3.0
35.3
8.5
2017
107.6
1.1
80.7
17.2
0.2
3.9
13.2
2018
18.9
0.2
10.9
7.7
2020
71
42
2
12
28
2018
17
2
8
7
2020
25.8
2019
Source: Haynes and Boone, MOFSL
1 June 2020
Source: Haynes and Boone, MOFSL
22
 Motilal Oswal Financial Services
Oil & Gas
Exhibit 42: Bankruptcy filings in the US over 2015–20, region-wise
Source: Haynes and Boone, MOFSL
US shale oil reserves directly correlated to crude oil prices
The EIA reported 43.8 billion barrels of proved (oil and natural gas) reserves in
2018. For oil, the largest reserves are in Texas, North Dakota, and the Gulf of
Mexico. For natural gas, the largest reserves are in Texas, Pennsylvania, and
Oklahoma.
Various revisions primarily occur when operators change their estimates of what
they will be able to produce from the properties they operate in response to
changing prices or technology improvements.
Higher fuel prices typically increase estimates (positive revisions), while lower
prices generally reduce estimates (negative revisions).
Thus, with a fall in average crude prices, downward revision in crude oil reserves
impacts US shale producers’ credibility to lenders. This results in significant
decline in the value of collateral (lower reserves in a lower crude price
environment.)
Exhibit 43: Revisions in US shale reserves have been in line with oil price changes
billion
barrels
2014
2015
2016
2017
2018
US Total
Texas
North Dakota Gulf of Mexico
Others
Crude Oil prices
Source: EIA, MOFSL
1 June 2020
23
 Motilal Oswal Financial Services
Oil & Gas
Appendix:
Top five oil producers
Top five oil consumer
Total global reserves
Exhibit 45: Top oil consumers – the top 5 constitutes ~46%
Country
United States
China
India
Japan
Russia
Saudi Arabia
Brazil
South Korea
Germany
Canada
Total top 10
World total
mnbopd
19.96
13.57
4.34
3.92
3.69
3.33
3.03
2.63
2.45
2.42
59.33
98.76
Share of world total
20%
14%
4%
4%
4%
3%
3%
3%
2%
2%
60%
Source: EIA, MOFSL
Exhibit 44: Top oil producers – the top 5 constitutes ~52%
Country
United States
Saudi Arabia
Russia
Canada
China
Iraq
UAE
Brazil
Iran
Kuwait
Total top 10
World total
mnbopd
19.51
11.81
11.49
5.50
4.89
4.74
4.01
3.67
3.19
2.94
71.76
100.63
Share of world total
19%
12%
11%
5%
5%
5%
4%
4%
3%
3%
71%
Source: EIA, MOFSL
Exhibit 46: Total reserves – top 5 producers have ~39% of global oil reserves
Despite being the current
largest crude oil producer,
the US has only 4% of the
total global reserves.
18% 17%
303
298
168
156
147
106
102
98
Billions of Barrels
10%
9%
9%
6%
6%
6%
4%
% of World Total
3%
2%
2%
2%
2%
1%
61
48
38
30
26
25
13
Note: includes crude oil, NGL and condensate Source: BP stats 2019, MOFSL
1 June 2020
24
 Motilal Oswal Financial Services
Oil & Gas
ONGC: Company summary – PT INR105 (+25%)
ONGC: gas production to get a boost
The government is looking at a slew of initiatives for the upstream sector. Our
estimate suggests that a change of 1% in cess is likely to boost the EPS by 2%.
While oil production is largely expected to remain flat, we expect gas production to
increase by 11/26% in FY21/22. Major boost is expected from KG-DWN-98/2. The
production is also likely to command a higher price than the APM gas. We also expect
that the next revision in domestic gas prices be the bottom of gas prices. A change of
USD1/mmBtu in gas price is expected to boost consolidated EPS by 18%.
