KUCHING: Analysts are positive on the performance of the downstream segment in the oil and gas (O&G) sector but they peg a negative view on the upstream segment given that the 2016 average Brent crude oil price assumption is at US$40 per barrel.
According to a report by the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), utilisation rates for jackup rigs in Southeast Asia have declined from the highs of close to 100 per cent in early 2014 to current lows of nearly 60 per cent.
In Malaysia, it noted that the utilisation rate of jackup rigs is approximately 29 per cent with 17 of 24 rigs either ready stacked or cold stacked. Of the 43 rigs consisting jackups, tenders, semi-subs, drillships and semi-tenders currently in Malaysia, the total utilisation rate is approximately 30 per cent.
“We do not believe that this rate will post a meaningful increase in the near term as crude oil prices are still expected to stay subdued until at least the second half of this year.
“In contrast, rig utilisation rates globally and in Asia Pacific are approximately 68 and 56 per cent respectively. Within Southeast Asia, total utilisation rate for rigs is around 50 per cent.
“However, the rigs market in the Middle East is still relatively strong at 81 per cent. We believe that this could be due to higher rig standards required in the Middle East market, hence limiting the number of rigs eligible to enter the market there,” the research team opined.
Apart from the lacklustre utilisation rates, MIDF Research also pointed out that day charter rates (DCR) for rigs have also been depressed in line with the downtrend in rig utilisation rates.
“From a high of approximately US$160,000 to US$170,000 per day for jackup rigs back in the second quarter of 2014 (2Q14), DCRs have since nearly halved to current levels of US$80,000 to US$90,000 per day,” it explained.
“At current price levels, we believe that most operators are still operating at a cash positive level. Industry stakeholders are of the collective opinion that rates may stay sub-US$100,000 per day for an extended duration due to glut in competitive rigs, glut in rigs under construction in fabrication yards, sharp pullback in offshore exploration activities, and relatively weak crude oil price,” it added.
Due to the weak indicators shrouding the rigs market, MIDF Research said it is cautious on rig owners and operators such as UMW O&G Bhd and Perisai Petroleum Teknologi Bhd.
“For UMW O&G, only four of eight of its rigs are currently operational – all four are operating in Malaysian waters.
“Management noted that they are looking at opportunities in the Middle East as the demand for rigs there is higher and that its rigs should be able to meet the required specifications.
“As for Perisai Petroleum Teknologi, its sole jackup rig the Perisai Pacific 101 is currently operational in the North Malay Basin. Perisai will also be accepting delivery of two new jackup rigs, the Perisai Pacific 102 and Perisai Pacific 103 by end-1Q16 and 3Q16 respectively,” it explained.
Overall, the research team said, given the volatile and relatively negative sentiment shrouding the upstream segment of the O&G industry, it recommends investors to cherry-pick stocks which are specific to the downstream segment of the industry.