‘No over-reliance on Petronas for contract handouts’

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KUCHING: Analysts observed that there is no over-reliance by local oil and gas (O&G) firms on national O&G corp Petroliam Nasional Bhd (Petronas) for contract handouts.

To note, contract flows for Bursa Malaysia-listed oil and gas (O&G) service providers remains stable this year at RM13 billion, which is 19 per cent higher compared with the Jan-April period in 2013, says analyst Aaron Tan of the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research).

“We note that only a relatively small portion (6.2 per cent) of jobs awarded this year had emanated from Petronas, with majority coming from international O&G firms.

“This proves that there is no over-reliance of local O&G firms on Petronas for contract handouts. Main beneficiaries in March to April 2014 were Bumi Armada Bhd (Bumi Armada), SapuraKencana Petroleum Bhd (SapuraKencana), UMW Oil & Gas Corporation Bhd, Uzma Bhd, Perdana Petroleum Bhd, Handal Resources Bhd and Barakah Offshore Petroleum Bhd.

“In light of this, companies’ orderbooks have grown substantially.”

MIDF Research highlighted SapuraKencana’s orderbook is currently at about RM27 billion while Bumi Armada’s orderbook has swelled to RM22.7 billion with contract extensions worth RM8.9 billion.

Apart from the active awards of contracts announced this year, the MIDF Research analyst is upbeat on activity levels within the industry which remains healthy as there were also very important progress and developments announced.

“Firstly, the Final Investment Decision (FID) approval for the US$16 billion Refinery and Petrochemical Integrated Development (Rapid) and the US$11 billion associated facilities were announced.

“This is a major milestone as the initiative will boost Malaysia’s capability as an oil storage and trading hub, spurring growth in the O&G downstream sector.

“Secondly, Petronas has also announced in March the award of two more risk service contracts (RSC). The fourth round RSC involving the Tembikai field (offshore Terengganu) was awarded to Vestigo Petroleum and the fifth round RSC involving the Tanjung Baram field (offshore Sarawak) was awarded to Uzma and EnQuest,” Tan highlighted.

Overall, the analyst pegged positive sentiments on the current performance of the O&G industry, buoyed by strong global crude oil prices and continuous efforts by Petronas in the exploration and production segment.

Tan was also sanguine on the prospects of oil prices. He said the latest Bloomberg consensus indicated that the market is still positive on the WTI crude oil price moving forward.

“The consensus average forecast for 2014 WTI price is US$98 per barrel, higher than US$97.5 per barrel previously.

“In addition, the US Energy Information Administration, in its latest April 2014 report has also tweaked its 2014 WTI average price forecast upwards to US$95.6 per barrel from US$95.33 per barrel previously.

“While we are still maintaining our 2014 average WTI crude oil price forecast US$94 per barrel, the bias in the expectation is certainly upwards,” he commented.

Tan further viewed that sustained high oil prices could fuel exploration and production (E&P) activities as E&P firms are more incentivised to push into deep-water areas.

“According to Quest Offshore, from 2009 to 2013, 1,002 hydrocarbon discoveries were made. This represents a 52 per cent increase from what was discovered from 2004 to 2008 (659 discoveries).

“As such, we believe that the overall higher pace of hydrocarbon discoveries may potentially drive the demand for drillers, offshore support vessels, oilfield services, equipment and parts supplies, fabrication works and maintenance activities.

“Almost all of these services are offered by the O&G service providers listed on Bursa Malaysia,” he said.