2012 was pretty much a fruitful year for oil and gas (O&G) players. Year-to-date, close to RM10bil worth of contracts have been awarded to local listed O&G companies. Some RM2.7bil came from Petronas, while another RM7.2bil were awarded by foreign-owned companies.
With the number of contracts being dished out, analysts are increasingly growing bullish over the sector, as they foresee the quantum of earnings increasing over the next few years.
MIDF is anticipating much more contracts to be dished out in 2013, as jobs from the North Malay Basin and the Pan Malaysia hook up and commission (HUC) works come rolling in.
Source: The Star
Published: Saturday, January 5, 2013
By: TEE LIN SAY
“The Pan Malaysia HUCworks, which was called for tender in July, is being given out. The umbrella project worth between RM8bil and RM10bil is made up of nine contracts which will benefit many local HUC players,”
“In addition, the North Malay Basin, which has seen a commitment of RM16.4bil from Petronas and Hess Corp, is likely to see some awards being doled out. Further north of that region is the Thai-Malaysia Joint Development Area which we are already seeing contracts being awarded,” says MIDF.
MIDF believes that moving into 2013, it can expect a year packed with award of contracts, new O&G discoveries, and possibly, more mergers and acquisitions to expand and strengthen income streams.
“We can expect a good mix of local, regional and international jobs to be awarded to Malaysian O&G players, and we can also expect Petronas to keep the momentum going, as it pushes for more deepwater, high pressure, high temperature, and high carbon dioxide oil fields,”
CIMB Research says that the sector remains an “overweight”, potentially catalysed by the Economic Transformation Programme (ETP) newsflow and more contract awards.
CIMB Research says to stay invested, as it expects the sector to do well, given Petronas’ massive capital expenditure (capex) programme and the Government’s active execution of ETP initiatives.
So far, the sector has been the single largest beneficiary of the ETP in terms of the value of committed investments.
MIDF is maintaining its positive stance on the sector, with an average 2013 WTI crude price forecast of US$96.50 per barrel (pb) on the back of a 3.8% to 4.1% global GDP growth.
For 2013, Opec expects global oil demand to be 89.57 million barrels per day (mbpd), representing a growth of 0.77 mbpd (also lowered from 89.60 mbpd previously).
The organisation, however, noted that there were further downside risks associated with the 2013 forecast, apart from the obvious uncertain economic outlook, such as retail petroleum prices and possible abnormal weather.
Below are the outlook and key trends to watch out for by the players in the O&G sector.
HIBISCUS Petroleum Bhd managing director Dr Kenneth Pereira believes that prices will remain within a US$90 to US$120 per bbl (pb) band. He says that this type of price trend will generally maintain activities at current levels.
“The uncertain global economic climate does not allow for aggressive growth strategies, and we expect most players to be cautious, particularly where large investment decisions are concerned. In such an environment, we expect industry players to be comfortable if marginal growth in revenue and profitability is achieved,” he says.
Notwithstanding this, Pereira is confident the sector will remain a high-growth area for companies that are agile, cost-effective and innovative.
“Cost-effectiveness and agility, coupled with innovation, will be an edge in an environment where opportunities will arise because some players may tend to be over-cautious,” he says.
On the key trends to watch, Pereira opines that there will surely be more interest in companies that focus on unconventional O&G plays and Hibiscus is expecting a high level of merger and acquisition (M&A) activities.
“The larger players are adopting positions in companies with unconventional O&G assets and know-how so that they get an early insight of the specific technologies that are deployed to unlock these types of resources,” he explains.
“In the area of M&A activities, we believe that a prolonged period of sluggish stock markets globally will result in quoted companies with a market capitalisation much less than their risked asset value, finding themselves in vulnerable positions and thus, fuelling takeover attempts,” says Pereira.
In positioning Hibiscus to capitalise on new growth areas, Pereira says that in the O&G exploration and production sector specifically, historical statistics show that many more dry wells are drilled than discoveries made.
