ETP newsflow creates O&G stocks rally

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KUCHING: Malaysian Oil and Gas (O&G) stocks skyrocketed in the past few days in response to Prime Minister Datuk Seri Najib Tun Razak’s announcement of another 19 Entry Point Projects (EPP) with three from the O&G sector under the Economic Transformation Programme (ETP).

On top of that, Main Board of Bursa Malaysia also witnessed record breaking 52 weeks high levels of certain counters since the announcement on January 11, 2011. The RM20 billion investment in the O&G and energy sectors were expected to perk up trading in these stocks after vanishing from the radar over the last two years due to weakening in crude palm oil (CPO) levels and lack of activity in the energy sector.

RAM Ratings group chief economist Dr Yeah Kim Leng told The Borneo Post that the positive newsflow had in a way confirmed the various projects and investments which were directed at the O&G sector. “The companies that are benefiting from the increase in investment activities will definitely witness a uptrend in share prices.”

“On the expectation front, earnings as well as contracts will rise in tandem with the implementation of the various projects. Private investments will also benefit from the overall process because of the robust confidence in the ETP that will generate investment and growth,” said Dr Yeah.

Maybank Investment Bank Bhd (Maybank IB) from its point of viewed said newsflow would only remain strong over the near term and it foresaw a re-rating in valuations on some stocks when the marginal field projects were announced next.

“We think that marginal fields’ development will feature prominently in the upcoming ETP announcements. We are excited on this space, for this would likely involve participation of several local service providers with strong balance sheets, proven track records and execution abilities as well as overseas exposure,” it said.

Looking at the players, Exxon Mobil and Production Malaysia Inc were scheduled to jointly invest more than RM10 billion in a production sharing contract project with Petronas Carigali Sdn Bhd.

The contract was to rejuvenate mature facilities and undertake enhanced oil recovery (EOR) activities at the Tapid field and Telok field gas development projects as well as to ensure reliable and sustainable energy supplies.

Shell Malaysia, on the other hand was slated to invest RM1.5 billion on multiple onshore projects to upgrade, expand and build facilities in Malaysia. These include the expansion of the Shell Middle Distillate Synthesis (MDS) wax plant in Bintulu (Sarawak), a new diesel processing unit at the Shell refinery plant in Port Dickson (Negeri Sembilan) and Gemusut deepwater development offshore Sabah.

Meanwhile, Dialog Group Bhd would lead a consortium to develop a RM5 billion deepwater gasoline terminal in Johor state. Members of the consortium include the state government and Vopak NV, a Datch storage company for oil products and chemicals.

In addition, Yeah also pointed out that the small players would not be left out in this scenario. “They will benefit from the perspective of getting more contracts for supplies and sub-contracting. Through that, service providers and other related service companies will benefit from the frenzy of activities that are to come on the back of the higher investments.”

Malaysia which produced 657,700 barrels of oil and condensates per day as of January 1, 2010, was expected to become a net oil importer by 2013. This was supported by the introduction of a package of tax incentives to boost oil production from mature fields, including cutting tax rates for the development of new oil and natural-gas resources and enhancing recovery from depleted fields.

The tax incentives would cost the country RM8 billion in foregone revenue for state oil corporation Petronas, which accounted for almost half of all government revenue. Malaysia, Southeast Asia’s second largest O&G producer has domestic crude oil reserves to last 24 years and natural gas for 38 years.

Malaysia’s FTSE Bursa Malaysia KLCI Index rose 5.07 points or 0.32 per cent, to 1,571.56 points at the 5pm close in Kuala Lumpur. Turnover was at 2.04 billion shares valued at RM3.001 billion at closing time.