Opportunities in Global Natural Gas Price Disparities: Iain Reid, Senior Equity Research Analyst at Jefferies & Company, Inc., Interviews with The Wall Street Transcript

Wall Street Transcript

67 WALL STREET, New York - June 28, 2013 - The Wall Street Transcript has just published its Oil & Gas Review 2013 Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Increasing Demand for Midstream Assets - U.S. Energy Infrastructure Build Out - Emerging Shale Plays - Oil and Gas Transportation Infrastructure Demand - Master Limited Partnerships Distribution Growth - Outlook for Natural Gas Liquids - Low Treasury Yields and MLP Dividends

Companies include: Exxon Mobil Corp. (XOM), Eni SpA (E), Petroleo Brasileiro (PBR), Anadarko Petroleum Corp. (APC), Total SA (TOT), Chevron Corp. (CVX), PetroChina Co. Ltd. (PTR), ConocoPhillips (COP), Mariner Energy, Inc. (ME), Cheniere Energy, Inc. (LNG) and many more.

In the following excerpt from the Oil & Gas Review 2013 Report, an expert analyst discusses the outlook for the sector for investors:

TWST: You discussed some of the headwinds on the horizon, including increasing cost and labor issues. Are there any others that could disrupt your hypothesis, and which companies are the ones that have the most exposure to those headwinds?

Mr. Reid: In terms of cost, the hotspot at the moment is Australia, so anybody who's got a project which is going ahead at the moment in Australia is going to be exposed somewhat to these headwinds, particularly where they're building facilities which are onshore Australia. Now there are three large coalbed methane-based LNG projects in Queensland, Australia, in the eastern part of Australia, and the companies which are involved there is firstly BG Group, secondly Total, thirdly Conoco (COP), and also some indigenous Australian companies - Origin Energy (ORG.AX) and Santos (STO.AX), both Australian companies. Shell also has a project there which hasn't commenced yet. So we've seen cost overruns already announced in two of those three projects, which I talked about, which average around 30% for the BG and Total projects. So these companies have been exposed to some of these headwinds already.

If we go to the western side of Australia, which are conventional projects - deepwater gas developments, where they bring the gas to shore via pipeline and then build LNG facilities onshore Australia - again, these have been exposed to these headwinds, and I also talked about Gorgon. Chevron has around a 47% interest in Gorgon. Shell has 25%, Exxon has 25%. So that's been a project which has suffered a pretty severe cost overrun of 40%.

Woodside (WPL.AX), the Australian company, which recently delivered the Pluto project, was also exposed to a significant cost overrun on that project for several reasons. And moving into Australasia, in Papua New Guinea; Exxon has a project there which they are developing with an Australian-listed company called Oil Search (OSH.AX), which also suffered a cost overrun recently. So those are the companies which have faced some of these headwinds. Now Shell, which is our top pick in large cap. LNG players have a project in Australia called Prelude, but it is wholly offshore - it is the first of the so-called floating LNG facilities where all of the production and manufacture of LNG will go on hundreds of kilometers offshore Australia, and so you won't have to get involved in building a LNG big facility onshore Australia. They're building that facility in a shipyard in Korea.

And so unless there is some sort of disaster in Korea in terms of construction costs, they will be much more immune to these cost headwinds we've been talking about. And also their onshore project in Queensland, they seem to want to wait until the cost pressures have abated before they start developing anything there. So they're much better positioned than some of the other companies that we're talking about.

There are other relatively high-cost areas which are talking about developing LNG. One, the most notable is...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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