Oil & Gas Sector - New oil and gas hub in Sipitang? NEUTRAL

- The Star reported today that Armada Sdn Bhd, a special purpose vehicle set up by Tan Sri Halim Saad, has received approval from the government to build an RM8.5bil oil and gas storage and refining facility called Sabah Oil Terminal on a 1,000 acre site in Sipitang Oil & Gas Industrial Park, Sabah .

- The project will be developed in 2 phases over 4-5 years with the first phase involving storage of up to 1.5 million cu metre of crude oil, supporting infrastructure, housing and mixed development costing RM4.7bil while the second phase involves a refinery and support-facilities at RM3.8bil. The complex will cater to storage of crude oil and petroleum products, blending and refinery facilties. 

- Recall that Petronas Chemical is developing the RM4.7bil (US$1.5bil) Petronas Chemicals’ greenfield ammonia/urea plant on a 166-acre land, also at the Sipitang Industrial Park, Sabah. This fertiliser plant, which will be commissioned in 2015, will have an annual capacity of 1.2 million tonnes.

- The report indicated that the new Armada project, which may be undertaken by Halim-affiliated Seloga Holdings, could potentially become a petroleum reserve centre to ensure supply of 1-2 months, similar to such reserves in the United States, China, Russia, Thailand, Singapore and Japan. The Star reported that Halim has managed to secure the participation of some international oil & gas companies to use the facilities to store and refine crude oil within the Asian region. But Seloga’s listing is currently suspended and under PN17 status. Hence, we are uncertain if this project can secure financial support from the bankers even though underpinned by the presence of Petronas in Sipitang and potentially multi-national operators. 

- If this project manages to secure external financing support, we expect the civil work to be undertaken by Seloga Holdings, which is involved in property development and civil engineering works. But given that the RM2.5bil engineering, procurement and construction contract for the Sabah Oil & Gas Terminal in Kimanis was awarded to Samsung Engineering-Naim Holdings, we would not be surprised by bidders such as Dialog Group, SapuraKencana Petroleum, KNM Group, Muhibbah Engineering and PFC Engineering. 

- The newsflow on tank terminal facilities, now catching on in East Malaysia, is reaccelerating from Southern Johor which is earmarked to be a regional oil & gas hub given its proximity to Singapore and international shipping lanes. This is further fuelled by the recent Budget’s 10-year income tax exemptions and further incentives in the form of land acquisition costs and/or financing assistance for petroleum refinery, storage and trading activities. For upstream development, the capex upward trend is still intact, but the momentum of new contract rollouts has temporarily shifted from pure fabrication to offshore installation works in the sector’s value chain. We note that large central processing platform awards for the North Malay Basin Phase 2, as well as the Bokor, Dulang and Semarang fields could slip into early next year from earlier expectations of this year. This stems largely from the increasingly complex engineering designs for the more difficult-to-reach oil & gas fields. Hence, we maintain our Neutral stance on the sector with our top BUYs being Dialog Group and Petronas Gas, which are expected to be re-rated from the multiple tank terminal and LNG regassification projects in the pipeline.   

Source: AmeSecurities