No catalysts yet for rerating of O&G counters

The sector counters have yet to show sustainable profits and the contract awards have not picked up sharply


OIL and gas (O&G) counters on Bursa Malaysia continue to remain depressed despite strong energy prices as investors have yet to see catalysts that could improve earnings and investor sentiment.

As at press time, Brent crude oil contract traded at US$62.86 (RM258.78) per barrel after edging above US$63 a barrel mark on growing tensions in the Persian Gulf.

“The sector counters have yet to show sustainable profits and the contract awards have not picked up sharply. Even if there were more contracts awards, it would take maybe a year or two to monetise and see its impact on earnings. So there are no major catalysts for a rerating of the sector,” an analyst with a local brokerage said.

Shares of companies like Bumi Armada Bhd and Sapura Energy Bhd are actively traded daily but without making much gains despite corporate development at both companies in the past few months.

The analyst said the market is now waiting for the second quarter financial results due next month to get an idea of how the companies are faring while new contracts from major oil companies would help provide guidance.

In an exchange filing yesterday, Malaysia Marine and Heavy Engineering Holdings Bhd (MHB) noted its wholly owned unit, Malaysia Marine and Heavy Engineering Sdn Bhd has won a contract from Petronas Carigali Sdn Bhd to undertake the engineering, procurement, construction, installation and commissioning (EPCIC) works for the Kasawari Gas Development project.

The EPCIC contract includes the construction of 47,000 tonnes of central processing platform, 8,600 tonnes of wellhead platform and a flare structure, together with two bridges linking the central processing platform to the wellhead platform and the flare structure.

It also involves the transportation and installation of an 85km pipeline, linking the Kasawari central processing platform to the existing E11R-A platform.

The contract value was not disclosed.

JPMorgan Securities (M) Sdn Bhd in a recent report noted that Sapura Energy and MHB are among the probable fabricators to build wellhead platforms as Shell has already begun identifying its main contractors, after revising the development concept for the Rosmari-Marjoram project off Sarawak.

The original plan was to deploy a central processing platform, but in order to reap capital savings, Shell is believed to be shifting the processing functions to an onshore plant by pla-cing wellhead platforms at the fields and tying them into the onshore plant via subsea infrastructure.

The wellhead platforms are reserved for Malaysian offshore builders, including Sapura Energy, MHB, Brooke Dockyard & Engineering Works Co and Oceanmight Sdn Bhd. The invitation to tender for the engineering, procurement and construction of the platforms will be extended next year.

The international investment banks noted that Sapura Energy is likely to lose the pipe-laying support vessel (PLSV) contract for Total Oil Trading SA’s Lapa field off Brazil, as Subsea 7 SA and TechnipFMC plc have emerged as the lowest bidders.

Financial terms are being kept under wraps, but Subsea 7 is believed to have emerged in the lead by proposing a dayrate of less than US$150,000.

While the loss is a blow, Sapura Energy said recently it expects its engineering and construction (E&C), drilling, and exploration and production (E&P) businesses to be profitable in the next 12 months, with the E&P segment to drive the bulk of the company’s growth in the near term.

The group is targeting to increase production organically at its E&P segment from 40,000 barrels per day currently to circa 200,000 barrels per day in its financial year ending Jan 31, 2023.

It also expects its E&C and drilling businesses to be profitable as utilisation for the segment crosses the 70% mark from a 50% utilisation rate today.

The group is targeting to boost its current orderbook of RM17.3 billion with at least another RM3 billion in fresh contracts within the current fiscal year.

The JPMorgan report noted that at least a dozen contractors, including MISC Bhd, Dialog Group Bhd, Tanjung Offshore Bhd, Borneo Oil Bhd, Landas Offshore Sdn Bhd and Redtech Offshore Sdn Bhd are in the fray to supply a mobile offshore production unit (MOPU) for the next phase of Petronas Carigali’s Bayan development off Sarawak.

Petronas Carigali is in the market for a leased MOPU with processing capa-city of around 100 million cu ft per day of gas.

Halliburton Bayan Petroleum Sdn Bhd, a 50:50 joint venture between Dialog Group Bhd and Halliburton International Inc, has an estimated US$1.2 billion oilfield services contract to enhance oil recovery at the Bayan field through 2036.