Sector commentary

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Oil & Gas

01/05/2015
Oil & gas macro outlook - The market is returning to equilibrium
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Since the 2015 first quarter lows, light crude oil prices have risen by around 30% despite inventories rising to record levels. Rather than inventories, the market has chosen to focus on one of the sharpest drops in the US rig count on record and the potential for a weakening US production trend in the coming months. While the lows for this cycle have probably been seen, we believe the price trend could soften near term reflecting hefty inventories and buoyant OPEC supply. The issue of Iranian exports could also weigh on prices ahead of the end June deadline for a final agreement between the world’s major powers and Iran over its nuclear programme. Looking at the balance of 2015, however, we continue to expect an upward trend in prices as the market returns to equilibrium driven by slowing non-OPEC supply growth and firming demand.

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Technology

23/03/2015
NZ - Edison talks tech
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The rapid pace of development and diversity within the technology sector make it both one of the most rewarding and the most challenging to play from an investment perspective. As the rate of innovation accelerates across so many different disciplines and so many vertical and geographical markets, so the opportunities for value creation are increasing. Equally, gaining an in-depth understanding of the investment case becomes more challenging, as technology becomes more involved, the pace of development accelerates, business models change and competition globalises. At Edison, we feel we have built a unique global platform for bridging this gap and our inaugural Australia and New Zealand ‘Edison Talks Tech’ conferences are an important new component in this. We hope you find them enjoyable, informative and effective.

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Companies mentioned
Vista Group International , Smartpay Holdings , Serko , ikeGPS Group , GeoOp , Rex Bionics , VMob Group , SLI Systems

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Consumer Support Services

23/03/2015
AUS - Edison talks tech
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The rapid pace of development and diversity within the technology sector make it both one of the most rewarding and the most challenging to play from an investment perspective. As the rate of innovation accelerates across so many different disciplines and so many vertical and geographical markets, so the opportunities for value creation are increasing. Equally, gaining an in-depth understanding of the investment case becomes more challenging, as technology becomes more involved, the pace of development accelerates, business models change and competition globalises. At Edison, we feel we have built a unique global platform for bridging this gap and our inaugural Australia and New Zealand ‘Edison Talks Tech’ conferences are an important new component in this. We hope you find them enjoyable, informative and effective.

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Companies mentioned
Redflex Holdings , nearmap , My Net Fone , Freelancer , Crowd Mobile , Smartpay Holdings , Catapult Group International , Serko , Migme , VMob Group , TZ Limited , SLI Systems

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Oil & Gas

25/02/2015
Catalytic converter - Five themes from oil majors’ 2015 updates
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As the Big Oil year-end 2014 reporting season draws to an end, we reflect on the main messages from the strategy updates. Based on current guidance, majors’ organic capex is set to fall around 13% in 2015, after four straight years of capex hikes. Spend could drop more as service costs are seen declining 20-30% from their 2014 peak. Exploration and pre-FID projects – notably expensive, complex projects such as deepwater, LNG and oil sands – are prime targets for investment cuts. Base capex in high-cost regions is also being trimmed, which should accelerate global decline rates. Majors appear keener on divestments than acquisitions for now, but we would expect to see opportunistic mid-sized asset deals. In our view, Big Oil’s focus on dividends may be preventing managements from acting more countercyclically in a downturn.

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Oil & Gas

25/02/2015
Exploration watch - Drilling returns to the Falklands
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‘Exploration watch’ is a regular Edison publication focusing on upcoming exploration activity and the impact on notable E&Ps. In this inaugural edition, we look at the upcoming campaign in the North Falklands Basin where the first well, Zebedee, is due to spud in March 2015. This campaign, targeting c 350-600mmbbl, is often referred to as ‘exploration’; however, it includes a significant element of low-risk exploration together with an appraisal opportunity, especially for those looking to expand on the existing Sea Lion footprint. With Sea Lion development FID expected in 2016, appraisal and low-risk exploration elements of the upcoming Zebedee, Chatham and Jayne East wells could all add high-value barrels to the existing 393mmboe of contingent resources identified to date. The biggest exploration targets, however, lie 40km to the south of Sea Lion where the Isobel/Elaine complex could be as big again as Sea Lion. The Falklands has seen no exploration drilling for over two years, so this campaign will be a welcome return for investors interested in what is still essentially a frontier region.

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Companies mentioned
Falkland Oil & Gas , Premier Oil , Rockhopper Exploration , See more..., Argos Resources

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Oil & Gas

30/01/2015
Catalytic converter - Inertia in US shale continues
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As the oil market awaits a negative supply response to the sharp correction in crude prices since mid-2014, we suggest a period of inertia may be ahead, with oil production, particularly from US shale, holding up in the near term. Supporting this inertia we see falling service costs, improved operating efficiencies and significant hedging as combining to sustain near-term activity. Hence, while a price correction is likely in the medium term, we forecast crude prices to remain subdued at current levels for the remainder of 2015, for which we estimate an average crude price of $52.5/bbl for the year. As 2015 capex cuts bite, hedges unwind and funding becomes increasingly difficult to secure, we expect this will form the foundation of a recovery early in 2016, where we estimate an average of $72.5/bbl will be achieved for the full year.

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Oil & Gas

14/01/2015
Oil & Gas - Macro Outlook: Current prices are not sustainable
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The oil market was late in appreciating the significance of the shale revolution and slowing demand growth. Arguably, however, the 50% plunge in prices in the second half of 2014 was excessive and is setting the scene for a rebound. Sub $60/barrel prices are below fully accounted costs for a wide swathe of projects. Sharp investment cutbacks are likely, which is particularly relevant for high depletion rate shale oil producers. The price trend may remain soft during early 2015 reflecting a continuing supply surplus. By the second half, however, we would expect a firming tendency once the significance of financing constraints and likely slowing US production growth are assimilated. Medium term, we believe a price ceiling could emerge at $75-80/barrel given the new found elasticity of supply through shale development, capacity additions in Brazil, Canada and Iraq and structural issues slowing demand growth.

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Oil & Gas

03/12/2014
Catalytic converter - Crude oil prices: A range-bound future
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Last week’s OPEC meeting has fuelled the continuing slide in crude oil prices that began back in June 2014. With crude oil prices down c 40% since that time and no sign of support from either OPEC or non-OPEC producing nations, the world has had to wake up to the burgeoning level of oversupply hampering the crude oil markets. Driven by booming oil shale activity, US oil production reached 8.9mmb/d in October, within reach of Saudi Arabia at 9.75mmb/d. From this perspective it was clear something had to be done. With the industry now beginning to cut spending in response to weaker pricing, we expect that a material reduction in US oil output, and by consequence a stabilisation in crude prices, is on the horizon. In the interim we expect pricing to remain weak, with key investment opportunities in the upstream sector being low-cost operators with significant cash and low debt. We reduce our 2015 oil price expectations to $75/bbl for Brent and $70/bbl for WTI, while leaving our long-term view unchanged at $80/bbl.

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