Wednesday, March 22

Local O&G upstream activities to stay elevated


Local upstream activities in the O&G sector are expected to remain elevated from high levels seen in 2019, analysts observed. — AFP photo

KUCHING: Local upstream activities in the oil and gas (O&G) sector are expected to remain elevated from high levels seen in 2019, analysts observed.

“While 2019 has mostly been a rebound year for many local oil and gas services and equipment providers, we are expecting to see a continuation of the elevated activity levels going into 2020,” the research team at Kenanga Investment Bank Bhd (Kenanga Research) said.

“A read-through of Petronas’ latest Activity Outlook 2020-2022 was mostly positive, as most upstream value chains are expected to see approximately maintained levels from 2019, while several of them anticipated to see a surge,” it further highlighted.

On the OPEC+ production cuts, Kenanga Research said while it is positively surprised with the OPEC’s decision to deepen existing production cuts in the first quarter of 2020 (1Q20), it is somewhat disappointed that the coalition failed to announce any extension of production cuts beyond that.

“We still view that continued production cuts is imperative to sustaining oil prices at current levels, with further downside risks coming from enforcement measures of production cut compliance among OPEC members, continued uncertainties in US-China trade tensions, and continued rise in US oil output,” it said.

Overall, it forecast an average Brent projection of US$60 per barrel for 2020-2021, anticipating mild pullbacks once demand-supply dynamics start to normalise.

As for contract awards, the research team at AmInvestment Bank Bhd (AmInvestment) noted that Malaysia’s 2019 contract awards slid six per cent y-o-y to RM11.5 billion due to slower order flows in 4Q19, which fell 35 per cent q-o-q and halved y-o-y to RM2.2 billion.

“This followed multiple awards to Sapura Energy, Malaysia Marine & Heavy Engineering Holdings (MMHE) securing a RM2.5 billion Kasawari central processing platform job and Bumi Armada’s 30 per cent stake in ONGC’s KG-DWN 98/2 FPSO charter in the previous quarter,” it explained.

“In our view, the slower order flows could be temporary given that award timelines tend to be lumpy in the first and fourth quarters of the year,” it opined.

Over the longer term, AmInvestment believed that offshore projects in Brazil, Mexico, the Middle East and West Africa are poised to regain traction with Sapura Energy and MMHE being selected for Saudi Aramco’s Long Term Agreement programme, which allows them to bid for the kingdom’s massive offshore projects that could reach US$150bil over the next 10 years.

“Westwood Global Energy Group is projecting global drilling and well services expenditure to grow 19 per cent to US$1.9 trillion for 2019–2023 from 2014–2018,” it added.

Overall, AmInvestment retained its ‘overweight’ rating on the sector as prospects have radically brightened with rising asset utilisation globally which supported service providers’ improving results.

On the other hand, Kenanga Research retained its ‘neutral’ view given limited upsides for large-cap Petronas-related counters, although with increased optimism towards the O&G equipment and services providers.