EM PM, Ecstrat

Emad Mostaque

EM PM

Ecstrat

Ecstrat is a consultancy advising on asset allocation between global equity markets, with a focus on the intersection of governments, geopolitics, governance and markets.
 
Over the past few years and more especially since the Great Financial Crisis (GFC), investors have become more focused on short-term market movements and real-time returns and have consequently neglected the analysis of the underlying structural themes that underpin longer term performance.
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More specifically we believe that the evolution of governance-based relationships between investors, controlling shareholders, labour and the state is one of the primary determinants of both relative and absolute performance between individual equity markets.
 
We will endeavour to provide investors with some of the context surrounding governance-related issues which encompass many different disciplines including history, economics and political science, as well as the financial metrics which are the most obvious manifestation of the structural characteristics of each market.
 
We will pay particular attention to the shifts and potential inflection points for governance in individual markets as these are often the best lead indicators for both economic and market performance.

Thematic (Sector/Industry)

This piece highlights my recent proposal for a mechanism to solve the enforceability and adaptability issues faced by OPEC in their proposed production cuts and provides some worked examples of how the Tactical Petroleum Fund would work in practice for Smartkarma readers.

This piece highlights my recent proposal for a mechanism to solve the enforceability and adaptability issues faced by OPEC in their proposed production cuts and provides some worked examples of how the Tactical Petroleum Fund would work in practice for Smartkarma readers.

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

Download the Morningstar Fact Sheet : http://corporate.morningstar.com/US/documents/MarketingFactSheets/AboutMorningstarFactsheet.pdf

Equity Bottom-Up

We make no material changes to earnings forecasts and our AUD 5.30 per share fair value estimate stands. Third-quarter production was steady at 15.5 million barrels of oil equivalent, or mmboe, marginally below expectations. Ramp-up of Gladstone’s second train drove a 20% increase in group equity LNG production to 5.2 mmboe. However, this was offset by lower crude and domestic gas volumes, due to natural field decline and down-time caused by heavy rain in the Cooper basin, and planned maintenance at Chim Sao in Vietnam. Sales revenue, excluding third-party product, increased by 5% to USD 482 million, higher LNG pricing partially offset by lower liquids prices.Our no-moat and high fair value uncertainty ratings remain. In our base-case oil price regime, Santos is not expected to generate midcycle returns on invested capital above its cost of capital. PNG and Gladstone's LNG trains were built at the peak of the resources investment boom. At AUD 3.85, Santos shares are 27% undervalued. Oil price appreciation towards our USD 60 long-term forecast is a key potential catalyst for share price convergence to fair value.Analyst: Mark Taylor

We make no material changes to earnings forecasts and our AUD 5.30 per share fair value estimate stands. Third-quarter production was steady at 15.5 million barrels of oil equivalent, or mmboe, marginally below expectations. Ramp-up of Gladstone’s second train drove a 20% increase in group equity LNG production to 5.2 mmboe. However, this was offset by lower crude and domestic gas volumes, due to natural field decline and down-time caused by heavy rain in the Cooper basin, and planned maintenance at Chim Sao in Vietnam. Sales revenue, excluding third-party product, increased by 5% to USD 482 million, higher LNG pricing partially offset by lower liquids prices.Our no-moat and high fair value uncertainty ratings remain. In our base-case oil price regime, Santos is not expected to generate midcycle returns on invested capital above its cost of capital. PNG and Gladstone's LNG trains were built at the peak of the resources investment boom. At AUD 3.85, Santos shares are 27% undervalued. Oil price appreciation towards our USD 60 long-term forecast is a key potential catalyst for share price convergence to fair value.Analyst: Mark Taylor

No-Moat Santos Delivering on Cost Reduction Objectives; No Change in View

In a somewhat surprising development, OPEC members have tentatively agreed to a production target of between 32.5 million and 33.3 million barrels per day, representing a reduction of up to 700 mb/d from current production levels of 33.2 mmb/d.Oil prices rallied on the news, but our view for continued low prices of $50/bbl in 2017 (detailed in <a href="https://www.smartkarma.com/insights/oil-markets-fundamentals-improving-but-u-s-shale-still-looms" target="_blank">Oil Markets: Fundamentals Improving, but U.S. Shale Still Looms</a>) remains unchanged, as we do not believe the potential reduction will have a meaningful sustainable impact on oil prices. While the low end of the target range is nearly 1 mmbd lower than our 2017 forecast for OPEC production, and if realized, it would balance markets and reduce inventories sooner than our original expectations, we see numerous risk factors that we think prevent a sustained recovery in prices until 2018.Analysts: Stephen Simko, CFA &amp; Lorraine Tan, CFA

