Oil - Service, Equipment, Pipelines etc

[winston]

MY: Malaysia Oil & Gas

Drones attack | POSITIVE

The attack on Saudi’s oil facilities has shocked the market. Oil price spiked >20% overnight.

It disrupts 6% of world oil output & 50% of Saudi Arabia’s output, equivalent to 5 years of global oil demand growth.

This incident far outweighs the previous supply shock in the 70s and could escalate tension in the already fragile Middle East.

The disruption has returned volatility to the oil market with oil price overshooting >USD80/bbl temporarily.

Dialog, Yinson and Velesto are our key BUYs.

Source: Kim Eng

https://factsetpdf.maybank-ke.com/PDF/1 ... 44394b.pdf

[winston]

China: National oil and gas pipeline company to consolidate sector

China is merging the networks operated by its three state-owned oil giants under a single operator.

China announced the creation of its long-planned national oil and gas pipeline company, officially launching one of its biggest energy revamps aimed at helping supply keep pace with demand, Bloomberg reports.

The move marks a “key step” in China’s efforts to deepen reforms of its oil and gas sector, Xinhua said, without giving further details.

The government has planned to merge the networks operated by its three state-owned giants under a single operator, a key step to removing barriers that have hampered domestic production, and which dovetails with efforts to use more gas instead of coal.

A key development to watch is the valuation of assets, Neil Beveridge, an analyst at Sanford C. Bernstein & Co., said earlier today. It may take six to nine months for that detail to emerge, based on a similar reform of telecom carriers in 2015 that created China Tower Corp., Beveridge said.

The pipeline company’s creation has been considered since at least 2014 and is part of President Xi Jinping’s drive to streamline industrial capacity among state-owned enterprises.

The government is seeking to spur wider natural gas distribution and upstream exploration by shifting ownership from competing producers into a single operator, which can make decisions based on overall national energy needs.

The reform is also designed to help smaller private or foreign firms, which have found access to infrastructure blocked or prohibitively expensive. With the assets stripped from the hands of the big three state firms, other companies can gain access and move supply to where it is needed.

Media representatives of the new pipeline operator did not respond to an email seeking comment.

The State-owned Assets Supervision & Administration Commission, which oversees centrally owned enterprises, didn’t respond to a faxed request for comment. Nobody answered calls to the media departments of the three companies involved -- China National Petroleum Corp., Sinopec Group and China National Offshore Oil Corp.

The change will mainly affect PetroChina Co., the listed unit of CNPC, which controls about 70 percent of the nation’s networks. Its shares in Hong Kong sank to their lowest since 2004 last week amid concern the company’s earnings and cash flow would be diluted as it loses one of its most prized assets.

Source: The Standard

http://www.thestandard.com.hk/breaking- ... 1209&sid=2

[winston]

Malaysia: CGS-CIMB Research sees Dialog, Lotte winning in oil carnage

The research house said Dialog can potentially benefit from the global oversupply of oil that will need to find storage space, possibly at its short-term independent terminal at Pengerang SPV1.

KUALA LUMPUR: CGS-CIMB Equities Research is maintaining its Overweight rating on oil and gas but highlight risks from the free fall in crude oil prices.

“Dialog and Lotte Chemical Titan (LCT) are potential winners. Key potential losers are Velesto, Petronas Dagangan and SAPURA ENERGY. YINSON and Dialog remain our top sector picks, ” it said on Monday.

The research house said Dialog can potentially benefit from the global oversupply of oil that will need to find storage space, possibly at its short-term independent terminal at Pengerang SPV1.

Conversely, oil production from its production sharing contract (D35, D21, and J4 fields offshore Sarawak) and oil services contract (Bayan field offshore Sarawak) may see lower profitability.

LCT may benefit from margin expansion as naphtha feedstock prices will likely fall faster than the already-depressed petrochemical selling prices.

CGS-CIMB Research said it was reported last Friday by Bloomberg that Saudi Arabia and Russia could not see eye to eye on the proposal by the former to cut Opec+ oil production by a further 1.5 million barrels per day (mbpd) in order to tackle weak oil prices in view of global overproduction and demand that has been negatively impacted by the Covid-19 epidemic.

Opec+ had cut production by 1.2m bpd from the Oct 2018 baseline that had taken effect since Jan 1,2019 but the production cut had expanded to 1.7 mbpd by December 2019, mainly due to voluntary extra cuts by SA. Still, oil prices weakened in 1Q20 as the Covid-19 outbreak hurt demand in China.

As Russia has refused to cut further, Saudi Arabia apparently intends to roll back its voluntary cuts after the Opec+ agreement ends on 31 Mar 2020, with Saudi Arabia intending to increase production from 9.7 mbpd currently to 10-11 mbpd in Apr 2020.

Saudi Aramco is apparently offering large discounts to its customers in Asia, Europe and the US to wrest market share from Russia and engage in an all-out price war.

CGS-CIMB Research said the end game is to bring other Opec+ producers back to the negotiating table and to once again control production in such a way as to keep oil prices high. Brent crude ended last Friday at US$45/bbl, down 32% from a year ago.

“Brent crude bottomed at US$26/bbl in Jan 2016 and some commentators expect prices to hit similar levels again, ” it said.

Following the turmoil, the research house sees the losers are Velesto, PetDag, Sapura Energy and PetChem.

“The implications are generally negative for the Malaysian O&G sector, ” it said.

CGS-CIMB Research said in the 2014-16 oil price downturn, Petronas cut its operating costs at the expense of its suppliers and contractors.

Velesto was hit badly as its long-term rig charters were prematurely ended by Petronas; for FY20F, Velesto has four rigs chartered to Petronas that are due for renewal and these may not be renewed at its assumed higher rate of US$75,000 a day vs. US$70,000 currently.

