KUCHING: Offshore support velles (OSV) providers such as Dayang Enterprise Holdings Bhd (Dayang) are still seen as resilient despite weakening crude oil prices.
Analyst Arhnue Tan of AllianceDBS Research Sdn Bhd said she saw no reason to downgrade earnings for Dayang even if the firm lower crude oil assumptions to US$95 per barrel from a previous US$106 per barrel.
“Dayang’s earnings are driven by the resilient shallow water market in Malaysia, where production costs are low at US$30 to US$50 per barrel,” Tan said in a note to investors on Tuesday.
“Dayang’s earnings are backed by their RM4.5 billion orderbook which offers 3.5 times revenue cover. About 80 per cent of their orderbook consist of five-year hook up and commissioning (HUC) contracts which commenced in 2014. The rest is for topside maintenance activities.”
Meanwhile, another analyst with CIMB Investment Bank Bhd (CIMB Research) affirmed that O&G service providers are not directly affected by oil price volatility.
“Malaysia’s listed oil & gas players are mostly service providers with operations in various segments along the value chain – from retail and distribution in the downstream to seismic and marine support in the upstream.
“The service providers are, therefore, not directly affected by the oil price volatility although SapuraKencana has exposure to exploration and production through SapuraKencana Energy Inc (formerly Newfield).
“Also, most of the small- to mid-cap companies operate domestically, with Petronas as the ultimate client, which contributes to some stability in earnings.”
Among the small- to mid-cap companies, CIMB Research pinpointed Perisai Petroleum Teknologi Bhd, which has a jack-up working for Petronas, stressing its contracts are not dependent on oil prices.
Meanwhile TH Heavy Engineering Bhd, whose FPSO vessel has been committed to Nippon Oil, said that the client is not revising the contractual terms despite the softening of the oil price.
“Wah Seong Corporation Bhd, Perdana Petroleum Bhd and Alam Maritim Resources Bhd said that works continue to be in active mode and that it is business as usual for them,” CIMB Research added.
“It is encouraging that the companies are unperturbed by the adverse oil price movements that resulted in the recent share selldown and that they are sticking
to their growth plans and even eyeing merger and acquisition opportunities as the sluggish market has thrown up attractive valuations,” it said, adding that UMW-OG, which currently operates one semi-sub and five jack-ups, may consider other drilling assets such as drillships and tender rigs, as potential acquisitions.
“We do not expect Petronas to cut back on its spending at the current oil price levels although it may review it if the oil price drops to US$60 per barrel, which we understand is the breakeven point for newer initiatives such as marginal field development and enhanced oil recovery.
“We advise investors with a long-term investment horizon to take advantage of the recent share price correction to accumulate.”