Oil & Gas Sector - Deepwater rig rates at highest levels ever OVERWEIGHT

- IHS Petrodata has reported that drilling rig day rates for the Global Deepwater Floating Rig category increased in November, bringing the index up to its highest level since records began. The Northwest Europe Standard Jackup Day Rate Index also experienced a significant increase this month while other categories declined slightly (See Charts 1-4). 

- The Deepwater Floating Rig Day Rate Index experienced a moderate increase of 20 points this month, but it is at an all-time peak day rate index level of 949, the highest in this category since records began in 1994. Utilisation for this category of rig remained extremely high at 98% in November, down by only 1% from last month. 

- Northwest Europe Standard Jack-up Day Rate Index increased by 35 points in November to 591, the highest day rate index figure recorded in this category since March 2009. Fleet utilisation remained unchanged in November at an average of 90%, 5% less than November last year.

- The Mid-Water Depth Semisubmersible Day Rate Index decreased by 20 points this month to 765. This figure is relatively weak as this index reached highs of over 900 points several times earlier this year. Utilisation in November was at an average of 79%, the same level as last month. . 

- The US Gulf of Mexico 250 to 300ft Jackup Day Rate  Index dropped by 28 points to 388 this month, but this is still approximately 92 points higher YoY. Utilisation during November increased by 5% to an average of 63%. When compared to last year, this is a much improved level of utilization, as it averaged just 52% during November 2011. 

- The strong deepwater rig charter trend is not surprising given tight utilisation levels but the mid-water semi-submersible charter rates are soft due to some idle rigs in the market. Overall, we maintain our view that rig charter rates are still poised upwards given growing activities in oil & gas developments globally.  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 fabrication contracts for new offshore platform projects are temporarily slowing down due to project complexities, re-tendering exercises, re-engineering and deferrals.

- 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. But the hook-up, commissioning and maintenance works, which include the replacement of expiring long-term contracts, are likely to materialise towards the end of this year. Petronas and its production-sharing contractors are currently holding an open Pan-Malaysian tender for hook-up, construction and commissioning (HUCC) works potentially worth RM8bil-RM10bil, with interested bidders including SapuraKencana Petroleum, Dayang Enterprise, Petra Energy, and possibly, Shapadu. We upgrade our stance on the sector from NEUTRAL to OVERWEIGHT in tandem with the recent upgrade on our call on SapuraKencana Petroleum to BUY, given its acquisition of additional tender rigs from Seadrill. We also have BUYs on Dialog Group and Petronas Gas.   

Source: AmeSecurities