Henderson: Investment-Chancen im Rohöl-Sektor

Total S.A. (Total), a top-tier international oil and gas company, presented their macro outlook for theglobal oil market at an investor update meeting on 22 September 20161. Total provided someintriguing oil supply/demand data that, if confirmed, may offer considerable medium-term upside forenergy market investors.

Total forecast that by 2020 there will be a 5-10mn barrel per day global oil production deficit (mostlikely 7mn barrels of oil per day). Total believe that the oil industry has responded to the sharp fall inthe oil price (since mid-2014) by significantly cutting capital expenditures. Total claim that overallindustry capital expenditure in 2014 was $700bn and forecast it will drop to $400bn in 2016 – a 43%reduction. At the same time, the natural oil field decline rate is running at close to 5% per annum, withglobal demand likely to continue to grow, rising by at least 1% per annum.

Potential oil price impact

A deficit of 7mn barrels of oil equivalent per day ((MMboe)/day) would be very meaningful and crudeprices would need to rise significantly from current levels in order to stimulate additional capitalexpenditure to arrest the anticipated production decline. To put this number into context, Saudi crudeoil production in August 2016 was 10.6mn barrels of oil ((MMbbl)/day) with OPEC production at 33.2MMbbl/day and total liquids production in the United States at 13.6 MMbbl/day.

Henderson Global Natural Resources Team (Team) analysis

Where data is available, bottom-up analysis of the exploration and production oil and gas energystocks in the S&P Global Natural Resources Index (E&P companies), confirms that Total’s thesis isindeed plausible.

From 19 E&P companies2, the Team calculated a reduction in capital expenditure by these large,listed companies of 40% from 2014 to 2016E. This is remarkably similar to Total’s 43% worldwidetrend estimate.

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