“If we apply conventional methods, we will only emulate the statistical performance of our peers. In an effort to deploy limited capital in an efficient manner, Hibiscus Petroleum is leveraging on the proprietary technology suite of its business partner Rex Oil and Gas to introduce a degree of innovation in the way we assess opportunities. We look forward to 2013 being the year when these technologies demonstrate their usefulness,” he says.
DAYA Petroleum Ventures Sdn Bhd executive director Shahul Hamid Mohd Ismail says that the outlook for the O&G sector in 2013 looks vibrant in Malaysia and the South-East Asia region where the Daya Group operates.
“The predictions of Peak Oil’ seem to be shaky, with more O&G production coming on-stream in 2013 with new technologies, daring entrepreneurships and billions of capital investment.
With old-timers’ like Indonesia and Malaysia, we also now see prominent features of O&G interests in Thailand, Vietnam, the Philippines and even Myanmar, after the easing of sanctions, where conducive foreign investment legislations are expected to generate a bee-hive of O&G activities from 2013 onwards.
“Even Sri Lanka is preparing to put to bid on several O&G blocks in its Mannar and Cauvery Basins this year,” says Shahul.
Trends wise, in Malaysia, the focus of Petronas on increasing domestic O&G reserves and production is moving into high gear in 2013.
“The unleashing of aggressive exploration programmes for new reserves and enhanced oil recovery for proven reserves and locked-in potential appear to emerge as a clear two-pronged strategy,” says Shahul.
He notes that three groupings of International Oil Companies have emerged in Malaysia. The pioneers like Exxon and Shell are now facing the next arrivals like Murphy and Talisman. Then, there are the recent arrivals like ROC Oil and Coastal Energy.
“We may see the recent arrivals carving out a niche in 2013 with the plentiful of small fields and brownfields,” says Shahul.
On the global front, Shahul says that the discovery of enormous reserves of unconventional O&G, namely, shale oil, shale gas, coal bed methane and tight oil, especially in the United States, is expected to make a major shift in activities, from 2013 onwards, with many of the bigger operators focusing on the United States.
The United States is expected to surpass Saudi Arabia in production by year 2017.
Shahul also notes a chronic shortage of skilled personnel in the industry worldwide.
“Malaysia will face a major challenge, as our experienced workforce is either retiring or going overseas for better pay. New entrants are handicapped in many ways from language skills to technical and commercial skills,” says Shahul.
Looking ahead, Shahul adds that most of the local companies have been on the “fringes” of the industry, providing predominantly non-core services and oilfield products. Only in recent years have some of them moved into the core areas in the hydrocarbon value chain, and lately, some of them are at the onset of emerging as operating companies.
“Daya Group is moving into these core areas, which are the growth areas. The key to success for Daya here is strategic alliances with strong foreign companies on a firm footing.
More reputable foreign companies are entering our shores with firm commitments and confidence to work in tandem with the locals. Daya Group is being steered by a leadership that firmly believes in the win-win nature of these collaborations to capitalise on the growth areas,” says Shahul.
Perisai Petroleum Teknologi Bhd
PERISAI Petroleum Teknologi Bhd managing director Zainol Izzet Mohamed Ishak is positive on the O&G sector, given that both current oil prices of around US$90 to US$100 per barrel as well as Petronas’ current five-year exploration and production capex plan of approximately RM50bil per annum compared to the previous annual exploration and production capex of approximately RM40bil.
Perisai recently invested in two major assets to capture growth, namely, the investment in an advanced US$210mil Jack-Up Drilling Rig capable of drilling up to 400 ft of water depth with high pressure/high temperature equipment to help its customers drill in more challenging oil fields.
It has also proposed a 51% investment in an FPSO (Floating Production Storage Offloading) Asset worth approximately US$450mil that has been awarded a long-term contract by Hess Exploration and Production Malaysia B.V
Izzet expects more activities in the development and production segment, while the activity level for the exploration segment will maintain.
“In addition, we expect that Petronas will continue to award more marginal fields for development. This will mean the whole value chain will be busy in 2013,” says Izzet.
THE CHAMBERS OF LEE & CHONG 