US President Obama recently declared that he would be directing his administration to open more than 75% of the potential offshore oil and gas resources in the US. US oil and gas drillers have generally outperformed the market in the first year of every 5-year OCS leasing program and during Election years; 2012 will be coincidentally be both. Suppose history repeats itself, Keppel Corporation (KEP) and Sembcorp Marine (SMM) could benefit from the high correlation of their stock prices with that of US drillers. Maintain BUY on both stocks with fair value estimates of S$12.27 and S$5.63 for KEP and SMM, respectively.
More than 75% of resources on US OCS to be made available.
In his recent State of the Union Address, US President Obama declared that he would be directing his administration to open more than 75% of the potential offshore oil and gas resources in the US. What he is likely referring to are the lease sales under the 2012-2017 Outer Continental Shelf (OCS) oil and natural gas leasing program.
1st year of 5-year leasing program, and an Election year.
We notice that 2012 will be the first year of the upcoming five-year OCS leasing program. Coincidentally, the US Elections will also be held this year. We track the stock price performance of the Dow Jones Industrial Average and a basket of US oil and gas drillers since 1992, and find that the latter has outperformed the former in all of the past four 1st-year leases each year. This is also the case for US Election years except for 2008.
Good returns from a happy coincidence?
Looking at history and supposing that oil prices remain firm (barring a disorderly debt default in the Eurozone), 2012 could be another year in which US oil and gas drillers outperform the broader market. These companies are important customers of Singapore’s rig builders, Keppel Corporation (KEP) and Sembcorp Marine (SMM), and their stock prices have been highly correlated in the past decade.
Orders expected not just from the US.
Meanwhile, both rig builders are also expected to secure orders from companies outside the US, such as PEMEX and Statoil. As mentioned in our earlier report (16 Jan 2012), SMM is likely to outperform KEP during a period of bullishness on oil and gas plays. The former has risen 27.0% YTD vs the latter’s 13.7 % gain and the STI’s 10.3% appreciation. However, we still see upside potential for both stocks. Maintain BUY on KEP [FV: S$12.27] and SMM [FV: S$5.63].
In his recent State of the Union Address, US President Obama declared that he would be directing his administration to open more than 75% of the potential offshore oil and gas resources in the US. What he is likely referring to are the lease sales under the 2012-2017 Outer Continental Shelf (OCS) oil and natural gas leasing program.
1st year of 5-year leasing program, and an Election year.
We notice that 2012 will be the first year of the upcoming five-year OCS leasing program. Coincidentally, the US Elections will also be held this year. We track the stock price performance of the Dow Jones Industrial Average and a basket of US oil and gas drillers since 1992, and find that the latter has outperformed the former in all of the past four 1st-year leases each year. This is also the case for US Election years except for 2008.
Good returns from a happy coincidence?
Looking at history and supposing that oil prices remain firm (barring a disorderly debt default in the Eurozone), 2012 could be another year in which US oil and gas drillers outperform the broader market. These companies are important customers of Singapore’s rig builders, Keppel Corporation (KEP) and Sembcorp Marine (SMM), and their stock prices have been highly correlated in the past decade.
Orders expected not just from the US.
Meanwhile, both rig builders are also expected to secure orders from companies outside the US, such as PEMEX and Statoil. As mentioned in our earlier report (16 Jan 2012), SMM is likely to outperform KEP during a period of bullishness on oil and gas plays. The former has risen 27.0% YTD vs the latter’s 13.7 % gain and the STI’s 10.3% appreciation. However, we still see upside potential for both stocks. Maintain BUY on KEP [FV: S$12.27] and SMM [FV: S$5.63].
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