In a somewhat surprising development, OPEC members have tentatively agreed to a production target of between 32.5 million and 33.3 million barrels per day, representing a reduction of up to 700 mb/d from current production levels of 33.2 mmb/d.Oil prices rallied on the news, but our view for continued low prices of $50/bbl in 2017 (detailed in Oil Markets: Fundamentals Improving, but U.S. Shale Still Looms) remains unchanged, as we do not believe the potential reduction will have a meaningful sustainable impact on oil prices. While the low end of the target range is nearly 1 mmbd lower than our 2017 forecast for OPEC production, and if realized, it would balance markets and reduce inventories sooner than our original expectations, we see numerous risk factors that we think prevent a sustained recovery in prices until 2018.Analysts: Stephen Simko, CFA &amp; Lorraine Tan, CFA

OPEC Cuts, U.S. E&Ps Drill: Our Oil Price Outlook Remains Unchanged

In May we noted that Saudi was likely to pursue a production maximisation policy for 6 months, with a freeze or cuts likely as we head into winter.This appears to have been prescient as OPEC yesterday announced that OPEC-14 production levels would be capped at 32.5-33mbpd, a slight decrease over the levels achieved over summer and back at Doha talks levels.However, detail is lacking on the proposal and there is strong reason to doubt potential enforceability of any agreement, with oil jumping but still being flat month on month as a result.This piece explores some of these issues and potential market action.

In May we noted that Saudi was likely to pursue a production maximisation policy for 6 months, with a freeze or cuts likely as we head into winter.This appears to have been prescient as OPEC yesterday announced that OPEC-14 production levels would be capped at 32.5-33mbpd, a slight decrease over the levels achieved over summer and back at Doha talks levels.However, detail is lacking on the proposal and there is strong reason to doubt potential enforceability of any agreement, with oil jumping but still being flat month on month as a result.This piece explores some of these issues and potential market action.

Crude markets have tightened a good deal in recent months, as strong demand growth and supply issues have pulled forward the industry recovery by about a year, relative to our previous outlook. Fundamentals after 2017 are looking particularly bullish for prices, and an oil price rally in 2018 is looking more and more likely (we've raised our 2018 West Texas Intermediate, or WTI, forecast to $65 per barrel).Even so, the strength of U.S. shale is lurking beneath the surface: Our analysis shows that the recent uptick in rigs and falling shale decline rates together are enough to stabilize U.S. crude production within six months. Remarkably, if activity isn't scaled back, U.S. production will begin growing in 2017 (albeit barely). This underscores the strength of U.S. tight oil: Should a price rally ensue, it is far too strong to not overheat and eventually snuff out any future oil price rally. We remain bearish on oil prices longer term, and we reiterate our midcycle oil price outlook of $55 WTI ($60 Brent).Analyst: Stephen Simko, CFA

Crude markets have tightened a good deal in recent months, as strong demand growth and supply issues have pulled forward the industry recovery by about a year, relative to our previous outlook. Fundamentals after 2017 are looking particularly bullish for prices, and an oil price rally in 2018 is looking more and more likely (we've raised our 2018 West Texas Intermediate, or WTI, forecast to $65 per barrel).Even so, the strength of U.S. shale is lurking beneath the surface: Our analysis shows that the recent uptick in rigs and falling shale decline rates together are enough to stabilize U.S. crude production within six months. Remarkably, if activity isn't scaled back, U.S. production will begin growing in 2017 (albeit barely). This underscores the strength of U.S. tight oil: Should a price rally ensue, it is far too strong to not overheat and eventually snuff out any future oil price rally. We remain bearish on oil prices longer term, and we reiterate our midcycle oil price outlook of $55 WTI ($60 Brent).Analyst: Stephen Simko, CFA

Oil Markets: Fundamentals Improving, but U.S. Shale Still Looms

Australia

Santos Limited explores for and produces natural gas, crude oil, condensate, naphtha and liquid petroleum gas.  The Company conducts major onshore and offshore petroleum exploration activities at oil and gas fields in Australia (Cooper/Eromanga Basins), the United States (Gulf of Mexico), Indonesia and Papua New Guinea. The Company also transports crude oil by pipeline.

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Santos Ltd (STO AU)

How to Fix Oil Prices

This piece highlights my recent proposal for a mechanism to solve the enforceability and adaptability issues faced by OPEC in their proposed...

Emad Mostaque

No-Moat Santos Delivering on Cost Reduction Objectives; No Change in View

We make no material changes to earnings forecasts and our AUD 5.30 per share fair value estimate stands. Third-quarter production was steady at...

Morningstar, Inc.

OPEC Cuts, U.S. E&Ps Drill: Our Oil Price Outlook Remains Unchanged

In a somewhat surprising development, OPEC members have tentatively agreed to a production target of between 32.5 million and 33.3 million barrels...

Morningstar, Inc.

Can OPEC Cut Production

In May we noted that Saudi was likely to pursue a production maximisation policy for 6 months, with a freeze or cuts likely as we head into...

Emad Mostaque

Oil Markets: Fundamentals Improving, but U.S. Shale Still Looms

Crude markets have tightened a good deal in recent months, as strong demand growth and supply issues have pulled forward the industry recovery by...

Morningstar, Inc.

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