Oil & Gas Sector - Semi-sub rates down, but other segments steady NEUTRAL

- IHS Petrodata has reported that semi-submersible rates have dropped significantly, but three other market segments remain largely unchanged or steady (See Chart 1-4). In our view, we expect the decline in semisubmersible rates to be temporary, likely due to new charters in different geographical locations which tend to skew the index. 

- The Mid-Water Depth Semisubmersible Day Rate Index dropped significantly in October this year, by 122 points to 785. But we are not unduly concerned at this stage as this index segment is still 99 points higher YoY. This is supported by a 1ppt  month-on-month (MoM) improvement in fleet utilisation this month to an average of 79%. Utilisation has been relatively stable in this category since the beginning of 2011, averaging between 72% and 79%. 

- Northwest Europe Standard Jack-up Day Rate Index remained at 556 points this month, but up 172 points YoY. Fleet  utilisation for this category remained at an average of 90% for the ninth consecutive month. 

- The Deepwater Floating Rig Day Rate Index rose 18 points MoM and 263 points YoY to 935 this month. Utilisation for this rig category remains at near full utilisation at 99% in October, for the second month in a row.

- The US Gulf of Mexico 250 to 300ft Jackup Day Rate Index dropped by 44 points this month to 416, but is 193 points higher YoY with rig utilisation remaining at 58%. When compared to last year, this is a significantly improved level of utilisation, as it averaged 48% during October 2011. 

- As forewarned in our earlier reports, 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. 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.

- 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 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