Crude oil price stays steady. Crude oil price has steadily recovered from USD70/barrel in 3Q09 and held steady at an average USD80/barrel since 4Q10. As most oil majors consider stabilizing oil prices as crucial when allocating capital expenditure, we believe most are using USD80/barrel as a benchmark. Although we think that oil supply is likely to outpace demand in 2013, we still think that crude oil price is likely to remain at about USD80/barrel as prices are likely to be supported by tensions in the Middle East and economic stimulus programmes in the west.
Petronas still the engine of the local O&G industry. Petronas’ three-pronged development blueprint involves: i) enhancing oil recovery at existing mature oilfields, ii) development of marginal oilfields, and iii) enlarging its resource base. As YTD crude production has dropped 58% due to a stop-order in Sudan, we believe that Petronas is likely to strive for long-term sustainable growth by enhancing exploration and production activities. With 21 successful discoveries YTD (seven in 3Q12 in Bidara, Gambir RDR, Kurma Manis-1, Berangan-1, Tembakau-1, Kuang North-2 and Tukau Timur Deep-1), we see offshore O&G activities heightening in 2013. This will benefit vessel players like Perdana Petroleum and Alam Maritim.
More EOR, marginal oilfield contracts in 2013. The awarding of marginal oilfield contracts and enhanced oil recovery contracts were slower than expected this year, with only one marginal oilfield award in July (Coastal Energy, with Petra Energy as the local partner) and one enhanced oil recovery award in November (the Dialog-Haliburton tie-up). Hence we expect more contract awards for both projects next year and rate Bumi Armada and Dayang as strong contenders for the upcoming marginal oilfield contract, which will likely be for the Tembikai and Cenang marginal fields off Peninsular Malaysia and SapuraKencana Petroleum for the next EOR contract. That said, we do not discount the possibility of SapuraKencana Petroleum and Dialog being awarded another marginal oilfield contract as their balance sheet could support it.
Smaller players make attractive takeover targets. In anticipation of more contracts being rolled out next year, we believe the smaller companies which are trading at less than 10x forward earnings make good takeover targets. We particularly like Perdana Petroleum as we believe that its major shareholder, Dayang, may increase its stake in the company if the latter manages to secure jobs in the Pan Malaysia cluster of fields to ensure that the jobs are executed immediately as new vessels take time to build. We also like Alam Maritim as the worst is over for the company amid a recovery in charter rates from a low of USD1/bhp to USD1.8-2.2/bhp now.
Overweight on longer term outlook. All in, we are bullish on the O&G industry in the immediate term as it would be very soon before new contracts are awarded, including: i) RM8-10bn worth of hook-up commissioning in the Pan Malaysia cluster, ii) marginal oilfields, and iii) the replacement of expiring brownfield contracts. One of our top picks for the sector is SapuraKencana Petroleum (BUY FV RM3.00); while we also like Dialog (BUY FV: RM3.45) and Dayang (BUY FV: RM2.90). We like these companies for their excellent track records and believe that in the event of a slowdown in contract awards, they would still have strong orderbook. This reinforces our conviction on their respective earnings growth next year.
Petronas still the engine of the local O&G industry. Petronas’ three-pronged development blueprint involves: i) enhancing oil recovery at existing mature oilfields, ii) development of marginal oilfields, and iii) enlarging its resource base. As YTD crude production has dropped 58% due to a stop-order in Sudan, we believe that Petronas is likely to strive for long-term sustainable growth by enhancing exploration and production activities. With 21 successful discoveries YTD (seven in 3Q12 in Bidara, Gambir RDR, Kurma Manis-1, Berangan-1, Tembakau-1, Kuang North-2 and Tukau Timur Deep-1), we see offshore O&G activities heightening in 2013. This will benefit vessel players like Perdana Petroleum and Alam Maritim.
More EOR, marginal oilfield contracts in 2013. The awarding of marginal oilfield contracts and enhanced oil recovery contracts were slower than expected this year, with only one marginal oilfield award in July (Coastal Energy, with Petra Energy as the local partner) and one enhanced oil recovery award in November (the Dialog-Haliburton tie-up). Hence we expect more contract awards for both projects next year and rate Bumi Armada and Dayang as strong contenders for the upcoming marginal oilfield contract, which will likely be for the Tembikai and Cenang marginal fields off Peninsular Malaysia and SapuraKencana Petroleum for the next EOR contract. That said, we do not discount the possibility of SapuraKencana Petroleum and Dialog being awarded another marginal oilfield contract as their balance sheet could support it.
Smaller players make attractive takeover targets. In anticipation of more contracts being rolled out next year, we believe the smaller companies which are trading at less than 10x forward earnings make good takeover targets. We particularly like Perdana Petroleum as we believe that its major shareholder, Dayang, may increase its stake in the company if the latter manages to secure jobs in the Pan Malaysia cluster of fields to ensure that the jobs are executed immediately as new vessels take time to build. We also like Alam Maritim as the worst is over for the company amid a recovery in charter rates from a low of USD1/bhp to USD1.8-2.2/bhp now.
Overweight on longer term outlook. All in, we are bullish on the O&G industry in the immediate term as it would be very soon before new contracts are awarded, including: i) RM8-10bn worth of hook-up commissioning in the Pan Malaysia cluster, ii) marginal oilfields, and iii) the replacement of expiring brownfield contracts. One of our top picks for the sector is SapuraKencana Petroleum (BUY FV RM3.00); while we also like Dialog (BUY FV: RM3.45) and Dayang (BUY FV: RM2.90). We like these companies for their excellent track records and believe that in the event of a slowdown in contract awards, they would still have strong orderbook. This reinforces our conviction on their respective earnings growth next year.
Source: OSK
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