Pedro Medeiros, Latin American Oil Industry Expert Analyst at Citigroup Investment Research & Analysis: Lower Oil Prices Will Impact Mexican and South American Exploration Stocks

Wall Street Transcript

67 WALL STREET, New York - July 11, 2014 - The Wall Street Transcript has just published its Oil & Gas Review 2014 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: Oil & Gas Review 2014

Companies include: Gran Tierra Energy, Inc. (GTE), Petrobras Energ?a Participacio (PZE), Petroleo Brasileiro (PBR), Exxon Mobil Corp. (XOM), ConocoPhillips (COP), Ecopetrol SA (EC) and many others.

In the following excerpt from the Oil & Gas Review 2014 Report, an expert analyst discusses the outlook for the sector for investors:

TWST: How are the lower oil prices impacting the space?

Mr. Medeiros: Prices are a very big part of what is happening in the space. Investors are always chasing changes, and they are always trying to anticipate changes. Commodity prices make for the most relevant driver of revenues and profitability for all of these companies. If you want the particular impact of oil prices to the overall sector, it has various impacts, be it to companies' potential value, earnings or risk perception to balance sheets.

I would say the most impacted names in Latin America from lower oil prices would be number one, exploration stocks. The basket of those stocks includes Pacific Rubiales (PRE.TO), QGEP (QGEP3.SA), Canacol (CNE.TO), GranTierra (GTE) and other smaller stocks in Brazil. To a certain extent, Petrobras (PBR) is a slightly different case because the company is almost fully integrated, so a drop in oil prices does not necessarily mean a significant drop to profitability, because we would need to see similar weakening of oil products prices specifically in Brazil. That's a tricky point when we look at Petrobras, because the company had been following a policy or the lack of a policy for oil product prices in its main domestic markets. It is questionable whether the company would reduce fuel prices in light of lower crude price.

TWST: In Mexico there is a lot of talk about the privatization of the oil industry. In your opinion, is that a significant development?

Mr. Medeiros: Speaking for the perspectives of oil prices, the privatization of the oil industry in Mexico is a meaningful event to long-term global production supply and demand. As far as Latin America stock investment thesis go, I would say it's quite neutral in the short term. However, it is fair to consider that over time, if you think of a three to five years time horizon, the opening of Mexico to foreign investments throughout the whole oil and gas supply chain will surely require the capital market's participation, and as such it could have a significant impact on asset managers' portfolios and asset allocation throughout the whole region.

From an asset manager perspective, it could significantly change their exposure to the oil and gas stocks that we now have in the region. So in theory there could be an impact over time to flows for equities to some of the stocks that are already present in the market.

TWST: What are some of the other major trends, aside from the price of oil, that you are watching in terms of Latin American oil and gas stocks?

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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