ONGC is trading at 3.3x FY22 EV/EBITDA and 4.3x FY22 PE (v/s its long term average of
10.1x). We forecast an oil price of USD50-60/bbl in the longer term. While for
financials projection, we use USD50/bbl, we raise our PE multiple from 8x to 10x
expecting further increase in oil prices. We reiterate Buy with a target of INR105.
Exhibit 47: ONGC – Valuation snapshot
Valuation of ONGC
FY22 Standalone adj EPS(INR)
PE (x)
Valuation of ONGC stand (INR/share)
Listed investments
Indian Oil Corporation
Petronet LNG
GAIL
MRPL
HPCL
Total valuation
Valuation of Mozambique
Recoverable reserves (tcf)
Valuation of block (USD bn)
ONGC's stake (%)
Discount rate (%)
Valuation for ONGC (USD bn)
Value paid (USD bn)
Valuation for ONGC (INR/share)
Valuation of ONGC (INR/share)
7.5
10.0
75
9
4
2
4
16
109
75
31
16
50
3
3
(4)
105
Source: Company, MOFSL
Exhibit 48: ONGC – 1 year fwd PE trading at 40% discount…
27.0
21.0
15.0
9.0
3.0
P/E (x)
Min (x)
Avg (x)
+1SD
Max (x)
-1SD
Exhibit 49: …with 1 yr fwd PBV at 0.4x (v/s LT avg. of 1.3x)
P/B (x)
3.2
2.4
1.6
Min (x)
Avg (x)
+1SD
Max (x)
-1SD
20.7
10.1
6.9
13.3
2.4
1.7
0.9
0.4
1.3
5.9
5.9
0.8
0.0
0.4
Source: Company, MOFSL
Source: Company, MOFSL
1 June 2020
25
 Motilal Oswal Financial Services
Oil & Gas
Year End: March 31 (INRm)
Exhibit 50: ONGC – key assumptions
Exchange Rate (INR/USD)
APM Gas Price (USD/mmbtu)
Brent crude price (USD/bbl)
FY15
61.4
4.9
86.0
25.9
23.5
49.5
8.9
58.3
363
86.0
40.9
45.1
FY16
65.5
4.7
47.6
25.9
22.5
48.5
8.9
57.4
17
48.6
1.8
46.8
FY17
67.1
3.1
48.6
25.5
23.3
48.8
12.8
61.6
0
50.2
0.0
50.2
FY18
64.5
3.0
57.6
26.2
25.6
51.8
14.2
66.0
0
57.4
0.0
57.4
FY19
70.0
3.5
70.1
24.2
25.8
50.0
14.8
64.9
0
68.9
0.0
68.9
FY20E
70.8
3.8
61.2
23.5
25.0
48.5
14.8
63.4
0
59.2
0.0
59.2
FY21E
72.5
2.8
40.0
24.0
27.9
51.9
13.9
65.8
0
40.0
0.0
40.0
FY22E
73.3
3.0
50.0
24.0
35.2
59.2
14.5
73.7
0
50.0
0.0
50.0
Production Details (mmtoe)
Domestic Oil Prodn (mmt)
Domestic Gas Prodn (bcm)
Domestic Prodn (mmtoe)
OVL Production (mmtoe)
Group Production (mmtoe)
Subsidy Sharing (INRb)
ONGC Subsidy
Oil Price Realization (USD/bbl)
Gross
Upstream Discount
Net
Source: Company, MOFSL
Exhibit 51: ONGC – Financial snapshot
Y/E March
2015
547
184
2016
1,357
452
174
13.6
-5.0
154.1
0.1
9.2
8.3
66.8
6.2
0.5
2.8
6.7
43.5
2017
3,257
580
288
22.4
64.9
151.5
0.3
14.7
11.1
36.0
3.7
0.6
2.9
8.3
15.9
2018E
3,622
644
259
20.2
-9.9
159.0
0.5
13.0
9.2
38.0
4.2
0.5
3.2
7.9
-20.2
2019
4,535
839
348
27.1
34.4
170.0
0.4
16.5
11.1
31.3
3.1
0.5
2.4
8.2
17.1
2020E
4,313
679
219
17.1
-37.0
179.7
0.5
9.8
7.0
42.9
4.9
0.5
3.2
7.5
-0.2
2021E
4,263
494
161
12.5
-26.8
188.6
0.5
6.8
4.8
29.1
6.7
0.4
4.6
3.7
-6.0
2022E
4,610
649
248
19.3
54.6
202.5
0.4
9.9
7.0
28.1
4.3
0.4
3.3
5.5
16.1
Sales
EBITDA
Adj. PAT
Adj. EPS (INR)
EPS Gr. (%)
BV/Sh.(INR)
Ratios
Net D:E
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div. Yield (%)
FCF Yield (%)
1,609
14.3
-30.0
140.6
0.2
10.4
9.1
53.2
5.9
0.6
2.6
7.5
-2.7
Source: Company, MOFSL
1 June 2020
26
 Motilal Oswal Financial Services
Oil & Gas
Oil India: Company summary – PT INR105 (+21%)
For FY21/22, we model Brent price at ~USD40/50/bbl and INR/USD at 72.5/73.3 for
FY21/22 respectively.
