Oil & Gas Sector - Shell HUC could be in by next month OVERWEIGHT

-  The Edge reported over the weekend that Dayang Enterprise Holdings and Petra Energy have been short-listed for a contract, potentially worth RM3bil, from Shell involving the Pan Malaysia Umbrella Hook-up and Commissioning (HUC) project. The contract could be awarded as early as next month or the latest by April this year.

-  We are not surprised that Dayang and Petra Energy are frontrunners for this project as they have both worked with Shell before in providing HUC services. Recall that Petronas has grouped the HUC jobs for existing platforms both in Peninsular Malaysia, Sabah and Sarawak under an umbrella concession which could be worth RM8bil-RM10bil, and subsequently divided into 3 major contracts. These jobs do not include new projects such as the deepwater fields in Gumusut-Kakap or Malikai or marginal concessions.

-  Petra Energy announced in November last year that its existing hook-up and commissioning contract has been extended from 3 December 2012 to 2 June 2013. As indicated in our past reports, our channel checks reveal that one of the 3 new HUC contracts could be awarded by 1Q2013 and the remaining two by June this year. 

-  The other bidders for the 3 HUC contracts are SapuraKencana Petroleum, Coral Alliance and a number of unlisted contenders, as the size of the contracts have attracted new bidders. 

-  We understand that the delay in the award of the HUC contracts stems from the evaluation of technical specifications, which appears to be deferring the rollout of other fabrication projects as well. But the current slow-down in the award of new contracts is only temporary and is leading 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 programme in 2015.

-  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 being SapuraKencana Petroleum, Bumi Armada, Dialog Group and Alam Maritim Resources.   

Source: AmeSecurities