Wednesday, December 1

Better performance expected in 2H for Malaysia O&G sector


KUCHING: Oil and gas (O&G) companies in Malaysia will continue to see excitement ahead in the second half of 2014 (2H14).

The research team at Kenanga Investment Bank Bhd (Kenanga Research) expect to see mergers and acquisitions (M&As) for non-stop exploration and production in the near future.

“We were pleasantly surprised by Dialog Group Bhd’s (Dialog) recent announcement that it had entered into a Letter Of Intent (LOI) to farm into 20 per cent of ROC Oil’s participating interest in the Production Sharing Contract (PSC) for the three fields D35, D21 and J4 fields, located offshore Sarawak, Malaysia.

“No purchase price has been revealed as yet but we will not be surprised if the consideration mirrors ROC oil’s farm-in terms (US$25 million plus a carry with a 50 per cent participating interest of US$80 million for the project spread over Phases 1 and 2).”

This move by Dialog is viewed positively as its bid to move up the O&G value chain; much like its other large counter party SapuraKencana Petroleum Bhd which bought outgoing Newfield assets in early-2014.

“We foresee such trends to continue, especially for those that are involved in RSCs as it is a natural progression of skill sets for oil and gas companies.”

Meanwhile, other market talk as Kenanga Research observed was that Sona Petroleum is looking to acquire 40 per cent in Salamander’s B8/38 concession; and Enquest has agreed to take over Exxonmobil’s interest in the brownfield assets – Seligi oilfield and PM8.

“Meanwhile, Talisman is purportedly looking at the sale of all or part of its Asian portfolio (which includes Malaysia) and we wouldn’t be surprised if that gets snapped up as well.”

While it was still a liquidity driven market, Kenanga Research forewarned of a few negative factors which could cap the market’s upside.

These negative factors include indecisive interest direction, less attractive regional valuations, historical low volatility, stretched valuation (as per the historical PER Band and discount between FBMKLCI and its consensus), and a seasonally weaker quarter.

“With that in mind, we believe that the cautious market sentiment will have a spillover effect especially on the high-beta segments like the oil and gas segment that has been posting significant gains to-date,” it said.

“Moreover, we suspect there might not be the benefit of strong contract newsflows in the short-run.”

This was on the back of new contracts expected to come in only in the last quarter of the year.

“A significant amount of long awaited contracts have been awarded as at 1HCY14. Moving forward there could be a possible slowdown in awards for 3QCY14, before another pick-up approaching 4QCY14.

“This is especially for fabrication and Chemical Enhance Oil Recovery (CEOR) contracts. Interestingly, we note that 3QCY13, was the slowest quarter in terms of contract awards for the 2013, with a pick-up in 4QCY13 as the year wound down. A similar trend could emerge this year.”