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Goldman Downgrades Petrobras And Gran Tierra, Talks 'New Oil Order'

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In a report published Monday, Goldman Sachs analysts mentioned that oil prices have surged 31.6 percent, after having bottomed to US$51.50/bl in January 20, 2015. Oil prices have reached a short-term peak level of US$67.70/bl, driven by relief that US crude stocks "would not breach capacity," high demand and rising Middle East tensions.

According to Goldman Sachs' commodities research note as of May 11, 2015 - The New Oil Order: A self-defeating rally - The upswing prices was further supported by "oil screening as cheap relative to E&P equities in developed markets, drawing crossasset investors into buying crude."

While the surge in oil prices has "closed the valuation gap to equities," which are currently at historical high multiples, oil itself is now trading "at a premium to its own still-weak fundamentals," the analysts added.

The analysts downgraded the rating on Petroleo Brasileiro Petrobras SA  (NYSE: PBR) from Neutral to Sell, with a price target of $10.

Petrobras' shares have risen 9.8 percent more than its LatAm oil and gas peers, while outperforming the MSCI LatAm by 44 percent.

"We see YTD performance as excessive within the context of the New Oil Order and a more modest growth profile of 3%/year 2015-20 CAGR (lower / slower E&P capex) that is not sufficient to reduce company's leverage in this period (with its net debt to EBITDA declining to levels below 4.0x only by 2029)," the analysts explained.

The EPS estimates for 2015, 2016 and 2017 have been raised from $1.29 to $1.93, from $1.56 to $1.83 and from $1.38 to $1.87, respectively.

The analysts downgraded the rating on Gran Tierra Energy Inc. (NYSE: GTE) from Neutral to Sell, with a price target of $2.60.

Gran Tierra's shares have outperformed the sector by 19.1 percent and the MSCI LatAm by 53.2 percent since January 20, 2015.

In the report Goldman Sachs noted, "…we see such performance as overdone given that (1) we see the rebound witnessed in Brent prices as not sustainable (as reflected in GS updated Brent price deck) and (2) GTE's equity value is more sensitive to Brent price dynamics in the short term than to increases in cash cost efficiency levels (given our estimated steep decline in GTE's oil production between 2015-20, when the Costayaco field should accelerate its depletion phase)."

The EPS estimates for 2015, 2016 and 2017 have been adjusted from $(0.24) to $(0.16), from $(0.02) to $(0.11) and from $(0.08) to $(0.15), respectively.

Latest Ratings for PBR

DateFirmActionFromTo
Feb 2017JP MorganUpgradesNeutralOverweight
Nov 2016Tudor PickeringDowngradesBuyHold
Oct 2016HSBCDowngradesBuyHold

View More Analyst Ratings for PBR
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Posted-In: Goldman SachsAnalyst Color Downgrades Analyst Ratings

 

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