OINL is not expected to show any sharp increase in oil or gas production going
forward. We further highlight that a change of USD1/bbl in oil price impacts the
consol. EBITDA by 3%.
The company has dividend payout of more than 50% and dividend yield of ~12% in
FY19. The stock trades at ~27% discount to its long term PE average.
OINL is trading at 3.8x FY22 EV/EBITDA and 5.3x FY22 PE. We value it at 8x FY22
adjusted PE and add the value of investments to arrive at a target price of INR105.
Exhibit 52: Oil India – Valuation snapshot
On P/E Basis
Adj. FY'21 EPS
Target P/E Multiple (x)
Fair Value
Investments
Fair Value
Valuation of Mozambique
Recoverable reserves (tcf)
Valuation of block (USD bn)
OIL's stake (%)
Discount rate (%)
Valuation for OIL (USD bn)
Value paid (USD bn)
Valuation for OIL (INR/share)
Total Valuation (INR/share)
13.1
8.0
105
49
154
75
13
4
50
0
1.0
-49
105
Source: Company, MOFSL
Exhibit 53: Oil India –1 year fwd PE trading at 27%
discount…
P/E (x)
Min (x)
16.0
12.0
8.0
4.0
Avg (x)
+1SD
Max (x)
-1SD
Exhibit 54: …with 1 yr fwd PBV at 0.3x (v/s LT avg. of 1.1x)
2.4
1.8
1.2
P/B (x)
Min (x)
Avg (x)
+1SD
Max (x)
-1SD
15.3
11.8
9.7
7.5
6.5
2.1
1.5
1.1
0.7
0.3
7.1
0.6
0.0
0.3
Source: Company, MOFSL
Source: Company, MOFSL
1 June 2020
27
 Motilal Oswal Financial Services
Oil & Gas
Year End: March 31 (INRm)
Exchange Rate (INR/USD)
APM Gas Price (USD/mmbtu)
Brent Crude Price (USD/bbl)
Production Details
Oil (mmt)
Gas (bcm)
Total (mmtoe)
Subsidy Sharing (INRb)
Oil Price Realization (USD/bbl)
Gross
Upstream Discount
Net
EPS (INR/sh.)
