Australian Bank Rate CNE

Banks Cut Oil Price Forecast, Cairn Energy Well Placed

Published in Oil Industry News on Sunday, 13 September 2015

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AN investment bank has cut its forecasts for the oil price sharply highlighting the massive oversupply of crude in the market but said Edinburgh-based Cairn Energy had the potential to achieve significant success through its exploration work.
In an analysis that will stoke concern in the North Sea industry, Macquarie said the outlook for oil and gas firms had deteriorated in recent months amid abundant supplies of oil and limited demand.
“We continue to expect the crude oil markets to remain dominated by oversupply, but expect the oversupply to last longer,” said the bank, which reckons demand is unlikely to increase enough to make much of an impact on the huge stocks that have built up around the world for some time.
“ Even when the physical markets begin rebalancing in late 2016, the massive overhang of crude oil in storage will act to depress prices,” added Macquarie
With the bank cutting its long term forecast for Brent crude to $80 per barrel from $84/bbl, the study will lend weight to fears that whole swathes of the North Sea could be abandoned.
On Wednesday the Wood Mackenzie energy consultancy warned 140 North Sea fields could close over the next five years.
But that prediction was based on the assumption the Brent price would recover to $85/bbl.
Macquarie appears to believe the boom conditions seen earlier in the decade are likely to become a distant memory in the North Sea.
Firms in the area are reeling from the effects of the slump in the crude price, from $115/bbl in June last year to around $50/bbl.
“It appears unlikely that crude oil prices will revert back to the $100 per barrel level any time soon,” said Macquarie.
The Australian bank has lowered its forecast for the average Brent crude price for 2016 by 14 per cent, to $58 per barrel from $68/bbl.
Macquarie now reckons the price of Brent crude will average $67/bbl in 2017, down 17 per cent on its previous forecast of $81/bbl.
It has left its forecast for this year unchanged at $56/bbl.
Brent crude rallied to $67/bbl in May amid problems in Libya and the run up to the summer driving season. It then went into reverse partly due to concern that the easing of sanctions on Iran could result in lots more oil coming on to the market.
But Macquarie appears impressed by the success that Cairn Energy has achieved off West Africa, where the oil and gas firm made two big finds last year.
Led by chief executive Simon Thomson, Cairn has funding in place for a multi-well drilling programme that will appraise existing finds and target other prospects.
The programme will start in the next quarter.
“We recommend buying Cairn ahead of the 4Q15 / 1H16 (exploration and appraisal) programme in Senegal, which we view as the most likely in our universe to create meaningful shareholder value,” said Macquarie.
Analysts at the bank also highlighted the “optionality” they saw in Premier Oil’s portfolio. London-based Premier, which has significant North Sea interests, has hit delays developing the Solan field off Shetland. It also has acreage in Asia and off the Falkland Islands.
Source: www.heraldscotland.com