Published On: Wed, Nov 27th, 2013

Iran strikes N-deal with world powers; Implications for Pak Energy space

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Corporate News (Pakistan News)

Corporate News (Pakistan News)

Iran N-deal could potentially effect Pak Energy space

Iran and six world powers (US, France, Germany, Britain, China and Russia) clinched a deal on Sunday, to curb the Iranian nuclear program in exchange for initial sanctions relief. While critics within the US Congress and Israel have voiced concerns over successfully reining in Iran’s nuclear plan, the event is significant, marking the first major break-through in a decade long deadlock. Closer to home, we believe the Iran deal could potentially hold some significant implications for the Pakistan Energy sector. From our vantage point, (1) lower international oil prices (local E&P companies prices are benchmarked to the same) and (2) possible progress on the Iran-Pakistan gas pipeline (after months of stalemate) could be primary developments. 

 

Corporate News (Pakistan News)

Corporate News (Pakistan News)

Oil prices headed for biggest drop in three weeks

With Iran’s agreement to curb its nuclear plans, the prospects of (1) lower political tension in the Middle East and (2) a ramp-up in global oil supply have reared their head (recall Iran is the 4th largest global oil producer where sanctions have trimmed Iran’s oil exports from 2.5mn bpd to 1.0mn bpd). Resultantly, crude oil prices are tumbling with Brent down ~2% and could continue to trend lower. We believe Arab Light price (benchmark for Pak E&Ps), largely downward sticky vis-à-vis WTI Cushing and US Brent recently due to embedded ‘Iran risk premium’, could follow suit. We take a cue from the recent election of Hassan Rouhani, largely considered pro-West, as the Iranian President, where Arab Light declined by 5% vis-à-vis 1% fall in WTI. That said, we see low risk of near-term earnings downgrade for local E&Ps where YTD FY14 Arab Light has averaged US$108/bbl, well above our FY14E oil price outlook of US$100/bbl (consensus view as well). Sensitivity analysis shows that every US$5/bbl movement in crude oil prices poses ~4% risk to our E&P Universe annual earnings. We reiterate our ‘Buy’ ratings on Pakistan Oilfields Limited – POL (TP: Rs550) and Pakistan Petroleum Limited – PPL (TP: Rs225), while we recommend ‘Hold’ on Oil and Gas Development Co – OGDC (TP: Rs253).

Corporate News (Pakistan News)

Corporate News (Pakistan News)

Iran N-deal could potentially pave way for IP gas pipeline

With Pakistan stalling on the Iran-Pakistan gas pipeline owing to concerns over potential US sanctions, we believe the deal could potentially relax Pakistan’s standpoint on (1) re-negotiation of gas pricing and (2) financing of the gas pipeline. To recall, under the Iran Pakistan gas pipeline, Iran is suppose to export ~750mmcfd of gas to Pakistan at approximately US$14/mmbtu. Pakistan is currently facing a deficit of up to 2,000mmcfd of gas, where demand for gas is ~6,000mmcfd.

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