Exhibit 55: OILI – key assumptions
FY15
61.1
4.8
85.5
3.44
2.72
6.16
55
84.3
37.3
46.9
19.4
FY16
65.4
4.7
47.5
3.25
2.84
6.09
2
46.4
1.0
45.3
22.3
FY17
67.1
3.0
49.0
3.28
2.94
6.22
-
47.4
-
47.4
23.9
FY18
64.5
3.0
57.6
3.39
2.89
6.29
-
55.7
-
55.7
23.6
FY19
64.5
3.5
70.1
3.32
2.72
6.05
-
68.5
-
68.5
32.0
FY20E
70.8
3.8
61.2
3.11
2.69
5.80
-
59.6
-
59.6
17.5
FY21E
72.5
2.8
40.0
3.23
2.69
5.93
-
40.5
-
40.5
8.5
FY22E
73.3
3.0
50.0
3.24
2.80
6.04
-
50.5
-
50.5
16.5
Source: Company, MOFSL
y/e march (INR bn)
Sales
EBITDA
Adj. PAT
Adj. EPS (INR)
EPS Gr. (%)
BV/Sh.(INR)
Ratios
Net D:E
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div. Yield (%)
FCF Yield (%)
Exhibit 56: OILI – Financial snapshot
2015
92.3
30.1
21.9
19.4
-26.5
212.0
0.0
9.8
3.8
65.8
4.5
0.4
2.9
12.3
4.5
2016
92.7
30.7
25.2
22.3
14.9
220.5
0.0
9.4
4.1
56.5
3.9
0.4
2.9
11.1
19.0
2017
93.6
29.6
27.0
23.9
7.2
257.4
0.1
5.7
3.5
96.5
3.6
0.3
4.1
12.7
17.3
2018E
106.6
39.1
26.7
23.6
-1.2
246.9
0.2
9.4
4.8
52.7
3.7
0.4
3.6
11.9
28.8
2019
137.3
54.8
36.2
32.0
35.6
245.5
0.0
9.3
6.8
53.8
2.7
0.4
2.0
11.8
52.2
2020E
117.1
44.0
19.8
17.5
-45.3
255.1
0.1
7.0
4.4
53.8
5.0
0.3
2.6
9.0
5.7
2021E
86.7
20.6
9.6
8.5
-51.4
259.8
0.1
3.3
1.3
53.8
10.2
0.3
6.1
4.4
-9.6
2022E
106.6
32.4
18.6
16.5
93.9
268.9
0.1
6.2
3.2
53.8
5.3
0.3
3.8
8.5
12.9
Source: Company, MOFSL
1 June 2020
28
 Motilal Oswal Financial Services
Oil & Gas
Valuation snapshot
Exhibit 57: India Oil and Gas companies – valuation snapshot
Company
EPS (INR)
FY21E
P/E (x)
FY20E
FY22E
FY20E
P/BV (x)
EV/EBITDA (x)
ROE (%)
Div. Yld
FY20E
FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E
Aegis Logistics
BPCL
GAIL (India)
Gujarat Gas
Guj.St.Petronet
HPCL
IOCL
Indraprastha Gas
Mahanagar Gas
MRPL
Oil India
ONGC
Petronet LNG
Reliance Inds.
Castrol India
4.2
17.0
10.4
17.1
19.6
9.5
3.3
17.2
82.4
-13.3
17.5
17.1
21.0
68.1
8.4
10.5
33.6
9.8
12.3
17.1
37.4
12.5
16.4
64.3
5.5
10.4
11.3
19.1
66.4
9.6
14.2
44.5
13.2
15.5
19.3
47.8
17.7
19.7
69.7
7.9
19.2
20.5
22.4
98.1
10.0
41.0
20.4
8.8
14.4
10.3
20.6
25.7
27.3
11.7
NM
5.0
4.9
11.8
22.3
14.1
16.4
10.3
9.4
20.0
11.9
5.2
6.9
28.7
15.0
5.8
8.4
7.4
12.9
22.9
12.3
12.1
7.8
6.9
15.9
10.5
4.1
4.9
23.8
13.8
4.0
4.5
4.1
11.0
15.5
11.8
3.9
1.7
0.9
5.4
1.7
1.0
0.7
6.5
3.3
0.7
0.3
0.5
3.4
2.1
8.5
3.3
1.5
0.9
4.5
1.5
0.9
0.7
5.5
3.0
0.6
0.3
0.4
3.1
2.0
7.7
2.8
1.3
0.8
3.7
1.3
0.8
0.6
4.7
2.6
0.5
0.3
0.4
2.9
1.8
6.9
18.7
10.0
6.5
10.7
4.4
7.6
6.7
19.8
7.8
NM
2.5
3.1
8.4
10.4
9.1
10.3
7.8
6.8
10.9
4.0
4.9
4.6
19.0
8.9
4.2
4.1
3.8
7.9
10.1
8.0
7.5
6.3
5.1
8.6
3.0
4.6
3.6
15.6
7.9
3.3
2.8
2.9
6.7
7.1
7.4
10.0
8.4
10.6
44.2
17.7
4.7
2.7
26.2
31.0
-24.4
7.0
9.8
29.9
10.3
65.3
22.1
15.4
9.5
24.5
13.5
17.4
9.8
20.7
20.9
10.9
4.0
6.2
25.1
8.9
65.7
25.0
18.2
12.0
25.5
13.5
20.1
13.0
21.2
20.2
14.3
7.2
10.6
27.3
11.9
61.8
0.5
1.6
7.6
1.3
0.9
1.8
1.6
0.6
3.1
0.0
9.0
7.5
4.8
0.4
4.7
Source: Company, MOFSL
1 June 2020
29
 Motilal Oswal Financial Services
Oil & Gas
NOTES
1 June 2020
30
 Motilal Oswal Financial Services
Oil & Gas
Explanation of Investment Rating
Investment Rating
BUY
SELL
NEUTRAL
UNDER REVIEW
NOT RATED
Expected return (over 12-month)
>=15%
< - 10%
< - 10 % to 15%
Rating may undergo a change
We have forward looking estimates for the stock but we refrain from assigning recommendation
shall within following 30 days take appropriate measures to make the recommendation consistent with the investment rating legend.
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Kong Securities and Futures Commission (SFC) pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “SFO”. As per SEBI (Research Analyst
Regulations) 2014 Motilal Oswal Securities (SEBI Reg No. INH000000412) has an agreement with Motilal Oswal capital Markets (Hong Kong) Private Limited for distribution of
research report in Hong Kong. This report is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. Any investment or investment activity
