RHB Research Institute believes 2013 “will be a good year” for the local oil and gas (O&G) industry on the back of improving jobs visibility.
Sectoral analysts Danny Chan and Mohd Faisal said in the industry upgrade report that the next focus for Petroliam Nasional Bhd (Petronas) is its push on domestic production growth which would likely benefit local service providers.
“In anticipation of multiple contract awards, we are overweight on the sector, with SapuraKencana Petroleum and Bumi Armada being our large-cap top picks while Alam Maritim and Perdana Petroleum are our picks among the small-caps,” said RHB in its client report yesterday.
The research house added that other factors that would support these upbeat prospects were the increasingly positive global economic demand growth which would support crude oil prices.
“The prices of Brent and WTI crude oil prices have held steady in the past 12 months, buoyed by growing demand from emerging countries,” RHB said.
According to the International Energy Agency (IEA), global oil demand grew 0.9% year-on-year in 2012, driven by Asia (3.1%), Middle East (2.9%) and Latin America (+2.7%) but the rise was offset by weaker demand in the Americas (-1.1%) and Europe (-3.6%).
The research house added that oil prices are expected to “hold steady” while the IEA sees global oil demand ticking up by 1% this year.
Among the factors that will contribute to the positive outlook is Petronas' commitment to ramp up local production which would then spill over to improvements in the related sub-sectors.
RHB said that on this backdrop, it expected improvements in the charter and utilisation rates of O&G service providers including in exploration activities which were expected to be “robust”.
However, RHB said there could be a hindrance, should oil prices crash below US$80 per barrel (pbl) due to historical reasons as most local O&G service providers would likely lose out due to delay in contract awards and the commencement of new projects.
“Should oil prices collapse, we believe the earnings outlook for companies like Coastal Contracts, Malaysia Marine And Heavy Engineering, KNM and Wah Seong may likewise be dampened. This is because these companies are likely to suffer from production delays due to slower-than-expected capital expenditure (capex) from Petronas and its PSCs.
“Also, such delays may trigger a price war among the providers for a smaller pie, which may compress margins,” it added.
Petronas is still expected to go ahead with their planned capex so long as the oil price stays above US$80 pbl, RHB said.
RHB believes Petronas' capex for the next three years will centre on the development of the Malaysian oilfields.
“Furthermore, based on its financial year 2012 financial results, domestic assets saw better returns in terms of earnings, contributing over 80% of the group's earnings, on the back of only 50% in revenue contribution,” RHB said.
In anticipation of future contract awards, there is therefore a possibility of mergers and acquisitions in the wider industry such as the possibility of Dayang acquiring Perdana Petroleum in anticipation of the former's hook-up commissioning contract win.