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More O&G jobs in the pipeline

TheStar Sat, Dec 01, 2018 - 5 months ago

Within expectation: Given that Petronas’ year-to-date capex has actually dwindled by 22, news that there will be more spending in the final quarter of this year is very much anticipated.

Within expectation: Given that Petronas’ year-to-date capex has actually dwindled by 22, news that there will be more spending in the final quarter of this year is very much anticipated.

THERE are definitely some indications of more activities coming in the oil and gas (O&G) sector.

For one, Petroliam Nasional Bhd (Petronas) said last week that it would raise capital expenditure (capex) spending in the last quarter of this year, to lift production and increase capacity.

The move to increase spending comes on the heels of the higher average price of crude oil during the three-month period ended Sept 30, pushing up the group’s profit.

The oil company’s pre-tax profit for the period jumped 26% to RM18.87bil, compared with RM14.95bil in the corresponding period last year, while revenue rose 19% to RM63.9bil.

Back to Petronas’ plans to increase capex, the group said the funds would mostly be channelled into its investments in Pengerang, LNG Canada and increased drilling activities.

Given that Petronas’ year-to-date capex has actually dwindled by 22%, news that there will be more spending in the final quarter of this year was very much anticipated, and welcomed, especially by some local O&G players which are reliant on jobs from Petronas.

The national oil company’s total spending during the first nine months of this year was RM26.5bil, compared to the RM33.8bil in capital investment made in the first nine months of 2017.

Another point to note is that the group’s crude oil, condensate and natural gas entitlement volume for the third quarter was 1.51 million barrels of oil equivalent (boe) per day, as compared with 1.67 million boe per day in the same three-month period in 2017.

Total production volume was also down at 2.18 million boe per day as compared with 2.21 million boe per day a year ago – numbers that Petronas will want to push up.

The oil giant has repeatedly stressed its commitment toward paying higher dividends to the government, especially given its healthy profit numbers this year.

For the year-to-date, it has already declared total dividends of RM26bil, of which RM17bil has been paid.

According to Kenanga Research’s Steven Chan, there is likely to be higher job flows in the brownfield space, as opposed to the greenfield space, given Petronas’ cost optimisation efforts and significantly lower capex spend year to date.

“With prudent financial management in mind to facilitate higher dividend commitments, we reckon that Petronas is more likely to ramp up production on existing fields to drive output, rather than sanctioning high capex investments and multi-year timelines for new oil fields investments,” he says in a recent report.

Chan says this is likely to benefit players with a high local exposure and brownfield-dependent nature, such as Dayang Enterprise Holdings Bhd or Uzma Bhd .

Overall, he says, the research house still favours the more resilient counters with visible earnings delivery, such as Dialog Group Bhd and Yinson Holdings Bhd , with Serba Dinamik Holdings Bhd as its top pick.

Zooming in on these counters, Dayang, for one, is optimistic about its prospects.

In announcing its third quarter results, during which it recorded a massive 43-fold increase in net profit, Dayang said it expected the turnaround in its earnings to be sustainable, premised on its fairly sizeable order book of RM3bil.

“Notwithstanding the volatility in oil price, we remain upbeat on our future prospects as Dayang has emerged stronger after going through one of the most challenging period over the past few years,” it noted, adding that it was also looking at expanding internationally.

Uzma is also optimistic, listing out the many ongoing contracts it has secured from Petronas – including five jobs from Petronas Carigali just this year – which are expected to contribute to its future earnings.

Another important factor in all this, is of course, the price of crude oil.

The price of Brent crude futures, the global benchmark, hit a four-year high of US$86.29 a barrel on Oct 3. Since then, it has fallen over 30% to hover at about US$59 per barrel yesterday.

The sell off was sparked by worries about a slowing economic growth in 2019 and the US’ move to grant waivers on Iranian oil imports.

UOB Malaysia senior economist Julia Goh tells StarBizWeek that the research house is lowering its crude oil forecast to the US$60 to US$70 per barrel range, in view of further evidence of growing global supply, coupled with further moderation in global growth outlook.

“However, we think a further sell-off in Brent crude oil price towards the US$50 per barrel level is unlikely at this stage,” she says.

At the moment of writing, she adds, the Organisation of the Petroleum Exporting Countries (Opec) appears poised to reiterate its commitment to a potential supply cut of as much as 1.4 million barrels per day.

“That will help mitigate some of the recent oversupply concerns”.

While at its current level, oil prices are still higher than January 2016, when oil prices crashed below US$30 a barrel, optimism is fading after the 30% crash seen over the last month.

JP Morgan also recently cut its outlook for oil, now expecting Brent crude prices to average at US$73 a barrel in 2019 – down from its previous forecast of US$83.50 a barrel.

For now, the market awaits the outcome of the Opec meeting in Vienna next week for any indication of a commitment to cut output.

However, as experts have noted, in order to make a notable difference, Opec countries need to join forces with others.

Given the newer big producers in the market, especially US shale oil, it unlikely that Opec can come up with a significant enough production cut to significantly push up prices and restore balance.


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