Oil - Service, Equipment, Pipelines etc

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Offshore Oil & Gas Services

Conference takeaways: OSV outlook remains sanguine

• Continued opex spend in offshore E&P space will benefit Ezion and POSH
• Opening up of Mexico’s energy sector means incremental opportunities for OSV players
• Indonesia remains the bright spot in Asia
• Top picks: Ezion and Nam Cheong

Fleet utilisation remains firm. We hosted some of Singapore’s premier offshore support companies at our Pulse of Asia conference last week which attracted many investors. The companies agree that the offshore support vessel market remains strong with continued enquiries for tonnage, and rates are stable.

Opex trends trumping capex plans. There have been concerns about possible capex cuts by some international oil companies, but what most experts agree on is that development and production opex remain buoyant, and even big exploration players like Petrobras cannot afford to ignore its production assets in the Campos basin.

This is supporting sustainable demand for inspection, repair & maintenance assets including liftboats, subsea vessels, accommodation barges and semis.

Mexico: land of opportunity? With energy reforms underway in the country, a large number of new rigs are expected to enter the market over the next few years, leading to demand for OSVs. Pacific Radiance has recently set up a JV in Mexico to explore the possibility of deploying some of its existing orderbook, while Nam Cheong has sold four vessels in this market already. POSH is an established player in the market, and despite facing near term issues at its JV, is likely to keep a presence there.

Indonesia: more action in 2015. Contract awards in Indonesia are expected to gain traction in 2015 as the (ongoing) general election has caused delays in approvals for some long term projects. But charter rates are still about 10-20% higher than the rest of the region, especially for shorter term contracts.

Top picks: Ezion and Nam Cheong. We raised our TP for Nam Cheong to S$0.52 after we rolling over the valuation base to blended FY14/15 earnings, in line with better visibility and continued vessel sale momentum.

Source: DBS

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Maybank Research positive on Malaysian O&G sector

KUALA LUMPUR: Maybank Investment Bank Research remains overall positive on the oil and gas services services (O&G) sector.

It said on Monday it likes KNM for its direct exposure to Petroliam Nasional’s Refinery and Petrochemical Integrated Development (Rapid) project.

The research house said Perdana Petroleum and Singapore-listed Ezion are its top picks for offshore support vessels (OSVs) exposure, and UMW Oil and Gas and Yinson for jack-up rigs and floating production, storage and offloading (FPSO) vessels respectively.

“Nam Cheong and Vard are our preferred stocks in shipbuilding. [b]SILK and Coastal Contracts [/b]are interesting (both Not Rated),from the perspective of value and earnings growth potential,” it said.

Maybank Research met Malaysia, Singapore and Hong Kong fund managers in July.

It said the discussions also involved the outlook for jack-up rigs, FPSOs, OSVs, shipyards and fabrication and fresh stock ideas.

“The Rapid theme generated strong interest in several O&G stocks. Indonesia-centric OSVs (which we have yet to cover) too received attention.

“However, there were mixed views on:
i) the drilling market; and
ii) our revised valuation methodologies for rigbuilders coupled with their order-win momentum,” it said.

Maybank Research pointed out while institutional investors remained keen on the Malaysian and Singaporean O&G services sector, they were concerned about the rising political tensions in the South China Sea.

They were also concerned about the jack-up oversupply from new rigs entering the market and the rig replacement cycle and risks associated with the build-to-stock (BTS) model.

“We like KNM for its direct exposure to Rapid. Securing Rapid projects would lift our earnings and target price by up to 50%. Getting the Peterborough waste-to-energy project off the ground in 4Q14 could drive further interest and re-rate the stock further.

It pointed out KNM’s share price is up 41% since its initiation on June 5 and it has reached its target price of RM1.

“There is potential upside under a blue-sky scenario. Securing US$1bil worth of Rapid projects could lift our earnings and TP by 50%. We expect KNM to bag US$1b worth of Rapid–related contracts, spread over three years.

“Yinson’s share price is also nearing our RM3.03 TP. OurTP is under review but we remain positive for its FPSO.

“It is in the running for several FPSO projects in Ghana and Vietnam, which could be finalised in a few months’ time. Bagging these contracts could boost its bottomline by RM100mil to RM200mil per annum depending on the size, which we have yet to incorporate into our earnings forecasts and TP.

“We are placing Wah Seong under review pending an update with management,” it said.

Source: The Star

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Offshore drillers plummet… Diamond Offshore and Paragon Offshore drop to 52-week lows.

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Oil-services boom takes a break… sector fund OIH falls to its lowest level since April.

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29 Sep 2014 : BST DJ TA Tips Buying 'Undervalued' Malaysia Energy Stocks -- Market Talk

0536 GMT [Dow Jones] TA Research says investors should buy undervalued Malaysia oil and gas stocks, such as SapuraKencana(5218.KU), UMW Oil & Gas (5243.KU), Pantech Group (5125.KU) and Perisai Petroleum (0047.KU);

These stocks are "worthy of investment consideration given their expertise, earnings growth potential and readiness to seize opportunities locally and abroad," the house says in a weekly strategy report.

