Impact of the Financial Crisis on Oil and Gas Exploration and Production Investment

GlobalData’s “Impact of the Financial Crisis on Oil & Gas Exploration and Production Investment” focuses on the key challenges and issues faced by the exploration and production companies. The unraveling of the global financial crisis has had severe implications on the growth of the world economies. IMF has revised the 2009 global GDP growth downwards to 2.2% from 3.7% in 2008 and 5% in 2007. Global financial and economic crises is eroding oil and gas demand. The financial crises that has created world wide credit crunch may stem the flow of capital expenditure by exploration and production (E&P) companies. With commodities prices now having fallen 63% for oil and 50% for natural gas off recent highs in July 2008, E&P companies are cutting back their capital budget and drilling plans for the remainder of 2008 and 2009.

Scope

• The plunge in oil prices to around $50 a barrel and natural gas to $7 per mcf will curtail E&P companies' spending on new projects, limit production growth. E&P companies are cutting back their capital budget and drilling plans for the remainder of 2008 and 2009.
• In 2008, production growth is expected to be around 14%, the highest growth rate since 2003. However, E&P companies are expected to cut their initial production guidance for 2009 if the commodity prices continue to trade around the current level.
• Crude oil prices fell by more than a third in value from their record levels of above $147 in July. Crude oil prices are expected to continue their bearish trend with week global economic outlook, financial market turmoil, and strengthening US dollar.
• As crude oil falls on back of current economic and financial climate and fear of recession, most E&P companies are now trading near their 52-week lows.
• Global financial and economic crises have led to the falling stock markets and oil prices. The combination of falling stock markets and oil prices could be enough to trigger strategic acquisitions and partnerships by the oil and gas companies.

Reasons to buy

• Identify potential challenges faced by E&P sector due to the current financial crises.
• Analyze the impact of financial crises on the future investment strategies of the E&P companies.
• Identify future Merger and Acquisition (M&A) trends in the E&P sector arising out of current financial and business environment.
• Evaluate the impact of current financial crises on the valuation of the E&P companies.

Contents

1 TABLE OF CONTENTS


1.1 LIST OF TABLES


1.2 LIST OF FIGURES


2 GLOBAL FINANCIAL CRISES-CHALLENGING TIMES AHEAD FOR E&P COMPANIES


3 COMMODITY PRICES PLUNGE ON ACCOUNT OF GLOBAL FINANCIAL CRISIS


4 E&P COMPANIES ARE LIKELY TO TRIM THEIR FUTURE CAPITAL SPENDING

4.1 Organic Capital Spending Expected to Come Down
4.2 US Gas Shale: Facing Challenging Issues
4.3 Reinvestment Rates Have Soared in Recent Years
4.4 E&P Leverage Metrics
4.5 Some Major Projects Are Getting Postponed

5 PRODUCTION GROWTH IS EXPECTED TO COME DOWN


6 GLOBAL CREDIT CRUNCH CAN USHER IN A NEW WAVE OF MERGERS AND ACQUISITIONS

6.1 Large Scale M&A Activity Declined in 2008 and 2007 Vs 2006
6.2 With Fall In Share Prices E&P Company Valuations Are Becoming More Reasonable
6.3 Deal Multiple Weaken
6.4 Corporate M&A Deals Could Help Sector Rebound

7 VALUATION LOOKING MORE REASONABLE

7.1 E&P Companies Stock Prices Have Been Beaten Down in This Financial Turmoil
7.2 Share Prices Are Now Close To Proved Reserves Value Ignoring Any Value To Unproved Reserves
7.3 Reserves Valuations are falling

8 APPENDIX

8.1 Companies Mentioned
8.2 Methodology
  8.2.1 Coverage
  8.2.2 Secondary Research
  8.2.3 Primary Research
8.3 Definition
8.4 Unit Of Measure
8.5 Disclosure information
8.6 Disclaimer