to which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these
securities, products and services in any jurisdiction where their offer or sale is not qualified or exempt from registration. The Indian Analyst(s) who compile this report is/are not
located in Hong Kong & are not conducting Research Analysis in Hong Kong.
For U.S.
Motilal Oswal Financial Services Limited (MOFSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under
applicable state laws in the United States. In addition MOFSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers
Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any
brokerage and investment services provided by MOFSL , including the products and services described herein are not available to or intended for U.S. persons. This report is
intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as
"major institutional investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which
this document relates is only available to major institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration
provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange
Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOFSL has entered into a chaperoning agreement with a U.S. registered broker-
dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this
chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S.
registered broker-dealer, MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public
appearances and trading securities held by a research analyst account.
For Singapore
In Singapore, this report is being distributed by Motilal Oswal Capital Markets Singapore Pte Ltd (“MOCMSPL”) (Co.Reg. NO. 201129401Z) which is a holder of a capital markets
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Specific Disclosures
1 MOFSL, Research Analyst and/or his relatives does not have financial interest in the subject company, as they do not have equity holdings in the subject company.
2 MOFSL, Research Analyst and/or his relatives do not have actual/beneficial ownership of 1% or more securities in the subject company
3 MOFSL, Research Analyst and/or his relatives have not received compensation/other benefits from the subject company in the past 12 months
4 MOFSL, Research Analyst and/or his relatives do not have material conflict of interest in the subject company at the time of publication of research report
5 Research Analyst has not served as director/officer/employee in the subject company
6 MOFSL has not acted as a manager or co-manager of public offering of securities of the subject company in past 12 months
7 MOFSL has not received compensation for investment banking/ merchant banking/brokerage services from the subject company in the past 12 months
8 MOFSL has not received compensation for other than investment banking/merchant banking/brokerage services from the subject company in the past 12 months
9 MOFSL has not received any compensation or other benefits from third party in connection with the research report
10 MOFSL has not engaged in market making activity for the subject company
*In case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst
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 Motilal Oswal Financial Services
Oil & Gas
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The associates of MOFSL may have:
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financial interest in the subject company
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actual/beneficial ownership of 1% or more securities in the subject company
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received compensation/other benefits from the subject company in the past 12 months
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other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on
the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOFSL
even though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report.
