Analysts: No major changes from Petronas’ cautious approach

KUCHING: Analysts expect no significant changes from Petroliam Nasional Bhd’s (Petronas) cautious approach to upstream exploration and development expenditures .

According to AmInvestment Bank Bhd (AmInvestment Bank), persistently low asset utilisation levels are anticipated for the medium term in the oil and gas sector as the research firm did not expect any significant change in Petronas’ cautious approach to upstream exploration and development expenditures.

AmInvestment Bank noted that for the second quarter of 2017 (2Q17) to date, contract awards have risen by 15 per cent quarter on quarter (q-o-q) RM2.2 billion largely due to the lumpy award of the RM1 billion Bokor central processing platform project to Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE).

The research firm further noted that for Malaysian operators, which operate wholly offshore, weak capital expenditure (capex) rollout prospects mean that the worst can stretch for quite a while for those struggling with high gearing such as Bumi Armada Bhd (Bumi Armada) and UMW Oil & Gas Corporation Bhd (UMW Oil & Gas).

“Locally-based companies such as Perisai Petroleum Teknologi Bhd, Alam Maritim Resources Bhd and Nam Cheong Group are currently in financial distress,” it said.

AmInvestment Bank also highlighted that Petronas’ capex declined 21 per cent q-o-q to RM9.4 billion in 2Q17, which led to a decrease of 15 per cent y-o-y to RM21.3 billion in the first half of 2017 (1H17), of which 59 per cent was spent on the US$27 billion Refinery and Petrochemical Integrated Development (RAPID).

“RAPID has reached a completion stage of 70 per cent, compared to only 20 per cent for exploration and development.

“So far, the 1H17 capex spending accounts for only 35 per cent of the RM60 billion guided by Petronas for this year with average Brent crude oil prices assumed at US$45 per barrel.”

Meanwhile, as Brent crude oil spot has currently risen above US$55 per barrel, AmInvestment Bank maintained its 2017-2018 projection at US$50-55 per barrel for now.

It noted that as a comparison, Petronas is projecting an average of US$45 per barrel for 2017 while the Energy Information Administration (EIA) forecasts US$52 per barrel for 2017 and US$54 per barrel for 2018.

All in, AmInvestment Bank maintained its ‘neutral’ stance on the oil and gas sector as the prospects of the sector over the next 12 months are muted given that the direction for crude oil price appears to be “lower for longer”.

The research firm’s top picks were companies with stable and recurring earnings such as Dialog Group Bhd (Dialog) and Yinson Holdings Bhd (Yinson).

“Dialog’s earnings visibility is secured largely by the Pengerang Deepwater Terminal project with its enlarged buffer zone while Yinson’s Ghana floating production, storage and offloading vessel project will provide the earnings momentum over the next two years,” the research firm said.

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