1.1 LIST OF TABLES

Table 1: WTI and Brent Price ($ Per Barrel) and YOY Change (%), 2002-2008
Table 2: Crude Oil and Natural Gas Price Forecast, 2008-2012
Table 3: Natural Gas NYMEX Futures Strip Prices, April-08, September-08, November-08, December-08
Table 4: Crude Oil NYMEX Futures Strip Prices, April-08, September-08, November-08, December-08
Table 5: World Crude oil Supply, mbbl/d, 2007- 2008
Table 6: Independent E&P Companies , Exploration and Development Capex, $ Million,1999-2008
Table 7: Top Ten Companies By Holdings in North American Unconventional Resource Plays
Table 8: E&P Companies, Land Positions By Resource Play
Table 9: E&P Companies, Land Positions By Resource Play (Cont’d)
Table 10: Large Cap E&P Companies, Proved Reserves Vs. Unbooked Resource Potential
Table 11: Selected Resource Play Transactions, January 2008-November 2008
Table 12: Independent E&P Companies, Reinvestment Rate, 1999-2007
Table 13: Independent E&P Companies-wise, Reinvestment Rate, 2005-2007
Table 14: Independent E&P Companies, Debt to Proved Reserves, $/boe, 2005-Q308
Table 15: Independent E&P Companies-Wise, Debt to Proved Reserves and Proved Developed Reserves, $/boe
Table 16: Independent E&P Companies, Total Oil and Gas Production, MMboe, 1999-2008
Table 17: Independent E&P Companies, E&P Total Production Growth rate, 2003-2008
Table 18: The United States, Estimated Gross Withdrawals by Area by Month, Bcf/d, January 2005, August 2008
Table 19: The United States, Estimated Gross Withdrawals by Area by Month, Bcf/d, January 2005, August 2008
Table 20: Upstream Oil and Gas, Merger, Acquisition, Asset Transaction Announced and Completed Deals, Deals Number and Value, Q106-Q308
Table 21: Upstream Oil and Gas, Reserves Acquired (MMboe), Acquisition Cost ($ Million), Acquisition Cost Per boe ($/boe), 1999-2007
Table 22: Top 20 E&P Companies, Ranked By Percentage Fall in Market Capitalization Since June
Table 23: Upstream Oil and Gas, Deal Multiple, $ per boe, January 2008-November 2008
Table 24: Upstream Oil and Gas, Deal Prices, $ per boe, Q1-2007-Q3-2008, 2008
Table 25: Upstream Oil and Gas, Corporate M&A and Asset Transaction Deals, Q1-2006-Q3-2008
Table 26: Oil and Gas Index Performance Vs Crude Oil Price, January 2006-November 2008
Table 27: Share Price Performance of Large Cap Companies (Reserves >1000 MMboe)
Table 28: Share Price Performance of Medium Companies (Reserves >200 <1000 MMboe)
Table 29: Share Price Performance of Small Companies (Reserves <200 MMboe)
Table 30: 2008 YTD, Five Year, Share Price Performance of Large Cap Companies (Reserves >1000 MMboe)
Table 31: 2008 YTD, Five Year, Share Price Performance of Medium Cap Companies (Reserves >200 <1000 MMboe)
Table 32: 2008 YTD, Five Year, Share Price Performance of Small Cap Companies (Reserves <200 MMboe)
Table 33: Valuation of Large Companies (Reserves <1000 MMboe)
Table 34: Valuation of Medium Companies (Reserves >200 and <1000 MMboe)
Table 35: Valuation of Small Companies (Reserves <200 MMboe)
Table 36: E&P Companies, EV/Reserves, $/boe
Table 37: Exploration and Production, Segment Valuation Table, December 2008