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acted as a manager or co-manager of public offering of securities of the subject company in past 12 months
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be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the
company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies)
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received compensation from the subject company in the past 12 months for investment banking / merchant banking / brokerage services or from other than said services.
The associates of MOFSL has not received any compensation or other benefits from third party in connection with the research report
Above disclosures include beneficial holdings lying in demat account of MOFSL which are opened for proprietary investments only. While calculating beneficial holdings, It does not
consider demat accounts which are opened in name of MOFSL for other purposes (i.e holding client securities, collaterals, error trades etc.). MOFSL also earns DP income from
clients which are not considered in above disclosures.
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the
research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.
Terms & Conditions:
This report has been prepared by MOFSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and
may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent
of MOFSL. The report is based on the facts, figures and information that are considered true, correct, reliable and accurate. The intent of this report is not recommendatory in
nature. The information is obtained from publicly available media or other sources believed to be reliable. Such information has not been independently verified and no guaranty,
representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. The
report is prepared solely for informational purpose and does not constitute an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial
instruments for the clients. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. MOFSL will not treat recipients as
customers by virtue of their receiving this report.
Disclaimer:
The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or
distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent. This report and information herein is solely for
informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing
in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances.
The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment
objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this
document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this
document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views
expressed may not be suitable for all investors. Certain transactions -including those involving futures, options, another derivative products as well as non-investment grade
securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of
the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and
should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make
modifications and alternations to this statement as may be required from time to time without any prior approval. MOFSL, its associates, their directors and the employees may from
time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to
perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a
separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of
information that is already available in publicly accessible media or developed through analysis of MOFSL. The views expressed are those of the analyst, and the Company may or
may not subscribe to all the views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on,
directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or
entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law,
regulation or which would subject MOFSL to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in
all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.
Neither the Firm, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost
revenue or lost profits that may arise from or in connection with the use of the information.
The person accessing this information specifically agrees to exempt MOFSL or any of its
affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOFSL or any of its affiliates or employees responsible for any such
misuse and further agrees to hold MOFSL or any of its affiliates or employees free and harmless from all losses, costs, damages,
expenses that may be suffered by the person
accessing this information due to any errors and delays.
Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022 71934200/ 022-71934263;
Website www.motilaloswal.com.CIN no.: L67190MH2005PLC153397.Correspondence Office Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road,
Malad(West), Mumbai- 400 064. Tel No: 022 7188 1000.
Registration Nos.: Motilal Oswal Financial Services Limited (MOFSL)*: INZ000158836(BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst:
INH000000412. AMFI: ARN - 146822; Investment Adviser: INA000007100; Insurance Corporate Agent: CA0579;PMS:INP000006712. Motilal Oswal Asset Management Company
Ltd. (MOAMC): PMS (Registration No.: INP000000670); PMS and Mutual Funds are offered through MOAMC which is group company of MOFSL. Motilal Oswal Wealth
Management Ltd. (MOWML): PMS (Registration No.: INP000004409) is offered through MOWML, which is a group company of MOFSL. Motilal Oswal Financial Services Limited is
a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs,Insurance Products and IPOs.Real Estate is offered through Motilal Oswal Real Estate Investment Advisors II Pvt.
Ltd. which is a group company of MOFSL. Private Equity is offered through Motilal Oswal Private Equity Investment Advisors Pvt. Ltd which is a group company of MOFSL.
Research & Advisory services is backed by proper research. Please read the Risk Disclosure Document prescribed by the Stock Exchanges carefully before investing. There is no
assurance or guarantee of the returns. Investment in securities market is subject to market risk, read all the related documents carefully before investing. Details of Compliance
Officer: Name: Neeraj Agarwal, Email ID: na@motilaloswal.com, Contact No.:022-71881085.
* MOSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National
Company Law Tribunal, Mumbai Bench.
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