Emerging market oil groups out of favour

January 26, 2014 11:01 pm

Emerging market oil groups out of favour

By Ed Crooks in New York

National oil companies from emerging economies have fallen out of favour on stock markets over the past year relative to western energy groups, as the North American shale revolution continues to attract investors.

Companies such as PetroChinaPetrobras of Brazil and Gazprom and Rosneft of Russia all suffered significant falls in their share prices in 2013, while Chevron andExxonMobil of the US, and Total, BP and Royal Dutch Shell from Europe all rose.

The combined market value of state-controlled national oil companies’ shares fell 15 per cent, while the value of the large western groups rose 9 per cent, according to IHS, the analysis group.

The figures mark a reversal from the prevailing trends of the 2000s, when it seemed that national oil companies, with greater access to resources and government support, would inevitably eclipse the western groups.

Daniel Trapp of IHS said: “With the national oil companies, investors are asking where their priorities lie. Are they with shareholders, or will they follow the government’s priorities?”

The boom in US shale oil and gas production has created an alternative for investors concerned about the risk in state-controlled companies.

Among the best-performing companies last year, according to an analysis published by IHS on Monday, were some of the largest producers of US shale oil: EOG ResourcesContinental Resources and Pioneer Natural Resources.

The markets have also rewarded companies such asOccidental Petroleum and Hess that are moving to cut back their global exposure and focus on North American production.

The largest western oil groups were slow to develop shale production and have been paying the price, with Shell and others forced to write down the value of their assets.

However, they have been acquiring skills that should leave them better placed to develop shale resources than their rivals from emerging economies, which are generally even further behind.

Concerns about increased supplies of US shale oil putting downward pressure on prices have been a particular issue for Petrobras, which is facing the challenge of developing Brazil’s difficult deep water oilfields, and concerns about political interference. Its shares fell 24 per cent last year.

Other companies that thrived in 2013 included the large oil services groups that have the skills and technology needed for shale oil and gas production, includingSchlumbergerHalliburton and Baker Hughes.

They were hit by overcapacity in the industry in 2011-12, but markets for oil services have now tightened.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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