TABLE 38: LIST OF E&P COMPANIES COVERED


1.2 LIST OF FIGURES

Figure 1: World Events and WTI and Brent Price ($ Per Barrel), December 2007-December 2008
Figure 2: WTI and Brent Price ($ Per Barrel) and YOY Change (%), 2002-2008
Figure 3: Natural Gas NYMEX Futures Strip Prices, April-08, September-08, November-08, December-08
Figure 4: Crude Oil NYMEX Futures Strip Prices, April-08, September-08, November-08, December-08
Figure 5: World Crude oil Supply, mbbl/d, 2007- 2008
Figure 6: Independent E&P Companies, Exploration and Development Capex, $ Million,1999-2008
Figure 7: Independent E&P Companies, Organic Capital Expenditures, $ Million, 2008 Budget vs. 2007 Actual
Figure 8: Independent E&P Companies, Organic Capital Expenditures, $ Million, 2008 Budget vs. 2007 Actual
Figure 9: United States Shale Gas Plays
Figure 10: Top Ten Companies By Holdings in North American Unconventional Resource Plays
Figure 11: Large Cap E&P Companies, Proved Reserves Vs. Unbooked Resource Potential
Figure 12: Independent E&P Companies, Reinvestment Rate, 1999-2007
Figure 13: Independent E&P Companies-wise, Reinvestment Rate, (3Yrs Average < 100%), 2005-2007
Figure 14: Independent E&P Companies-wise, Reinvestment Rate, (3Yrs Average > 100%), 2005-2007
Figure 15: Independent E&P Companies, Debt to Proved Reserves, $/boe, 2005-Q308
Figure 16: Independent E&P Companies, Debt to Proved Reserves and Proved Developed Reserves, $/boe
Figure 17: Independent E&P Companies, Total Oil and Gas Production, MMboe, 1999-2008
Figure 18: Independent E&P Companies, Total Production Growth rate, 2003-2008
Figure 19: Independent E&P Companies-wise, Total Production, MMboe, 2008 Budgeted vs. 2007 Actual
Figure 20: The United States, Estimated Gross Withdrawals by Area by Month, Bcf/d, January 2008, August 2008
Figure 21: Upstream Oil and Gas, Merger, Acquisition, Asset Transaction Announced and Completed Deals, Deals Number and Value, Q106-Q308
Figure 22: Upstream Oil and Gas, Reserves Acquired (MMboe), Acquisition Cost ($ Million), Acquisition Cost Per boe ($/boe), 1999-2007
Figure 23: Upstream Oil and Gas, Deal Multiple, $ per boe, January 2008-November 2008
Figure 24: Upstream Oil and Gas, Deal Prices, $ per boe, Q1-2007-Q3-2008, 2008
Figure 25: Upstream Oil and Gas, Corporate M&A and Asset Transaction Deals, Q1-2006-Q3-2008
Figure 26: Oil and Gas Index Performance Vs Crude Oil Price, January 2006-December 2008
Figure 27: Share Price Performance of Large Cap Companies (Reserves >1000 MMboe)
Figure 28: Share Price Performance of Medium Companies (Reserves >200 <1000 MMboe)
Figure 29: Share Price Performance of Small Companies (Reserves <200 MMboe)
Figure 30: 2008 YTD, Five Year, Share Price Performance of Large Cap Companies (Reserves >1000 MMboe)
Figure 31: 2008 YTD, Five Year, Share Price Performance of Medium Cap Companies (Reserves >200 <1000 MMboe)
Figure 32: 2008 YTD, Five Year, Share Price Performance of Small Cap Companies (Reserves <200 MMboe)
Figure 33: Share Price Performance of E&P Companies (Reserves <100 MMboe)
Figure 34: Valuation of Large Companies (Reserves <1000 MMboe)
Figure 35: Valuation of Medium Companies (Reserves >200 and <1000 MMboe)
Figure 36: Valuation of Small Companies (Reserves <200 MMboe)
Figure 37: E&P Companies, EV/Reserves, $/boe
Figure 38: Exploration and Production, Segment Valuation Table, December 2008
Figure 39: GlobalData Methodology
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