O&G firms in ‘sweet spot’, expert says


Wah Seong Corp Bhd expects the oil and gas (O&G) industry to receive greater allocations for capital expenditure (capex) within two years, as it now sees the industry in a “sweet spot” with production costs lowered by up to 40%.

Its MD and group CEO Chan Cheu Leong (picture) said the sector has been showing signs of activity in the past two months, following a prolonged downturn period since the 2014 oil crisis.

“Oil prices have also been on the recovery path, so we think industry players — especially oil majors — have become more positive on the outlook and will start to spend and invest,” he told reporters after the signing of a distributorship agreement between Wah Seong’s unit WDG Resources Sdn Bhd and Doosan Infracore Co Ltd in Kuala Lumpur last Friday.

He noted that the O&G downturn seen over the last four years resulted in a “severe cutback” in capex, as well as massive cost rationalisation exercises undertaken by many O&G firms.

“Even with oil prices at around US$70 (RM284) per barrel today, it’s better than when oil was at about US$100 per barrel before the oil crisis, simply because production cost has come down by 30% to 40%.

“So, in terms of the cash profit and cashflow for companies, it’s much better than when oil prices were at US$100 a barrel in those days. I would think that this is a very sweet spot for oil companies,” Chan said.

He added that most companies are now exercising greater caution following the 2014 oil price crash, thus the industry
is likely to find itself in an under-invested position.

“They will have to turn on the tap for capex and investments. You will probably see a lot of investments and capex coming in, in one to two years from now,” Chan said.

Chan also believes the company, which has 70% of its business in the O&G sector, is “definitely” in a good position to benefit from the upcycle.

Meanwhile, Wah Seong’s indirect subsidiary WDG has been appointed the exclusive distributor for South Korean firm Doosan Infracore’s construction equipment throughout Malaysia, extending its exclusive distributorship rights to cover Sabah and Sarawak as well.

With the group now holding exclusive distribution rights across the country, Wah Seong industrial trading and services division CEO Goh Eng Hooi said it is hoping to double its market share in the construction and infrastructure equipment sector from 5% currently to around 10%.

“This marks our first serious foray into East Malaysia for the infrastructure and construction side. The outlook for infrastructure and construction has been challenging recently, but we are optimistic that things will pick up towards the second half of 2019, with efforts being put towards ramping things up and getting some of the major infrastructure projects in the country up and running again,” he said at the signing ceremony between WDG and Doosan Infracore.

The domestic market is anticipated to see sales of 2,400 units across the sector by 2020, of which WDG expects to capture about 10% under the new agreement. Total sales recorded by the industry stood at 2,315 units in 2018.

“There’s a balance of 12 packages for the Pan Borneo Highway in Sabah that we can focus on. In Sarawak, there’s still the coastal highway and the ongoing Pan Borneo Highway projects, and a dam coming up as well,” Goh said with regard to potential projects that the company is looking at.

Under the two-year agreement, WDG will be able to leverage on Doosan Infracore’s machinery and equipment to participate in infrastructure projects in Sabah and Sarawak, versus its previous focus mainly in Peninsular Malaysia.