UMW Oil in strong debut, Petronas goodwill makes for rosy outlook

by **hlk** Fri 01 Nov 2013, 13:33

Business & Markets 2013
Written by Reuters
Friday, 01 November 2013 12:40
A + A - Reset
KUALA LUMPUR (Nov 1): Malaysia's UMW Oil & Gas Corp climbed as much
as 11 percent in its market debut, as investors bank on the company's close
ties with state oil firm Petroliam Nasional Bhd (Petronas) to provide it with a
steady stream of revenue for years to come.
The unit of the government-owned UMW Holdings conglomerate is currently a
small player in the oil drilling industry, owning just four of the 48 jack-up rigs
deployed in Southeast Asia where heavyweights like Noble Corp and Ensco
Plc dominate.
But this is set to change, albeit gradually, as Petronas pursues a policy of
replacing foreign-owned rigs with locally owned ones when contracts expire,
determined to spread more of its largesse to domestic firms.
Nor is there much doubt over Petronas' ability to deliver on that promise - a
formidable capital spending budget calls for it to spend some $19 billion
annually in the five years to 2015.
Much of the proceeds raised in UMW Oil & Gas $750 million offering are
expected to be ploughed into new rig purchases. It announced in May it was
buying a fifth rig, due to be delivered next year, and plans to pick up at least
two more.
"Dependence on Petronas as their major customer is a good thing given that
(Petronas) are still the leading player in the Southeast Asia's market," said
Chris Eng, head of research at Etiqa Insurance & Takaful, which manages
some $7.3 billion worth of assets.
Southeast Asia's crude oil demand is expected to rise by over 50 percent in the
next 20 years, hitting 6.8 million barrels per day by 2035 according to the International Energy Agency's energy outlook report released in
mid-October.
Not just Petronas
UMW Oil & Gas shares shot up as high as 3.10 ringgit before giving up some gains to trade at 3.04 ringgit. That gives the company a
market cap of 6.5 billion ringgit, dwarfing local rivals Perisai Petroleum Teknologi Bhd and Coastal Contracts Bhd which are each valued at
around 1.6 billion ringgit.
The robust debut comes after its IPO priced the top of a tight indicative range of 2.70-2.80 ringgit in mid-October on strong demand from
institutional investors.
Twelve-month target prices set by six brokerages ranged from 3.00 to 3.36 ringgit, according to a Reuters survey.
UMW Oil & Gas is seen as better placed than Perisai and Coastal Contracts to benefit from Petronas' goodwill due to long business ties
with the company.
But heavy dependence on Petronas may not always be a good thing.
In July, news that Petronas was delaying the startup of its $19 billion petrochemicals complex to 2018 dragged down the shares of several
closely linked Malaysian oil and gas services counters.
Petronas has also started to feel the pain of weaker crude oil prices and rising upstream costs. Malaysia's only Fortune 500 firm saw
second-quarter net profit drop and CEO Shamsul Azhar Abbas warned that higher costs may trigger a review of major offshore projects.
To mitigate those risks, UMW Oil & Gas has sought to diversify its customer base. This year it secured more than $50 million worth of work
from Petrovietnam Drilling Group, a Vietnamese oilfield services provider.
"We hope that this will strengthen our revenue streams and provide sustainability and value for the future," UMW Oil & Gas' president
Rohaizad Darus said in emailed comments to Reuters.