Oil & Gas Sector - Tembikai still up for grabs OVERWEIGHT

- The Star reported today that the Tembikai marginal field risk-service contract (RSC) is still up for grabs after the bid by frontrunner joint-venture between Scomi Group-Cue Energy Resources appears to have stalled. This stems from Australia-based Cue Energy’s management issues in which both its interim chairman and chief executive officer resigned in November last year. With Tembikai likely to fall out of the grasp of the Scomi Group-Cue Energy joint-venture, potential bidders such as Bumi Armada and SapuraKencana have stemmed into the lime light. 

- Recall that there were supposed to be two RSCs to be awarded late last year, i.e. - the separate Tembikai and Cenang discoveries located near Talisman Energy-operated Block PM 314 off Peninsula Malaysia, after Canada-listed Coastal Energy secured the Kapal, Banang and Meranti (KBM).The bidder list for the two fields had included international oilfield services providers Baker Hughes, Haliburton and Petrofac as well as Australia-based oil and gas independents, AWE and Hydra Energy. Potential Malaysian players in discussions with these foreign players included SapuraKencana, Dialog, Alam Maritim, Daya Materials and Scomi Oilfield Services.

- Unlike the three earlier RSCs already awarded to SapuraKencana-Petrofac, Dialog-Roc Oil-Petronas Carigali and Coastal Energy, the Tembikai and Cenang marginal field developments would primarily target early gas, not oil production. Recall that foreign players have to involve local companies for at least 30% participating interests 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.

- We are not surprised that the RSC for Scomi-Cue Energy may not materialise given the high net gearing of over 1x for Scomi Marine, which will emerge to be an integrated oil & gas marine and drilling services provider after Scomi Group’s restructuring exercise. Also, Upstream had indicated that the Scomi-Cue Energy talks had stalled late last year.

- The delays in the award of the RSCs are consistent with the forewarnings in our earlier reports last year that the pace of contract rollouts were temporarily slowing down due to technical issues. This includes the Pan-Malaysian tender for hook-up, construction and commissioning (HUCC) works potentially worth RM8bil, 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 joint-venture 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 RM60mil 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. Hence, we maintain our OVERWEIGHT call on the sector with our top pick being SapuraKencana Petroleum, which will be completing its value-accreting and growth transforming acquisition of new tender rigs early next year. We also have BUY calls on Bumi Armada, Dialog Group and Alam Maritim Resources. 

Source: AmeSecurities