Oil & Gas Sector - Tembikai & Cenang RSC bid terminated OVERWEIGHT

- Petroliam Nasional (Petronas) has aborted the award of the Tembikai and Chenang (T&C) marginal field risk-service contract (RSC) following speculations that it may be re-opened for tender next month. There were no reasons provided by Petronas for the cancellation of the project.

- Recall that the former front-runner for the Tembikai RSC was the joint-venture between Australia-based Cue Energy Resources and Scomi Group, which eventually stalled. In November last year, Cue Energy’s interim chairman and chief executive officer resigned. Our recent meeting with Scomi’s management indicated that the group, while is still involved in this bidding via Cue Energy, did not appear optimistic about its chances. 

- The T&C RSC, involving largely gas production, was supposed to be awarded late last year after Canada-listed Coastal Energy secured the Kapal, Banang and Meranti (KBM). The T&C discoveries are located near Talisman Energy-operated Block PM 314 off Peninsular Malaysia. The bidder list for the two fields had included international oilfield services providers Baker Hughes, Haliburton and Petrofac as well as AWE and Hydra Energy. Potential Malaysian players in discussions with these foreign players include SapuraKencana, Dialog, Alam Maritim, Daya Materials and Scomi Oilfield Services.

- We suspect that the T&C RSC may not be technically or financially feasible given earlier reports which speculated that Petronas may be including up to two new marginal fields to make the RSC bid more attractive. While this project may be terminated, we believe that Petronas is still committed to its strategy of developing small or marginal stranded fields to help reverse the country’s declining oil production output. Recall that foreign players have to involve local companies for at least 30% participating interest in order to secure RSCs in Malaysia. Contractors are reimbursed on operational and capital expenditures on achieving production start-up. The project cost for each RSC is estimated at between US$500mil and US$1bil.

- As mentioned in our past reports, the delays in the award of the RSCs are consistent with the temporary slow-down of the rollout of oil & gas related projects in Malaysia due to technical issues. This includes the Pan-Malaysian tender for hook-up, construction and commissioning (HUCC) works potentially worth RM8bil-RM10bil, in which 3 major contracts have been delayed from end-2012 to end-1Q2013 and mid-2013. But a major fabrication contract that could be officially awarded soon is likely to be the over RM1bil Malikai tension leg platform production facility for the JV between Malaysia Marine & Heavy Engineering Holdings and Technip. 

- In 2H2013, the rollout of the second phase of the North Malay basin gas cluster project, which will involve a large central processing platform at the Bergading field and multiple satellite well-head platforms, should sustain the re-rating momentum. This will be supported by further newsflows at the RM60bil RAPID project in Pengerang and tank terminal projects in Southern Johor together with massive gas cluster projects off Sabah and Sarawak which are tied in to the expansion of the Bintulu LNG complex in 2015. 

- We maintain our OVERWEIGHT call on the sector with BUY calls being SapuraKencana Petroleum, Bumi Armada, Dialog Group and Alam Maritim Resources. 

Source: AmeSecurities