Potential Israeli-Iran War Gooses Oil Prices

Ongoing geopolitical tensions between Israel and Iran serve as a significant catalyst for oil price fluctuations, primarily a result of potential supply disruptions. Iran's Oct-24 launch of approximately 180 ballistic missiles, which caused minimal damage, was met with a stern warning from the Israeli Prime Minister, who deemed it a "big mistake", with promises of retaliation. Despite no further developments, tensions remain high. Should the conflict escalate, Israel might target critical Iranian oil infrastructure, such as the Kharg Island oil export terminal, with a capacity of 7 mn bpd, and the Bandar Abbas oil refinery, crucial for Iran's domestic consumption, at 400k bpd. An attack on these facilities could lead to a significant surge in oil prices, anticipating supply disruptions.

Downgrade Oil & Gas Sector to NEUTRAL

We downgrade our view on oil & gas sector to NEUTRAL, with Brent oil prices projected to hover around USD 80/bbl in 2024 and USD 75-80/bbl in 2025. What indeed does the future hold for this sector?
- MEDC: Reviewing 9M24 performance, MEDC revenue was in line with our forecasts, at 77.6%. Operationally, they performed well, producing 153 MBOEPD, which is above the guidance range of 145-150 MBOEPD. We are maintaining our forecasts for MEDC, as its ASP heavily depends on Brent oil prices. Currently, MEDC appears undervalued, trading at a multiple of 3.88x 2024F EV/EBITDA. We maintain a BUY rating, with a TP of IDR 1,890, driven by potential production increases from an upcoming project.
- AKRA: AKRA's net profit for 9M24 fell below both our expectations and that of consensus, at 59.1% and 52.3%, respectively. This performance in 3Q24 was weaker than anticipated, but we expect improvement in 4Q24, spurred by land sales from their JIIPE project (70-72 ha). The impact of oil prices on AKRA is minimal, due to their fixed distribution sales spread. We continue to recommend a BUY on AKRA, with a TP of IDR 1,725, anticipating potential land sales to be booked in 4Q24.
- PGAS: PGAS's net profit for 9M24 exceeded our expectations, reaching 90.6%. This performance has led us to revise our estimates for PGAS, especially as there are no provisions for tax disputes this year or in the foreseeable future. We maintain a HOLD rating on PGAS but have lowered the TP to IDR 1,670 (prev. HOLD; IDR 1,745), due to anticipated steeper operational expenses and limited growth prospects in 4Q24.

Oil & Gas - Calm Before the Storm

Oil & Gas - Calm Before the Storm

Muhammad Fariz

Energy Sector

12 November 2024 - 07.00am

Oil & Gas - Calm Before the Storm

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