KUCHING: Mergers and acquisitions (M&As) will be key to higher profitability amongst players within the oil and gas (O&G) segment.
In saying this, RHB Research Institute Sdn Bhd (RHB Research) expects M&A activities to heat up over the next 12 months as companies try to chase higher earnings.
“In our view, offshore vessel owners should expand overseas or undertake M&As to benefit from economies of scale and improve profitability,” it said, adding that the local market is getting increasingly saturated with fewer reinvestment opportunities.
For example, Yinson’s acquisition of Fred Olsen Production (FOP) propelled the company to become the sixth-largest FPSO player in the world, after Bumi Armada Bhd. This expanded Yinson’s presence into high-growth FPSO markets including South America, Africa and Asia, RHB Research said.
“In the upstream earnings and procurement segment, Murphy Oil has put up its asset for sale with a touted price tag of US$3 billionn. We believe SakuraKencana Petroleum Bhd is a potential bidder for the assets although management has declined to make any comments on the bid,” it said.
“Understandably, investors would be concerned whether SakuraKencana could afford another such huge acquisition following the consolidation of Newfield’s upstream assets worth US$896 million or about RM3.2 billion.”
Other potential buyers of Murphy’s Malaysian assets include Coastal Energy Co, Hibiscus Petroleum, Sona Petroleum and CLIQ Energy.
The research house believed the sector will remain attractive in anticipation of Petronas will rampingup its spending in 2014. Its cumulative capital spending of RM143 billion from the planned RM300 billion throughout 2011 to 2015 is deemed lower than estimated, partly caused by a delay in the RAPID project.
“Going forward, we anticipate more risk service contracts and enhanced oil recovery-related jobs to be awarded throughout CY14 to arrest the decreasing oil production in Malaysia.
“We think there will be more participation from the small-cap names in RSC albeit with a likely reduced stake in the respective consortia, as Petronas’ new wholly-owned subsidiary,
Vestigo Petroleum, will likely have a more active role in this space.”