MCM jobs unlikely to catalyse O&G sector

KUCHING: The maintenance, construction and modification (MCM) jobs to be awarded by Petroliam Nasional Bhd (Petronas) are unlikely to catalyse the oil and gas sector, analysts predict.

According to AmInvestment Bank Bhd (AmInvestment Bank), The Edge reported that Petronas has conducted a pre-award meeting for the group’s MCM jobs, which could be valued collectively up to RM6 billion.

“The work scope covers hook-up and commissioning and topsides maintenance for Petronas and possibly other operators; principally on existing production facilities,” AmInvestment Bank said.

“Upstream reported that this MCM tender has been ongoing for some time, but was earlier expected to have been awarded in the second quarter of 2017 (2Q17).

“Petronas’ recent focus on reshuffling its upstream portfolio amid a review of its capital and operating expenditure against the backdrop of a lower crude environment has negatively impacted the local services sector.”

The research firm added that it is uncertain whether Petronas would split the MCM jobs into six packages for a five-year duration as earlier envisaged.

AmInvestment Bank highlighted that essentially, these new contracts, which are a relief for the sector, are to replace the existing service jobs currently held by the incumbents.

“These could offer a respite for vessel utilisation rates,” it said.

However, in terms of value accretion, the research firm did not expect any significant increase in day rates given the currently depressed offshore market.

Persistent low asset utilisation levels expected for the medium term as AmInvestment Bank did not expect any significant change in Petronas’ cautious approach to upstream exploration and development expenditures.

The research firm noted that for 2Q17 to date, contract awards have risen by 15 per cent quarter on quarter (q-o-q) RM2.2 billion largely due to the lumpy award of the RM1 billion Bokor central processing platform project to Marine and Heavy Engineering Holdings Bhd.

It further noted that for Malaysian operators, which operate wholly offshore, weak capital expenditure (capex) rollout prospects mean that the worst can stretch for quite a while for those struggling with high gearing such as Bumi Armada Bhd and UMW Oil & Gas Corporation Bhd.

“Locally-based companies such as Perisai Petroleum Teknologi Bhd, Alam Maritim Resources Bhd and Group are currently in financial distress,” it said.

On Petronas’ capex, AmInvestment Bank pointed out that it declined 21 per cent q-o-q to RM9.4 billion in 2Q17, which led to a decrease of 15 per cent year on year (y-o-y) to RM21.3 billion in the first half of 2017 (1H17), of which 59 per cent was spent on the US$27 billion Refinery and Petrochemical Integrated Development (RAPID).

“RAPID has reached a completion stage of 70 per cent, compared to only 20 per cent for exploration and development.

“So far, the 1H17 capex spending accounts for only 35 per cent of the RM60bil guided by Petronas for this year with average crude oil prices assumed at US$45 per barrel.”

For the oil and gas sector, AmInvestment Bank did not expect any immediate rebound in crude oil prices given the persistent supply-demand imbalance.

The research firm noted that as at August 18, US crude stubbornly continues to rise, up eight per cent since the beginning of the year to 9.5 million barrels per day, largely offsetting the 13.5 per cent decline in commercial crude inventories since March 31 this year to 463 million.

It further noted that US rig count has dropped by 12 rigs since the end of last month to 946 rigs, up 2.3-fold from the May 2016 low of 404, with the trajectory remaining upwards as this is still half of the 2011 peak of 2,026.

As Brent crude oil spot has averaged at US$52 per barrel since the beginning of this year, AmInvestment Bank maintained its 2017-2018 projection at US$50-55 per barrel.

The research firm noted that as a comparison, Petronas is projecting an average of US$45 per barrel for 2017 while the US Energy Information Administration (EIA) forecasts US$52.60 per barrel for 2017 and US$57 per barrel for 2018.

AmInvestment Bank remained cautious on the sector given the unabated increase in shale oil production highlighted by the rising US rig count, which has surged 2.2-fold since the all-time low in May 2016 to 908.

“The capacity for fleet expansion is still significant as this US rig count accounts for less than half of the 30-year high of 2,031 back in 2008,” it said.

All in, AmInvestment Bank maintained its ‘neutral’ stance as the prospects of the sector over the next 12 months are muted given that the direction for crude oil price appears to be “lower for longer”.

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Source: Borneo Post Online

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