Strategy Outlook- Malaysia 2014
OIL AND GAS SECTOR
“Ready to Oil the Market”
Overweight. We have an Overweight call on oil and gas sector as we foresee earnings resilient towards in the coming years underpinned by the acceleration in Petronas RM300 billion capex and major contract awards for the inspection, repair and maintenance (IRM), North Malay Basin and T&I jobs.
Our top picks for the sector are SapuraKencana (BUY, TP: RM4.69), Alam Maritim (BUY, TP: RM1.90), Dialog (BUY, TP: RM3.32) and Dayang (BUY, TP: RM6.27).
RAPID delay. Petronas announced the delay of its RM60.0 billion Refinery and Petrochemical Integrated Development (RAPID) in Pengerang (Johor) where the initial commissioning is expected in 2018 instead of 2016. The delay was due to the issues related to the water supply and the relocation of existing villages and graves in Pengerang. Therefore, the start-up of the RAPID refinery is scheduled to be ready in 4Q17 while the remaining plants within the development will be commissioned in 2018. We believe the delay will temper the outlook on the local Oil and Gas players as the project is expected to deliver numerous new jobs to be awarded. Dialog (BUY, TP: RM3.32) which is currently developing Pengerang Deepwater Petroleum Terminal (PDPT) may delay the second phase of the project which related to the RAPID development but the first phase is set to be operational by 1Q14. Furthermore, we expect the other players which aim to secure some goodies from the RAPID such as MMHE (BUY, TP: RM4.40), SapuraKencana (BUY: RM4.69) may have to wait longer period to grab the contracts from Petronas. Nonetheless, Petronas may start giving out awards in 2H next year as the lead time to complete various jobs are not far off from now (i.e. 2018)
Petronas capex. We foresee the local oil and gas players are still focusing on Petronas‟ RM300 billion capex in five years period (2011-2015). The national oil company only spent 48% of the capex so far including RM41.2 billion in 2011, RM63.2 billion in 2012 and RM38.4 billion in 9M13. In addition, Petronas has already disbursed between RM13.0 to RM14.0 billion worth of contracts to the local oil and gas players as at October 2013. We expect Petronas to dish out the remaining balance of its capex around RM157.0 billion over two years left or equivalent to RM79 billion a piece each year.
YTD contract flows. There was around RM32.5 to RM33.9 billion of contracts that have been awarded to the local oil and gas players YTD October 2013 by various clients. Half of the contracts were awarded by Petronas including PAN Malaysia Hook-Up and Commissioning (HUC) contracts which have been loaded out in May 2013. Dayang (BUY, TP: RM6.27) was the major contract winner in 1H13 after securing between 18% to 20% (RM3.3 billion to RM3.8 billion) of the total contract value followed by Petra Energy (NR) with 11% to 14% (RM2.0 billion to RM2.5 billion). The major contract winner in 2H13 was SapuraKencana (BUY: RM4.69) which secured RM8.5 billion jobs from Petrobras.
Crude oil price outlook. Entering into 2H13, WTI crude oil price has been trending upwards in July to September after hovering above USD100 per barrel due to the improve in manufacturing activities in the U.S, Europe and China coupled with worries of supply interruption from the on-going political turmoil in Egypt and possibility of military strikes in Syria. However, the crude oil price started to decline in October on the back of the partial shutdown of the U.S. government and budget deadlock. Meanwhile, Brent has been trading between USD100 to USD110 per barrel in 2H13 while TAPIS price has been trading between USD113 to USD118 per barrel for the same period.
Support from government. The government still relies on the oil and gas sector to enhance our economic performance in future. The sector is expected to generate about RM130.0 billion in Malaysia‟s gross national income (GNI) by 2020. Therefore, the government has introduced 13 entry point projects (EPPs) to support our oil and gas industry. The government also proposed five new incentives under the Petroleum Income Tax Act (PITA) to attract more investment opportunity in the industry.
Jobs to be called out soon. Petronas and its production sharing contractors (PSC) are expected to call out some of jobs soon which should provide huge opportunities for the local oil and gas companies to participate in the tenders. Among the contract are:
i) IRM jobs. The other PSC contractors such as Shell, Murphy, Carigali Hess and ExxonMobil are expected to call for inspection, repair and maintenance (IRM) contracts soon worth between RM1.0 to RM2.0 billion. To recap, Petronas Carigali had first awarded the IRM
contract to SapuraKencana (BUY, TP: RM4.69) followed by Alam Maritim (BUY, TP: RM1.90) which secured the second contract from Talisman.
ii) North Malay Basin. Hess has prequalified three consortiums for a tender for the engineering, procurement, construction, installation and commissioning (EPCIC) contract tied to a CPP and wellhead structure at the Bergading field in the North Malay Basin. The tender is expected to close in May 2014. The three consortiums consist of; 1) Hyundai Heavy Industries-KKB Engineering-Aker Solutions ASA; 2) Samsung Heavy Industries- SapuraKencana-Ranhill Worley Parsons; and 3) McDermott-TH Heavy Engineering. The first gas is targeted at the end of 2016
iii) T&I contracts. Package A of Pan Malaysia Transportation and Installation (T&I) contracts worth between RM2.0 to RM3.0 billion have been tendered out. Previously, the Pan Malaysia HUC jobs have been dished out in May 2013 where Dayang (BUY, TP: RM6.27) won RM3.8 billion worth of HUC jobs from Murphy Oil, Shell Malaysia and Petronas Carigali while Petra Energy secured an RM2.5 billion package from Petronas Carigali. In addition to that, SapuraKencna managed to grab an RM500.0 million portion.
Risk service contracts. There are 106 marginal oilfields in Malaysia and Petronas has identified 25 fields to be developed under the Risk Service Contract (RSC). However, RSC contract awards have been slower-than-expected so far. To recap, Petronas has awarded three RSC as at the end of 2012 consist of; i) Berantai Field (SapuraKencana 50%, Petrofac 50%), Balai Field (Dialog 32%, ROC Oil 48%, Petronas Carigali 20%), and Kapal, Banang and Meranti Field (Petra Energy 30%, Coastal Energy 70%). Moving forward, we expect Petronas to award at least 10 marginal oilfields soon as it has invited the local oil and gas companies to submit their bids. In addition, the government has also supported the development of marginal oilfields in Malaysia by offering a tax incentive under PITA.
Source/Extract/Excerpts/来源/转贴/摘录: M & A Securities
Publish date: 07/01/14