KUCHING: The oil and gas sector (O&G) is on bullish cycle as new contracts soared 10 times quarter-onquarter (QoQ) to RM5.6 billion in the fourth quarter of 2009 as compared with combined contract value of RM603 million in the third quarter of 2009.AmResearch Sdn Bhd (AmResearch) in a research report highlighted that the huge amount of the contract was contributed by SapuraCrest Petroleum Bhd (SapuraCrest) winning the bid from Petroliam Nasional Bhd’s (Petronas) Umbrella tender and the RM551 million Gorgon pipe-coating project in Australia to Wah Seong Corporation Bhd (Wah Seong).
It noted that the value of the contract has added a 27 per cent year-on-year (YoY) jumped from RM4.5 billion in the fourth quarter of 2008.
Meanwhile, the research firm noted that in the fourth quarter of 2009, Malaysia’s new oil and gas contracts was comparable to its neighbouring country, Singapore which registered a similar surge of 10 times and YoY increase of 121 per cent.
It observed that the contracts awarded to Keppel Corporation Ltd amounted to 76 per cent of fourth quarter 2009 new project values in Singapore, including estimates for a P- 61 tension leg platform project from Brazilian oil producer, Petrobras.
On the local front, the research firm recalled that Petronas has invited tenders comprising five packages (Package A,B,C,D, and E) of transportation and installation projects offshore in Malaysia.
This involved 11 production sharing contract (PSC) operators. The service contract covered three years with options for two annual extensions.
Later, Packages D and E were merged into one, which left only four packages were up for bid.
Eventually, SapuraCrest won three of the four packages which were Package B,C and D. In the meantime, AmResearch was uncertain as to which other oil and gas players would secure Package A.
On the other note, SapuraCrest emerged as the front runners who bagged most of the three-year service contracts to provide transport and installation services for 11 Petronas’ PSC operators in Malaysia.
The research firm observed that SapuraCrest had indicated the value for scope of works this year amounted to RM1.5 billion with subsequent years to be determined on a yearly basis.
Hence, it conservatively estimated SapuraCrest’s total contract value from Petronas was expected to reach RM4.5 billion for three years.
AmResearch stated that it would review its forecasts for SapuraCrest pending more information from the company.
Apart from that, the research firm expected further newsflow to be announced that would drive O&G equity valuations higher.
These include the Malikai, Kebabangan and Jangas being the next deepwater excitement this year. AmResearch noted that with Malikai being the first to roll out with design and engineering works last year, the research firm estimated that capital expenditure for the three blocks could go up to RM13 billion.
Another positive news is the outcome of the tender for eight offshore support vessels by Petronas Carigali Sdn Bhd (Petronas Carigali) which was earlier expected by the end of fourth quarter 2009.
Further, there could be some potential upside surprises from several overseas projects namely in Australia and India. AmResearch also observed that while Wah Seong has secured the pipecoating project for the Gorgon project, there were other subcontract works which KNM Group Bhd
(KNM) and Kencana Petroleum Bhd were eyeing.
This included the liquefied natural gas (LNG) project in Papua New Guinea (PNG) and Oil and Natural Gas Corporation Ltd (ONGC) projects in India.
Besides that, mergers and acquisition (M&A) activities could accelerate to expand the capacities of O&G companies. AmResearch pointed out Kencana’s recent rights issue could mean additional resources for corporate activities.
It also added that Wah Seong hoped to improve its earnings on the turnaround of its former tie-up partner, Italian pipe-contractor Socotherm’s financial weaknesses.
Therefore, AmResearch reiterated its positive outlook on the O&G sector with its top equity selection being SapuraCrest and Kencana Petroleum given their ability to secure new projects, improving efficiencies, high stock liquidity and possible M&A activities.
It also favoured Boustead Heavy Industries Corporation Bhd, Coastal Contracts Bhd, Alam Maritim Resources Bhd, Dialog Group Bhd and Wah Seong.
Likewise, it maintained a neutral for Petronas Gas Bhd, Scomi Group Bhd, Tanjung Offshore Bhd, KNM and Sealink International Bhd.