Analysts expect oil and gas sector to remain positive

PETALING JAYA:The oil and gas sector has largely been
resilient despite the market volatility this year, and analysts expect
most of the companies to continue recording record profits as job flows
heat up in the next five years.
Commanding 52% of RM170bil committed under the Economic Transformation Programme (ETP) for investments, the oil and gas sector is the single largest beneficiary of the ETP.
In
an updated report, RHB Research analyst Yap Huey Chiang had upgraded
the sector to an “overweight”, saying that despite the persistent global
economic uncertainties, crude oil prices had been better supported
compared with the 2008 global financial crisis.
Average 2011
prices are US$111.7 per barrel for Brent and US$95.6 for West Texas
Intermediate, which Yap believed was mainly due to excess liquidity
flows in the financial markets, and hence would likely continue to
support crude oil prices.
“More importantly, both domestic and
international oil and gas players have not cut their capital expenditure
(capex) plans going into 2012, unlike the pullback in 2009,” he said.
Yap
is upgrading his average crude oil price assumptions to US$95 per
barrel for 2012 and US$99.80 for 2013. He also upgrades his benchmark
sector price earnings ratio to 15 times from 13 times.
In her
High Conviction sector report, oil and gas analyst Norziana Mohd Inon
said the sector had a strong first half, with two quarters of
disappointment-free performance since the fourth quarter of 2008 (when
she started her quarterly results review).
Other than the disappointing third-quarter results from offshore support vessel (OSV) providers Petra Perdana Bhd and Alam Maritim Bhd, all other companies under her coverage performed.
“The
sector has largely held its own despite the market volatility with
share prices jumping 13% on average year-to-date, running counter to the
FBM KLCI's 4% fall. Petronas Dagangan is the star performer, outpacing the benchmark index by a whopping 51%,” she said.
As activity and job flows heat up in the industry, she is expecting all-time high net profits in 2011 to 2013 for Bumi Armada, Dialog Bhd, Perisai Petroleum Bhd, Petronas Dagangan Bhd and Wah Seong Bhd.
Alam
Maritim and Petra Perdana undershot expectations, providing the first
letdown for the sector this year. The glut in the OSV market and
depressed charter rates caused Alam Maritim to slip into losses in the
fourth quarter of 2010.
Petra Perdana's losses were due to the cancellation of three lease rentals, expiry of contracts and associate losses.
Petronas
is targeting to invest RM300bil over the next five years. It will be
undertaking major downstream initiatives, which include the US$20bil
(RM60bil) Refinery and Petrochemical Integrated Develop-ment (Rapid)
project in Johor and the expansion of Petronas Dagangan's retail and
lubricant businesses.
“The RM300bil budgeted translates into
annual capex of RM60bil, which would be a new high. It will go towards
exploration and production activities, and the replacement of ageing oil
and gas-producing assets in Malaysia. Approximately 60% of Petronas'
major producing fields in the country have an average age of 19 to 28
years,” said Norziana.
Meanwhile, she said the development of a marginal field could take less than 24 months.
“As
a deepwater field may take up to five years to be developed, the
development of marginal fields is aimed at arresting the projected
long-term decline in domestic oil and gas production over the next 15
years and boosting the somewhat stagnant reserves, which could run out
in 15 years if no action is taken,” she said.
In 2010, Malaysia's production stood at 657,000 barrels per day (bpd), 14% lower than the peak of 762,000 bpd recorded in 2004.
Yap
said that although 2012's prospects had partly been priced in by the
market, 2013 to 2014 outlook was strong as new assets and corporate
restructurings had started to deliver results.
On the domestic
front he expected continual news flow by Petronas and its
production-sharing contractor partners, as well as by the Government, on
exploration and production projects.
Yap's top picks were Petronas Gas and Dialog, given their long-term fundamentals. He also viewed the merger of SapuraCrest and Kencana positively given the anticipated listing of a formidable non-Petronas oil and gas company.
Petronas
Dagangan ended the day 2 sen lower to RM17.18. SapuraCrest finished 2
sen higher at RM4.26 while Kencana was unchanged at RM2.76. Dialog ended
1 sen higher at RM2.42.