Morgan Stanley’s Exploration & Production team delivers a nice breakdown of potential exposure to the gulf oil spill disaster, based on companies’ production within the Gulf of Mexico.
Specifically, will a slick impact operations on the GoM [Gulf of Mexico] shelf in the coming weeks? Longer-term, does this incident portend to a greater regulatory burden across all offshore operators impacting project economics and returns? Despite an uncertain near-term outlook we issued a positive Research Tactical Idea on APC last week (following a ~16% decline in the shares). We see recent underperformance reflecting an ~$18 Bn total liability (effective today). Moreover, reflecting a worse case scenario, our NAV suggests the stock discounts nothing for undeveloped GoM discoveries at $64/shr.
Gulf of Mexico exposure: Investor concerns surrounding the potential for stricter regulation or reduced operating rates for offshore producers has adversely impacted names with GoM exposure. WTI, ME, APA, and APC have the greatest % of production in the GoM of companies under coverage.
Morgan Stanley’s ratings as of May 3rd for the companies above are as follows:
Underweight — W&T Offshore (WTI)
Overweight — Noble (NBL)
Equal Weight — Mariner Energy (ME), Apache (APA), Anadarko (APC), Newfield Exploration (NFX), Plains E&P (PXP), Devon Energy (DVN). Nexen (NXY)
(Via Morgan Stanley, Offshore Risks in Focus; Uncertainty Likely Continues, Stephen Richardson, 3 May 2010)
Note: The author does not own any securities related to the mentioned companies, but investors he speaks or works with may.
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