AmResearch may upgrade oil & gas sector if capex rollouts speeded up

PETALING JAYA: AmResearch may upgrade the oil and gas industry if upstream capex rollouts are speeded up, although this ultimately hinges on the sustainability of crude oil prices at higher levels.
It currently has a neutral stance on the oil and gas industry with “buy” calls for Dialog Group Bhd, Yinson Holdings Bhd and SapuraKencana Petroleum Bhd.
AmResearch opined that the good run in oil prices in 2016 may lose some steam in 2017, with an unchanged oil price projection of US$45 to US$50 per barrel for 2017 compared with US$43 per barrel for 2016.
The research expects oil prices to reach a high of US$60 to US$65 per barrel in 2017, which may pave the way for oil and gas companies to step up exploration and production activities this year despite facing numerous challenges, such as uncertain global economic prospects, excessive speculation, geopolitical tension and managing technology advances for efficient exploration and production.
AmResearch believes oil price dynamics will continue to remain uncertain and volatile in 2017 although the broad projection is for oil price to be on the recovery path. Brent oil prices were up 51 sen or 0.92% to US$55.98 as at 5pm yesterday.
It said the catalysts for oil prices are stronger global economy, compliance to Opec quotas, deteriorating geopolitical tensions in the Middle East and West Africa as well as growth constraints to US crude oil production.
Meanwhile, AmResearch suggested that the worst is yet to come for oil and gas companies struggling with high gearing such as Bumi Armada Bhd, Alam Maritim Resources Bhd and UMW Oil & Gas Corp Bhd, given that only a few contracts were awarded to Malaysian operators in Q4 2016.
Following that, it said the current low asset utilisation levels will translate to negative cash outflows and heightened credit default risks over the next few quarters.