Petronas Dagangan may be hit by large lagged inventory losses in 1Q20F, which may impact its full-year dividends assuming that it sticks to its historical payout ratio.

Sapura Energy, which already saw core net losses in the past three years, may see its losses remaining large in the foreseeable future if its tender drilling rigs fail to record higher utilisation and rates, its engineering and construction tenders continue to face compressed margins and its oil and gas fields sell their output at low prices (not a good time for its SK408 production to be commissioned).

“Lower oil prices may keep petrochemical selling prices squeezed, keeping Petronas Chemicals’s earnings weak.

“FPSO players are theoretically not affected by the oil price downturn given their long-term contracts but the experience of 2014-16 shows that contracts can fail to perform if the charterer is weak.

“Yinson’s soft underbelly is its monthly charter to PetroVietnam of the FPSO Lam Son, which can be terminated at short notice, and the FPSO Abigail-Joseph, which is chartered to a small O&G independent.

“Having said this, Yinson has already long recovered its investment cost for the FPSO Lam Son while the FPSO Abigail Joseph’s conversion costs have been paid upfront by the charterer.

“For Bumi Armada, its FPSO Kraken is chartered to UK independent EnQuest, which has a weak balance sheet while its ability to weather a long oil price downturn is unclear, ” it said.

Source: The Star

https://www.thestar.com.my/business/bus ... il-carnage

[behappyalways]

Exclusive: U.S. shale urges service firms offer 'at least' 25% price cuts - executives, letter
https://www.reuters.com/article/us-glob ... SKBN21004B

[behappyalways]

Global oil refiners shut down as coronavirus destroys demand
https://www.reuters.com/article/us-heal ... SKBN21D19K

[behappyalways]

Diamond Offshore Drilling files for chapter 11
https://splash247.com/diamond-offshore- ... hapter-11/

[behappyalways]

Offshore Shipping “Players” in Dire Straits
https://www.hellenicshippingnews.com/of ... e-straits/

[behappyalways]

Swire Pacific Offshore to stack 40% of fleet
https://splash247.com/swire-pacific-off ... -of-fleet/

[winston]

Malaysian O & G

MIDF Research sees major recovery in oil and gas sector in H2 2021

The pandemic has wiped out 30 per cent of the global crude demand in the first few months of its outbreak and demand has yet to recover to the pre-Covid-19 level. — Reuters pic

KUALA LUMPUR, Dec 3 — The oil and gas (O&G) industry demand recovery has remained fragile as Covid-19 new cases surge while oil supply will remain in excess going into the first half (H1) 2021 with Brent crude expected to average at US$51 per barrel next year, said MIDF Research.

In its note on the O&G Sector Outlook 2021, the research house said the surge in average daily new Covid-19 cases has brought about a fresh new set of lockdowns in several European countries which could further derail demand recovery.

The pandemic has wiped out 30 per cent of the global crude demand in the first few months of its outbreak and demand has yet to recover to the pre-Covid-19 level.

"We opine that the crude oil price will continue to trade range bound at between US$45 and US$50 per barrel in the H1 2021. For the full-year financial year 2021, we estimate the major recovery expected to take place in H2 2021, should the pandemic be well-contained worldwide and a vaccine successfully developed.

"Furthermore, as we are expecting the Organisation of the Petroleum Exporting Countries Plus allies (Opec+) to continue restricting supplies into 2021, it will also help to stabilise oil price in the H1 2021 while demand gradually recovers to pre-Covid-19 level," it said.

Although the research firm is anticipating a recovery in demand for crude oil in the coming quarter, this will also be dependent on the foreign trade policies by the US’s new President-elect Joe Biden which will determine the trajectory of the ongoing US-China trade war which has taken a back seat post-outbreak of the Covid-19.

All in all, MIDF Research is maintaining its 'neutral' stance on the sector for the upstream and downstream sub-segments given that the sector will continue to be susceptible to the ongoing development of the pandemic.

With expected subdued exploration and production, capital expenditure spending and demand returning for oil-related products globally, it opined that the significant uptick in activities within the O&G sector can only be seen in the H2 2021.

Furthermore, both upstream oil producers and oil and gas service providers will have a big task to balance future growth as well as business sustainability while they navigate through the current adverse operating environment going into 2021.

Meanwhile, AmInvestment Bank in its O&G Sector report has maintained its 2020 oil price forecast at US$40-US$45 per barrel, and US$45-US$50 per barrel for 2021.

This is supported by US crude oil inventories 10 per cent decline to 488 million barrels currently from the all-time high of 541 million barrels in June this year.

“With Brent crude spot prices stabilising above US$40 per barrel, we believe that the down cycle has reached a bottom with the worst experienced in April this year when Brent spot prices plunged to a low of US$14 per barrel while futures inverted to an abnormal negative price due to lack of storage capacity,” it said.

AmInvestment Bank has maintained its ‘overweight’ call on the sector, with recommendations for Yinson, Petronas Gas, Dialog Group, Serba Dinamik Holdings and Bumi Armada.

Source: Bernama

https://www.malaymail.com/news/money/20 ... 21/1928424

[winston]

MY: MALAYSIA OIL & GAS

OPEC+ comes to a compromise | POSITIVE

This ‘compromise deal’ is a small win for the oil market in a small window. Oil price is holding up, sustaining closer to the USD50/bbl mark and the OPEC+ pact is still intact, for now.

That said, volatility will persist, for:
(i) this is just ‘an impermanence solution’ and
(ii) friction among OPEC+ members is beginning to surface.

We reiterate that an effective Covid-19 vaccine for the mass market is key to recovery.

Our BUYs are Dialog, Yinson, WSC, MMHE and Icon.

Source: Maybank

https://factsetpdf.maybank-ke.com/PDF/2 ... 77c715.pdf