Oil & Gas Sector - Capex rollout re-ignition gaining pace OVERWEIGHT

- Petroliam Nasional’s (Petronas) FY12 net profit decreased 17% YoY to RM49bil despite relatively flat revenues due to higher operating costs and impairment losses on property, plant & equipment largely in Egypt. Excluding the RM1.5bil gains on the listing of Gas Malaysia, the disposal of equity stakes in Centrica Plc and APA Group, Petronas’ FY12 core net profit still contracted 16% YoY to RM48bil.

- The group’s 4QFY12 revenues increased 12% to RM77bil on higher sales volumes of crude oil and liquefied natural gas, but net profit was halved QoQ to RM6bil largely due to higher operating costs and impairment losses in Egypt. (See Table 2).

- Petronas’ 4Q2012 total daily output of crude oil and gas in Malaysia rose 9% QoQ to 2.1mil barrels of oil, which was a continued positive reversal of an overall declining trend from 4Q2011 to 2Q2012 due to natural field depletion, lower reservoir performance, maintenance of the group’s Bintulu plant and operational challenges in the group’s overseas operations. On a YOY comparison, domestic crude oil production was down 10%.

- Petronas’ 4Q2012 capital expenditures rose by 18% to RM14bil, which caused 2012 capex to rise 11% YoY to RM46bil. But this was still far short of the expected average RM60bil annually for 2011-2015, for Petronas were to remain on track of its projected spending of RM300bil within the next 3 years. For the group to achieve its earlier capex targets, Petronas would need to ramp up its spending by 56% this year to RM71bil annually over the next 3 years. Hence, we expect the pace of contract rollouts to reignite this year, underpinned by the affirmation from Petronas’ president and chief executive officer Tan Sri Shamsul Azhar Abbas that the group will focus on ramping up domestic production this year.

- Since the beginning of the year, the total contracts awarded to industry players have already reached RM4.2bil, a 4.4x rebound from RM972mil in 4Q2012. These include the RM2.4bil Malikai tension leg platform production facility for the joint-venture between Malaysia Marine & Heavy Engineering Holdings and Technip and over RM1bil of marine charter contracts awarded to Alam Maritim Resources and Perdana Petroleum.

- In 1H2013, we expect the award of the 3 blocks of RM8bil-RM10bil umbrella tender for hook-up, construction and commissioning works, delayed from 4Q2012. 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.

- The newsflow momentum will be further supported by contract awards emanating from the RM60bil RAPID project in Pengerang and tank terminal projects in Southern Johor, together with the massive gas cluster projects off Sabah and Sarawak, which are tied in to the completion of the Bintulu LNG complex expansion in 2015.

- In view of the multiple flows of contracts this year, we maintain our OVERWEIGHT call on the sector with BUY calls for SapuraKencana Petroleum, Bumi Armada, Dialog Group and Alam Maritim.

Source: AmeSecurities