We attended the Merrill Lynch E&P conference held at the Grove Hotel between the 14th-16th April 2008 and made several interesting observations.
The excellent annual conference organized by Merrill's provides the opportunity for investors to attend 1-on-1 meetings with a large number of E&P companies from Cairn to Tanganyika. Dr Rilwanu Lukman made the Dinner speach on the first evening and discussed how Nigeria's oil sector aims to make business easier for oil companies in coming years and also addressed the upward pressures on oil prices.
What was more interesting for us was reading between the lines of sentiment at the conference were a number of key themes evolved in informal discussions between attendees, namely:
1) Asian gas demand is reaching critical levels with South East Asian gas reserves remaining relatively undeveloped and regional blackouts becoming commonplace.
2) Gas prices in Kazakhstan, Ukraine and other Central Asian states appear to be converging with European markets faster than had previously been anticipated.
3) The current 'Credit Crunch' is starting to affect smaller E&P's that have not yet secured Senior debt for development expenditures. This may also extend to the Norwegian sector where previously companies could borrow to fund tax deductable exploration.
4) The lack of debt may trigger a wave of equity raising across the UK E&P sector.
5) The 'Peak Oil' debate is alive and kicking with recent commentary that 2017 appears to be the the most commonly quoted year for global peak production. This may cause some investors to rethink the thesis 'why invest at the peak of the oil price cycle'.
6) In the meantime upward pressure on oil and gas prices is likely to remain.
7) The 2P reserves and production predictions of some of the larger UK listed E&P's have probably been conservatively estimated by third parties (post Shell backlash?) and therefore the reality of future cash flows from the largest UK E&P's may be higher than is currently anticipated.
We look forward to next years conference.