Several themes to buoy O&G, Maybank IB expects strong fabrication orders

by **Cals** Fri 06 Sep 2013, 08:52

Published: Friday September 6, 2013 MYT 12:00:00 AM
Updated: Friday September 6, 2013 MYT 8:28:42 AM
Several themes to buoy O&G, Maybank IB expects strong fabrication orders
BY WONG WEI-SHEN
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PETALING JAYA: While Petroliam Nasional Bhd (Petronas) is in the midst of reviewing its costs, analysts expect several themes to keep the oil and gas (O&G) sector buoyant for the rest of the year.
Although the cost review process could lead to the termination of projects with non-compelling returns, Maybank IB Research expects a strong rollout of fabrication orders following a long lull brought about by tender delays.
Higher drilling activities, import substitution and replacements for ageing rigs were expected to create thematic plays for the sector, as well as bringing about some excitement in the drilling space, said the research house.
It expects the offshore supply vessel and floating production storage and offloading markets to pick up. “We also do not rule out more marginal and rejuvenation field awards, for Petronas has recently set-up Vestigo, its marginal field development arm to expedite development activities,” Maybank IB said.
To recap, Petronas president and group chief executive officer Tan Sri Shamsul Azhar Abbas said at a recent briefing that upstream costs remained a concern, with O&G infrastructure facilities and support services rates rising.
Meanwhile, HLIB Research analyst Jason Tan said Petronas would likely induce more competition by having open tenders for new projects in the future to contain costs. This could lead to margin pressures for new projects for O&G services providers.
Tan said it was important for Petronas to continue investing in capital expenditure (capex) to boost O&G production, given recent concerns over the fiscal deficit and shrinking current account.
He said the Economic Transformation Programme (ETP)-driven enhanced oil recovery and marginal fields seemed to be the solution to boost production.
“While Petronas has cautioned about a slowdown in awards, the market has partly priced this in,” Maybank IB said.
It expects the slowdown to have a greater impact on Petronas’ onshore projects such as the RM60bil Refinery and Petrochemical Integrated Development project due to depleting domestic hydrocarbon production.
“The nation’s net export number for crude petroleum has been declining rapidly since 2011 and is now at its lowest to-date. Any slowdown in tackling this issue could see Malaysia turning into a net importer nation soon,” Maybank IB said.
Meanwhile, Petronas’ domestic offshore exploration and production programmes are expected to carry on.
Both research houses are keeping their “overweight” call on the sector. HLIB’s Tan believes the ETP-driven RM300bil capex would continue to drive earnings in the sector.