Low asset utilisation levels bog down O&G sector

PETALING JAYA: AmBank Research is maintaining a neutral view on the oil and gas sector as low asset utilisation levels will translate into persistent negative cash outflows and heightened credit default risks.
The research house said this means that for Malaysian operators, which operate wholly offshore, weak capital expenditure (capex) rollout prospects, the worst is yet to come for those struggling with high gearing such as SapuraKencana Petroeleum Bhd, Bumi Armada Bhd, Alam Maritim Resources Bhd and UMW Oil & Gas Corp Bhd.
“We prefer companies with stable and recurring earnings such as Dialog Group Bhd and Yinson Holdings Bhd.
“Our hold calls are for Petronas Gas Bhd, SapuraKencana, MISC Bhd, Bumi Armada and UMW Oil & Gas,” AmBank Research said in a report yesterday.
It said as Petroliam Nasional Bhd (Petronas) has not revised its crude oil price outlook at US$30 a barrel for 2016 and US$40 a barrel for 2017, it does not expect any significant change in the group’s cautious approach to upstream exploration and development expenditures.
HLIB Research also maintained a neutral stance on the oil and gas industry.
“As Petronas is still uptight in its capex spending given the subdued oil price environment, we still advocate to avoid asset-heavy players whereby the current oil prices would not solve the oversupply issues in that space. Our top pick remains Bumi Armada,” said HLIB Research.
It does not expect any major change in capex plans by the group as the oil market is still volatile, adding that Petronas' operating cash flow at current rate provides little to no buffer for further dividend payment.
"To sustain its dividend payment in medium term, we opine that the group has to draw from its own cash coffers of RM114.6 billion on its balance sheet or issue more debt if terms are more favourable," said HLIB Research.