RM6b Petronas deals unlikely to be catalysts for oil & gas sector: AmBank Research

PETALING JAYA: AmBank Research is of view that a reported RM6 billion maintenance, construction and modification (MCM) contracts rollout by Petroliam Nasional Bhd (Petronas) is unlikely to work as a catalyst for the oil and gas sector, maintaining the sector’s neutral call.
It was previously reported that, Petronas has conducted a pre-award meeting for the delayed contracts which were expected out in the second quarter of the year.
“Petronas’ recent focus on reshuffling its upstream portfolio amid a review of its capital and operating expenditure against the backdrop of a lower crude oil price environment has negatively impacted the local services sector. It is uncertain whether Petronas would split the MCM jobs into six packages for a 5-year duration as earlier envisaged,” AmBank said.
Essentially, these new contracts, which are a relief for the sector, are to replace the existing service jobs currently held by the incumbents. These could offer a respite for vessel utilisation rates. However, in terms of value accretion, we do not expect any significant increase in day rates, given the currently depressed offshore market,” it added.
On another note, the research house also expects persistent low asset utilisation levels in the medium term as it does not expect any significant change in Petronas’ cautious approach to upstream exploration and development expenditures.
“For Malaysian operators, which operate wholly offshore, weak capital expenditure rollout prospects mean that the worst can stretch for quite a while for those struggling with high gearing such as Bumi Armada Bhd and UMW Oil & Gas Corp Bhd. Locally-based companies such as Perisai Petroleum Teknologi Bhd, Alam Maritim Resources Bhd and Nam Cheong Group are currently in financial distress,” it said.
On the other hand Petronas’ capex saw a quarter-on-quarter (qoq) decline of 21% to RM9.4 bilionl in Q2’17, which led to year-on-year decline of 15% to RM21.3 billiion in 1H2017, of which 59% was spent on the US$27 billion (RM113.1 billion) Refinery and Petrochemical Integrated Development.
As at first half of the year, Petronas’ capex spending accounted for only 35% of the RM60 billion guided by Petronas for this year assuming that the average Brent crude oil prices was at US$45/barrel.
Dialog Group Bhd and Yinson Holdings Bhd emerged as AmBank Research’s to picks due to stable and recurring earnings. Dialog’s earnings visibility is largely due to the Pengerang Deepwater Terminal project, while Yinson has the Ghana floating production, storage and offloading vessel project to provide the earnings momentum in the next two years.
Oil and gas giant, Petronas Gas earned a sell call due to the upcoming implementation of the incentive-based regulatory tariff setting mechanism, whereas a hold call was given to Sapura Energy Bhd, MISC Bhd, Malaysia Marine and Heavy Engineering Holdings Bhd, Bumi Armada and UMW Oil & Gas.
Besides that, the research house also expects oil price to remain flat at US$50-55/barrel throughout the year and in 2018, as crude oil prices appear to move in the “lower for longer” direction. Crude oil prices averaged at US$52/barrel this year.