The current weakness in crude oil prices "should never be a reason to shun oil and gas-related stocks, as the correction could be temporary," says TA.

The house adds that crude oil prices could rebound as the year-end approaches with current geopolitical tensions showing no signs of easing, approaching winter and potential production cuts from the OPEC to keep prices closer to $100 a barrel.


Source: Dow Jones Newswires

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Offshore drilling bear market sends Transocean to a new 10-year low… down 32% over the past three months.

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Malaysian O&G

AmResearch downgrades O&G sector to Neutral from Overweight

KUALA LUMPUR: AmResearch has downgraded the oil and gas sector to Neutral from Overweight, given the slow rollout of domestic developments, downscaled projects and declining marine charter rates.

The rating was also due to the increasing competition from overseas fabrication players due to the relaxation of local content requirements and deteriorating visibility of regional prospects, especially in Australia’s mega-billion gas field developments.

In a note on Tuesday, the research house said there are concerns that the possible replacement of Petronas’ president/chief executive officer Tan Sri Shamsul Abbas next year may lead to further temporary delays in contract awards.

"Slower project rollouts and delays in the award of new tenders translate to cuts in O&G players’ revenue prospects in FY15F-FY16 and a higher corresponding impact on earnings leveraged to fixed operating costs.

"The impact will be more significant for domestic- centric upstream players, as opposed to more globalised operators such as Bumi Armada and SapuraKencana or downstream service providers such as Dialog Group," it said.

Hence, AmResearch has downgraded its recommendations for Petronas Gas from Buy to Hold while maintaining Holds for Yinson and Dialog Group.

MMHE remains a Sell while Buys are Bumi Armada, SapuraKencana and Alam Maritim

"The contract awards to Malaysian O&G players in 3Q2014 fell to only RM711mil from RM8bil previously.

"For fabricators like MMHE and TH Heavy Engineering, near-term domestic order prospects have deteriorated as our channel checks reveal that out of 4 central processing platforms (CPPs) being proposed or tendered out in Malaysia at the beginning of the year, only the award for the over US$1bil Bergading CPP may materialise by the end of the year," it said.

Globally, there are ongoing revisions in project cost and scale given the increasing cost consciousness by oil majors (and not only Petronas) as crude oil prices have softened even though development costs have escalated over the past three years.

Additionally, even though Petronas is still likely to ramp up its capital spending post-2015, there will be increased competition from foreign yards as local vendor policies are being relaxed under more complex engineering projects.

Hence, while there are still multiple EOR projects in the pipeline involving other CPP projects such as the Kasawari, Sepat, and Guntong fields, visibility for local operators’ chances is unclear.

Source: The Star

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Malaysia O&G

CIMB Research keeps O&G sector as Overweight

KUALA LUMPUR: CIMB Equities Research is maintaining its Overweight recommendation for the oil and gas (O&G) sector, due to its importance in the government's Economic Transformation Programme (ETP) and the contract pipeline arising from Petronas’s capex.

“Our top picks are SapuraKencana among the big caps and TH Heavy among the small caps,” it said on Tuesday.

The research house had, in light of the oil price weakness, checked with the companies in its oil & gas portfolio on the stability of their order books.

“The feedback is all-around positive, with the managements assuring us that their companies' contractual terms and rates are intact, and that they are not tied to the oil price,” it said.

To recap, Malaysian oil & gas companies are service providers with operations in various segments along the value chain, from retail and distribution in the downstream to seismic and marine support in the upstream.

The service providers are, therefore, not directly affected by the oil price volatility although SapuraKencana has exposure to exploration and production through SapuraKencana Energy Inc or SKEI (formerly Newfield).

Also, most of the small- to mid-cap companies operate domestically, with Petronas as the ultimate client, which contributes to some stability in earnings.

Among the small- to mid-cap companies, Perisai, which has a jack-up working for Petronas, stressed that its contracts are not dependent on oil prices while TH Heavy Engineering, whose FPSO vessel has been committed to Nippon Oil, said that the client is not revising the contractual terms despite the softening of the oil price.

Wah Seong, Perdana and Alam said that works continue to be in active mode and that it is business as usual for them.

The bigger caps, namely SapuraKencana, UMW-OG and Bumi Armada, are the ones with significant operations outside Malaysia.

UMW-OG said that its drilling contracts in various ASEAN countries remain securely in place and that there are no provisions for price revisions in the contracts while Bumi Armada confirmed that its order book, which is mainly driven by long-term FPSO contracts all outside Malaysia, is locked in, with no oil price connection in it.

SKEI contributes only an estimated 12% to SapuraKencana's bottomline as the bulk of the company's earnings still comes from the provision of various services in Malaysia and abroad, with the drilling business, which is backed by multi-year contracts, being the main contributor.

“It is encouraging that the companies are unperturbed by the adverse oil price movements that resulted in the recent share selldown and that they are sticking to their growth plans and even eyeing M&A opportunities as the sluggish market has thrown up attractive valuations.

