Oil & Gas Sector - Additional Murphy job, new jackup player OVERWEIGHT

- Oil and gas excitement is still intact with Kencana Petroleum (which will be merged with SapuraCrest Petroleum into SapuraKencana Petroleum, with listing expected by the middle of this month) receiving expanded scope of works from Murphy Sarawak Co Ltd. Also, Perisai Petroleum has announced its emergence as a jack-up player in Malaysia by ordering a jack up rig with an option for another rig from SembCorp Marine Ltd’s subsidiary PPL shipyard.  

- As indicated in our report on Kencana on 2 May 2012, the group secured the letter of award on 20 April 2012 from Murphy Sarawak Oil Co., Ltd to fabricate offshore topsides with a contract value of between RM460mil to RM474mil. The contract provides engineering, procurement, construction and commissioning (EPCC) of Serendah Production (SN-PA) topsides facilities for the SK309/311 SPSA Development Project, located offshore Bintulu, Sarawak. The contract is expected to be completed in 1QCY13 to 2QCY13.

- Kencana has been awarded several contracts from Murphy Sarawak for the SK309/311 oil field for several years. In May 2008, Murphy awarded an engineering, procurement and fabrication contract worth RM79mil to Kencana for the construction of 2 offshore platforms. In February this year, Murphy had also awarded a RM101mil contract to fabricate substructures, template  and other services for the Patricia & Serendah platforms.

- Including this Murphy job, we estimate that SapuraKencana Petroleum has secured RM998mil contracts since the beginning of 2012. This is well within our expectation of fresh orders of RM4bil for FY13F for the group. Hence, no changes to our forecasts for SapuraCrest or Kencana are required at this juncture.

- In a separate development, Perisai Petroleum has announced its emergence as a jack-up player in Malaysia by ordering a US$208mil (RM634mil) Pacific Class 400 jack up rig with an option for another rig from SembCorp Marine Ltd’s subsidiary PPL shipyard. The first rig is expected to be delivered by the end of July 2014 and the second with similar specifications in 2QCY15. This will complement the Perisai’s fleet which includes a pipe-laying derrick vessel currently chartered to SapuraCrest Petroleum, a mobile offshore production unit currently employed at Petronas’ Bekok C platform off Terengganu and eight offshore support vessels. Currently, the only other domestic rig players are UMW Oil & Gas and SapuraKencana Petroleum.

- We believe these developments are only the tip of the iceberg as massive developments are underway with the most immediate rollout being the RM15bil fast-tracked North Malay Basin gas clusters as well as other enhanced oil recovery jobs in East Malaysia. News flow momentum is also gaining traction for Petronas Carigali’s and Murphy Oil’s floating liquefied natural gas vessels for the Kanowit and Rotan fields respectively. France-based Total and Petronas Carigali are currently drilling landmark exploration wells into deep high-pressure, high temperature reservoirs such as the Saujana, Restu and SK 317B-1X fields, off Peninsula Malaysia. These uncharted developments are likely to require more complex engineering capabilities. Hence, we maintain MMHE as our top pick in the sector as it is the only domestic yard which has a proven track record in complex engineering platforms with deepwater capabilities.  We retain our OVERWEIGHT view on the sector with our other BUY calls being Bumi Armada, Dialog, SapuraCrest, Kencana Petroleum and Petronas Gas.

Source: AmeSecurities