Malaysia's Oil & Gas sector downgraded

PETALING JAYA: Slower project rollouts and delays in new tenders are expected to translate into a cut in earnings for local oil and gas (O&G) players over the next two years, according to research house AmResearch.

It said in a report yesterday that the impact would be more significant for domestic-centric upstream players, as opposed to more globalised operators such as Bumi Armada Bhd and SapuraKencana Petroleum Bhd or downstream service providers such as Dialog Group Bhd.

“We have downgraded our sector view to neutral from overweight given the slow rollout of domestic developments, downscaled projects, declining marine charter rates, increasing competition from overseas fabrication players due to the relaxation of local content requirements and deteriorating visibility of regional prospects, especially in Australia’s mega-billion gas field developments.

“Additionally, there are concerns that the possible replacement of Petronas president and chief executive officer Tan Sri Shamsul Abbas next year may lead to further temporary delays in contract awards,” AmResearch said.

The research house noted that contract awards to Malaysian O&G players in the third quarter of this year fell to only RM711mil from RM8bil previously.

“The slower project rollouts are underscored by recent Upstream reports that the Petronas-operated Baram Delta Gas Gathering Project 2 (Bardegg 2) and Baronia enhanced oil recovery development off Malaysia appear to have slowed with the partners yet to award the central processing platforms (CPP) to frontrunner Hyundai Heavy Industries.”

Globally, the research house noted that there were ongoing revisions in project cost and scale given the increasing cost consciousness by oil majors as crude oil prices have softened even though development costs have escalated over the past three years.

“Additionally, even though Petronas is still likely to ramp up its capital spending post-2015, there will be increased competition from foreign yards as local vendor policies are being relaxed under more complex engineering projects.

“But some excitement remains in the downstream sector given that Petronas is still committed to its infrastructural spending for the Refinery and Petrochemical Integrated Development in Pengerang, Johor.”