Oil & Gas Sector - Rig rates generally stable at the start of 2013 OVERWEIGHT

- In January this year, IHS Petrodata has reported that rig day rates for global mid-water depth semisubmersibles recorded the largest increase amongst the 4 index categories, with the US Gulf of Mexico 250 to 300ft Jackup Day Rate Index also up this month. But the Deepwater Floating Rig Day Rate Index was slightly down, while the Northwest Europe Standard Jackup Day Rate Index was flat. Overall, rig utilization rates were stable in all categories (See Charts 1-4). 

- The Mid-Water Depth Semisubmersible Day Rate Index rose by 64 points month-on-month (MoM) to 830 in January this year, with utilisation rates remaining at 82%. But this is still below the all-time highs of 900 points achieved several times during 2012.  The US Gulf of Mexico 250 to 300ft Jackup Day Rate Index increased 28 points MoM to 460 this month, with utilisation rates staying at 68%. The charter rate is 49% higher YoY while the utilisation rate is significantly improved from 52% in January 2012. The Northwest Europe Standard Jackup Day Rate Index was unchanged MoM at 597 points in January, but still up 150 points YoY, with fleet utilization table at 90%. 

- Surprisingly the Deepwater Floating Rig Day Rate Index fell by 42 points MoM this month to 922.But we note that this is 26% up YoY while the almost full-utilization for this category was unchanged MoM at 97% in January. Hence, we think this may be due to some new charters from a lower cost geographical location. We note that China-based yards, which have recently secured tenders to build rigs, have begun to compete internationally and could cap the upward trend of asset prices as well as charter rates. But until these new rigs have been built, we expect the strong charter rates registered in this segment thus far to continue over the next 6-12 months. 

- In Malaysia, we note that the rollout of new offshore platform projects had temporarily slowing down in 2H2012 due to project complexities, re-tendering exercises, re-engineering and deferrals. But this is expected to lead to a pent-up spending splurge by Petronas over the next three years. In FY11 and FY12, Petronas spent an estimated RM40bil-RM42bil annually on capex vs. the group’s target of RM300bil or RM60bil annually from 2011-2015. This means that the group’s spending activities could be back-loaded towards the final years as Petronas will have to increase its spending by over 75% to RM70bil annually to reach its capex plan in 2015.

- Besides the RM8bil-RM10bil umbrella tender for hook-up,construction and commissioning works expected to be awarded in 1H2012, 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. We understand that MMHE, while already awarded the letter of offer, is still working on the final details of the contract value. 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. Hence, we maintain our OVERWEIGHT call on the sector with BUY calls for SapuraKencana Petroleum, Bumi Armada, Dialog Group and Alam Maritim Resources. 

Source: AmeSecurities