O&G sector to have better work orders in FY18 — Analysts

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Following the stabilisation of oil prices above US$50 per level in 3Q17, oil majors are gradually reviewing projects in hand which may potentially lead to better contract flows in the next six to 12 months, analysts say. — Reuters photo

KUCHING: The oil and gas (O&G) sector would likely have better work orders in financial year 2018 (FY18) while the refinery and petrochemical integrated development (RAPID) project is expected to receive the final investment allocation before the slated commencement in 2019, analysts observed.

According to Kenanga Investment Bank Bhd (Kenanga Research), despite oil prices recovering 17 per cent in the third quarter of 2017 (3Q17), the local O&G stocks only inched up by 1.4 per cent.

Kenanga Research attributed such weak correlation to the relatively disappointing 2Q17 results which was dragged by lower-thanexpected work orders and delay of contract award by oil majors.

“Having said that, following the stabilisation of oil prices above US$50 per level in 3Q17, oil majors are gradually reviewing projects in hand which may potentially lead to better contract flows in the next six to 12 months,” the research arm said.

Within the local scene, despite the upstream space not given much attention, Kenanga Research opined that the rollout of different operating expenditure (opex)-related contracts such as the widely reported RM6 billion maintenance, construction and modification (MCM) contracts and potential RM4 billion ILC contracts will help to provide order-book replenishment opportunities for selected services contractors.

“Given rigorous cost optimisation over these few years, margins may not stay as attractive as it used to be during good times and contractors have to be as efficient as possible to avoid project cost overrun.”

On RAPID, Kenanga Research noted that the downstream segment which is largely led by the RAPID project is expected to receive the final investment allocation before the slated commencement in 2019.

The research arm further noted that as Pengerang Integration Complex (PIC) is currently at 70 per cent completion, the peaking of pipes, valves and fittings (PVF) demand would benefit players such as Pantech Group Holdings Bhd.

Meanwhile, based on Kenanga Research’s channel check, Petroliam Nasional Bhd (Petronas) has sent out bid invitations for the maintenance contract for RAPID.

The research arm reckoned that services players such as Dialog Group Bhd and Serba Dinamik Holdings Bhd are potential candidates for these plant turnaround and maintenance opportunities beyond 2019.

On a side note, Kenanga Research foresaw the O&G sector as having muted impact from any initiatives proposed in the upcoming Budget 2018.