More opportunities for local contractors

More opportunities for local contractors
Business & Markets 2013
Written by Alliance Research
Tuesday, 06 August 2013 09:47

Oil and gas sector
Maintain overweight: News from Upstream Online has revealed two major new contracts in the region. The first is a floating production storage and offloading (FPSO) vessel contract that JX Nippon will be opening for tender soon for the Layang field (Block SK10) off Sarawak. We understand it is likely to be a mid-sized FPSO contract bearing a bareboat charter of RM150 million to RM200 million per annum.

Next up is Chevron’s Ubon project in the Malaysia-Thailand joint development area. The project is slated to be one of the largest fabrication jobs in Southeast Asia, demanding a central processing platform (CPP) of up to 20,000 tonnes and a 6,000-tonne jacket.

We estimate a contract value of up to RM1.5 billion for CPP alone and RM200 million to RM300 million for the jacket. There will likely be other jobs coming out of this development as well, such as those involving equipment, vessels, hook-up and commissioning and installation.

News of a new FPSO tender in Malaysia is positive as the last FPSO contract we had heard of was the Belud FPSO which went for re-tendering in the middle of last year but has yet to be awarded. The Layang FPSO will be a fresh prospect for players like Bumi Armada Bhd, TH Heavy Engineering Bhd, PERISAI PETROLEUM TEKNOLOGI [] Bhd (via Emas Offshore), YINSON HOLDINGS BHD [] and also unlisted M3nergy.

We expect competition to be stiff but see Bumi Armada and TH as potentials for the contract given their availability of assets. Bumi Armada has two tankers ready for conversion into an FPSO while TH has an 85% completed oil FPSO called the Deep Producer 1 which is currently docked in Dubai Drydocks.

For the fabrication works at Ubon, competition is likely to be stiff as well with the tender attracting major South Korean fabricators as well as regional fabricators like Malaysia Marine and Heavy Engineering Holdings Bhd, Sapura-KENCANA PETROLEUM BHD [], McDermott International, Thai-Nippon, Singapore’s SMOE Pte Ltd, China Offshore Oil Engineering Co and Thailand’s CUEL Ltd.

A positive point here, we believe, is that besides Ubon, the market is currently ripe with many other tenders as well, thus reducing the concentration of bids for each project.

Other projects open for fabrication tenders (RM1 billion to RM2 billion jobs) include West Sepat, SK316 gas development, Bergading at the North Malay Basin, and Bokor redevelopment. More are likely to emerge by year-end or as we go into 2014, such as the Baram Delta redevelopment as well as more chemical enhanced oil recovery projects which, for now, appear to have dropped off the radar.

We continue to be “overweight” on the sector as robust contract flow is slated to continue with new developments like marginal fields, enhanced oil recovery projects and new gas developments. Petroliam Nasional Bhd continues to commit capital expenditure of up to RM60 billion per annum (RM300 billion over five years) and more good news may emerge in the second half of 2013 and 2014 when new fabrication jobs come onstream.

Our top pick in the sector is SapuraKencana given the group’s superior three-year earnings per share compound annual growth rate of 30% coupled with attractive 2015 financial year ending Jan 31 (FY15) valuation of 14.8 times.

For smaller caps, we like Perisai Petroleum Teknologi Bhd which will see strong growth of more than 30% in FY14 and FY15 from new assets like the FPSO and jack-up drilling rig.

We also like TH given its FPSO potential and tie-up with McDermott together with yard expansion which could double its fabrication order book by FY14. — Alliance Research, Aug 5


This article first appeared in The Edge Financial Daily, on August 06, 2013.