“UMW-OG, which currently operates one semi-sub and five jack-ups, may consider other drilling assets, such as drillships and tender rigs, as potential acquisitions.

“We do not expect Petronas to cut back on its spending at the current oil price levels although it may review it if the oil price drops to US$60 a barrel, which we understand is the breakeven point for newer initiatives such as marginal field development and enhanced oil recovery. See overleaf for more comments.

“We advise investors with a long-term investment horizon to take advantage of the recent share price correction to accumulate,” it said.

Source: The Star

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Malaysia: O&G service players reiterate their optimism
23 October 2014

By: YVONNE TAN

PETALING JAYA: Head honchos in companies which provide oil and gas (O&G) services remain positive in light of the current oil price weakness, stating that their companies’ contractual terms and rates are intact.

CIMB Research said this in a note issued to clients on Tuesday, confirming an earlier StarBizWeek article. which reported that despite a huge fall in their companies’ market value in the recent weeks due to weak oil prices, industry players remained optimistic as the projected earnings of their companies were intact, at least for the foreseeable future.

“In light of the oil price weakness, we checked with the companies in our O&G portfolio on the stability of their order books... the feedback is all-round positive, with management assuring us that their companies’ contractual terms and rates are intact, and that they are not tied to oil price,” analyst Norziana Mohd Inon said in the note.

She said the sector remained an “overweight” given its importance in the Government’s Economic Transformation Programme and the contract pipeline arising from Petroliam Nasional Bhd’s (Petronas) capital expenditure (capex).

CIMB’s top picks are SapuraKencana Petroleum Bhd among the big-cap segment and TH Heavy Engineering Bhd for the small-cap.

SapuraKencana and TH Heavy had lost 25% and 32% in value respectively in the past one month leading to Oct 17.

Norziana said O&G service providers were not directly affected by the oil price volatility although SapuraKencana has exposure to exploration and production through SapuraKencana Energy Inc or SKEI (formerly Newfield).

“Also, most of the small to mid-cap companies operate domestically, with Petronas as the ultimate client, which contributes to some stability in earnings.”

Over the past four years or so, the global price of oil has been generally quite stable averaging US$110 per barrel.

As at press time, it was about US$82 per barrel. Earlier, CIMB had said the prospects for the O&G sector depend largely on Petronas’capex spending, which should not be affected by short-term fluctuations in oil prices unless it dips below US$60 per barrel.

“It is encouraging that the companies are unperturbed by the adverse oil price movements that resulted in the recent share sell-down and that they are sticking to their growth plans and even eyeing merger and acquisition opportunities,” said Norziana.

She advised investors with long term investment horizons to take advantage of the recent share price correction to accumulate oil and gas-related shares.

Source: The Star

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Low prices won’t hurt M’sian O&G companies By: WONG WEI-SHEN

PETALING JAYA: Malaysia’s oil and gas (O&G) sector could very well remain immune to falling oil prices, as it continues to be bolstered by monies flowing from Petroliam Nasional Bhd (Petronas).

CIMB Research said it expected Petronas’ spending to continue flowing to refiners as well as O&G service companies.

It also said the shale gas revolution, which was one of the contributing factors for the decline in the oil price, was positive for liquefied natural gas (LNG), liquefied petroleum gas and ethane shipping products.

This would translate into stronger order prospects for gas carriers and product and chemical tankers, CIMB Research said.

Brent crude, the global benchmark, declined to US$82.60 a barrel on Oct 16, the lowest in almost four years.

While lower oil price implied that there would be a cut in exploration and production (E&P) activities, CIMB Research said this would be especially so for unconventional production that could only be economically justified when the oil price was high.

“We deem ultra-deepwater, Artic drilling, Australian LNG, Canadian heavy oil sands and marginal field development as unconventional sources of production,” it said.

Additionally, there was not much incentive for oil companies to raise production levels in a well-supplied environment, CIMB Research added.

It said Petronas might review its capital expenditure programme if the oil price dropped to US$60 per barrel, which it understood was the breakeven point for newer initiatives such as marginal field development and enhanced oil recovery.

On companies with significant operations outside Malaysia, it noted that UMW Oil & Gas Corp Bhd had said that its contracts in various Asean countries were intact and that there was no provision for price revision in the contracts.

It said Bumi Armada Bhd had confirmed that its order book, which was mainly driven by long-term floating production storage and offloading contracts outside Malaysia, was locked and not affected by fluctuations in oil price.

Given SapuraKencana Petroleum Bhd’s exposure to exploration and production through SapuraKencana Energy Inc, CIMB Research said it would suffer from a sustained lull in oil price.

CIMB Research advised investors to avoid exposure to deepwater activities, which have suffered the steepest cutbacks.

“We also advise investors to avoid the yards as they are leveraged to the capital investment cycle, which is dependent on oil prices and sentiment. On the flip side, we favour players that are exposed to development and production spending and shallow water activities,” it said.

Shallow water activities accounted for 70% of offshore production and remained profitable for oil companies even when oil prices fall, it added.

Source: The Star