Let me know if you want the full report...but with Oil trading lower, thought will be interersting to have a view on covenants & Debt issue....M&A will not come if we don't see a reverse in the trend of oil ...I personally think that we are not very far from lows but that on an acceleration we can see some much lower levels...the $43 area is a zone where I will start to play oil.
We need few weeks of rebound to see more noise about less cut in capex etc etc...
We test a variety of scenarios from LT Brent of USD90/bbl down to USD50/bbl; we find that at low oil prices, every company with covenants (AFR, LUPE, MAU, PMO, TLW) is likely to breach them. However, these companies have some options that could help them weather the storm – Afren (down to U/P) is most exposed at USD50/bbl over 2015-17. We believe TLW could meet its covenants at a flat USD50/bbl oil price scenario until 2017 without cutting its dividend. The stocks most levered to oil prices are PMO & AFR; the least are Seplat, SOCO and Cairn.
* Nav Sensitivity to Oil Prices
* M&A in the Sector
M&A candidates? Could remain muted for now
All of the stocks trade below asset value and therefore all are starting to screen as M&A candidates – however, the last oil price crash saw deals dry up for a few quarters until the oil price started to recover. With oil price collapsing, majors could seek to acquire material onshore shale exposure first rather than European E&P. Further, we believe that majors will be looking attentively at the upcoming Mexico licensing round
which offers tracts of acreage on trend with the US side of the Eagle Ford. Nevertheless, we believe that at these levels, the main driver will be low development costs and material volumes. Here we see Africa Oil and Tullow screening well on both volumes and valuation.
From the 17th of Dec. Prices are much lower now for few names...