Oil & Gas Sector(a) - Drop in US Gulf jack-up rates not too worrisome OVERWEIGHT

-  IHS Petrodata has reported that drilling rig day rates for 250 to 300ft jack-ups in the US Gulf of Mexico this month decreased considerably over the last month. But rates in the Global Mid-Water Depth Semisubmersible category fared better, experiencing a significant rise to levels not recorded since 2009, while other categories were mostly unchanged (See Chart 1-4). 

-  The decline in US jack-up rates is not too worrisome given that the resilience of the overall rig market is still reflected in the mid-to-deep semi-submersible rig rates, while global rig utilisation rates have been comfortable, rising to 82% from 81% and underpinning our bullish conviction for the sector against a backdrop of accelerating global capital expenditure programmes.

-  US Gulf of Mexico 250 to 300ft Jack-up Day Rate Index dropped significantly by 77 points month-on-month (MoM) to 282 this month, likely due to the current US administration’s ongoing pro-green stance. But when the first half of 2012 is compared to the equivalent period of last year, the situation in this category is still manageable as on average, the index was 86 points higher this year. Fleet utilisation this month is unchanged MoM at 58%.

-  The Mid-Water Depth Semisubmersible Day Rate Index increased by 40 points MoM to 900 this month. This is the first time since September 2009 that this index has been over 900 points. Fleet utilisation in June is unchanged at 79%, and has been at this level since January this year. For comparison, utilisation in this category averaged 75% over the first half of 2011.

-  The Northwest Europe Standard Jack-up Day Rate Index experienced a modest four-point MoM increase to 540 this month, with fleet utilisation unchanged at 90%. The index was 163 points higher YoY in the first half of 2012 with an average of 509 points.

-  The Deepwater Floating Rig Day Rate Index dipped slightly by nine points MoM this month to 893 with near complete fleet utilisation rates of 99%, unchanged in the past four consecutive months. But the underlying strength in this segment is underpinned by the average day rate index of 858 in 1H2012, being 168-points higher YOY. 

-  The continuing firm global rig rates underpin the medium- to long-term prospects for local rig operators such as UMW Oil & Gas, SapuraKencana Petroleum and Perisai Petroleum. We expect fresh news over the next few months from Petronas’ RM15bil fast-tracked programme to develop gas reserves from a cluster of fields in the North Malay basin, off Peninsular Malaysia 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. 

-  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 Petronas Gas, Bumi Armada, Dialog and SapuraKencana Petroleum.

Source: AmeSecurities