德意志银行-Latin American Energy Getting ready for 2014

DeutscheBankMarketsResearchGlobalEmergingMarketsBrazilOil&GasIndustryLatinAmericanEnergyGettingreadyfor2014Gettingsetfor2014Date25November2013ForecastChangeMarcusSequeiraResearchAnalyst(+1)[e-mail]55.00to58.00(USD)Rating-------BuyBuyBuyBuyBuyHoldBuyHoldSellHoldBuySellBuyBuyBuyHoldPRE.TO26.00to28.00(CAD)OGXP3.SANAto0.10(BRL)UGP.N31.00to33.00(USD)PZE.N4.00to5.00(USD)PBR.N17.00to22.00(USD)EC.N51.00to46.00(USD)Source:DeutscheBankToppicksGranTierra(GTE.TO),CAD7.83PacificRubiales(PRE.TO),CAD19.67QueirozGalvaoE&P(QGEP3.SA),BRL10.39Ultrapar(UGP.N),USD25.51Tenaris(TS.N),USD45.02Source:DeutscheBankCompaniesFeaturedEcopetrol(EC.N),USD41.79GranTierra(GTE.TO),CAD7.83HRTParticipacoes(HRTP3.SA),BRL0.82OGX(OGXP3.SA),BRL0.14Petrobras(PBR.N),USD17.50PacificRubiales(PRE.TO),CAD19.67PetrobrasArgentina(PZE.N),USD6.61QueirozGalvaoE&P(QGEP3.SA),BRL10.39Tenaris(TS.N),USD45.02Ultrapar(UGP.N),USD25.51YPFSociedadAnonima(YPF.N),USD26.25Source:DeutscheBankInthisreportwereviewtheoutlookforthestocksunderourcoverage.WearerollingoverourpricetargetsforYE-14,andwhilemakingnorecommendationchanges,wehaveadjustedtoourpreferencelisttofavorthestockswiththebestchancesofreachingfullvaluationduringthecourseofthenextyear.Thesummaryofpricetargetchangesand2014estimatesisshownonpage37.Weremaincautiousinthesectorbutweseeopportunitiesinstoriesinvolvinggrowth,profitabilityimprovement,highimpactexplorationpotentialanddefensiveness.BuyratedstocksOurpreferredstockisPacificRubiales.Werecognizethemarket’sconcernsandbelievethatinadditiontoreservegrowthprovidingpotentialupsidetoourestimates,costcuttinginitiativesshouldstarttobearfruitin1Q14.QGEPcomessecondduetostrongappreciationpotentialduetodevelopmentandexplorationnewsflow.UltraparremainsaBuyduetotheattractivefeatureofdefensivegrowth.TenarisshouldbenefitfromimprovingdrillingactivityintheUS,late-13andthroughout2014whichshouldprovidethesectorwithimprovingpricingpower.Finally,GranTierraisexpectedtoshowasolidreservegrowthinColombiaandPeru,whichshouldfuelproductiongrowth.HoldratedstocksPetrobrasisexpectedtofinallyshowastrongdomesticproductiongrowthreflectingtheadditionofseveralplatformslate-14.Pricingcontinuestobeamajorunknown,beingsopoliticallydriven.Presidentialelectionsisanotherwildcard,andcouldactnegatively(pricingcontrols,highercapex)orpositively(duetooppositionnoisearoundPetrobras’lossofmarketvalue,leadingthegovernmenttochangepoliciesinvolvingthecompany).FundamentalshaveimprovedforBraskembutweseespreadsdecliningin2014anddomesticdemandrisklimitingpricingpower.YPFwasthebestperformedinthegroupYTDduetotheanticipationofpoliticalchangesbutwestillseemacroriskspotentiallypressuringthesector.Meanwhile,Ecopetrol’sgrowthstrategyrisksandstillunfavorablevaluationversusLatinAmericanpeersshouldcontinuetolimitstockappreciation.Finally,despitehighpotentialforstockappreciationversusourpricetarget,HRT’sfacesveryhighriskswithlimitedcashposition.ValuationandrisksWevalueourstocksviaDCFofSoTPNAV.Mainsectorfactorsarecommodityprices,governmentpoliciesandcosts,whichcanworkinfavororagainstthestocksundercoverage.Pleaseseestockvaluationandrisksectiononpages38to41.________________________________________________________________________________________________________________DeutscheBankSecuritiesInc.DeutscheBankdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Thus,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.DISCLOSURESANDANALYSTCERTIFICATIONSARELOCATEDINAPPENDIX1.MICA(P)054/04/2013.Page2DeutscheBankSecuritiesInc.25November2013Oil&GasLatinAmericanEnergyLatinAmericanEnergyPreferenceListFigure1:DeutscheBankPreferenceListPositivesConcernsTriggersBUYSPacificRubiales*AccesstokeyblocksinColombia*LikelytoloseRubialesin2016*Strongproductiongrowth*Infrastructureassetstoimprovereturns*Productiondelayduetoenv.lincensingobstacles*ExecutionriskfollowingseveralacquisitionsQGEPUltraparTenarisGranTierra*Cashflowgenerator*Pragmaticmanagement*Pre-saltpotential*Defensivebutwithgrowth*Positivetrackrecordincreatingvalue*Corporategovernance*Leadingpositioninitsmarket*Strongbalancesheet*E&Pcapexremainsstrong*Stronggrowthinproductionandreserves*Balancedporfolio(explanddevelopment)*Solidbalancesheet*Discoverytrackrecordispoor,butimproving*Portfolioisconcentratedinfewareas*More“gassy”portfolio*Richvaluation*Limitedsizeableacquisitiontargets*Demandrisks*Pricingpowerislimited*Threatofimports*DrillingactivityinNA*Productioncouldtosufferfrompipelineattacks*ExposuretoArgentina*LitigationwithANHHOLDSPetrobrasBraskem*DominantpositioninBrazil’soilindustry*Unparalleledaccesstoreserves*Resilienttodecliningoilprices*Verticalintegrationof1/2generation*Negativecashflow*Politicalinterferenceisveryhigh*Productiontrendsandoutlookdisappointing(nearterm*Commoditypricerisk*BeneficiaryofsecularBrazildemand*Governmenthelp*Heavybalancesheet*UncompetitiveversusnaturalgasYPF*Vast