AmResearch stays “neutral” on oil and gas sector

KUALA LUMPUR: AmResearch has maintains its “neutral” call on the oil and gas (O&G) sector as prospects for a sustainable turnaround in crude oil prices still appear opaque at this stage.

“Given the current oil glut, which has adversely affected upstream players, we are positive on downstream and storage operators. As such, we prefer companies with stable and recurring earnings such as Dialog Group and Yinson.

“We also like O&G downstream players such as MISC, which benefits from the growth in petroleum shipping charters and new build slowdown,” AmResearch said.

Bloomberg reported that Petroliam Nasional Bhd’s (Petronas) CEO Datuk Wan Zulkiflee Wan Ariffin as saying that the group was bracing for two to three more tough years with crude at an 11-year low while seeking to keep its multi-billion dollar projects on track.

Petronas is currently assuming a low-price scenario with an average of US$30 a barrel this year, taking into consideration the present oil glut and the lifting of restrictions on Iranian oil exports.

In November last year, Petronas had earlier indicated estimates of US$48 per barrel in 2016 for their planning and budgeting purposes. Tapis spot prices currently trade at US$33 a barrel.

However, Petronas is still going ahead with a capital expenditure plan of RM350bil for 2016-2021, compared to the earlier budget of RM300bil for 2011-2015.

Wan Zulkiflee indicated that Petronas would be focus on its internal processes and address operational inefficiencies. The group reduced operating expenditures (excluding salaries) by 24% by improving on its procurement processes and lower business travel last year.

In Canada, Petronas is reviewing its decision to proceed with the C$36bil Pacific NorthWest LNG project, which is still awaiting environmental approval from regulators to start construction. There is a possibility that the project could be aborted as Wan Zulikflee said that “the window is closing fast”.

AmResearch said this could mean that Petronas would again re-direct its resources back to Malaysia given that the dynamics of the sector has been fundamentally altered by shale fracking techniques.

“Hence, Petronas’ focus will be on US$27bil Refinery and Petrochemical Integrated Development (RAPID) in Pengerang, Johor, US$1.5bil Sabah Ammonia Urea (SAMUR) in Sipitange & US$2bil MLNG 9 in Bintulu, Sarawak. Beneficiaries from these downstream rollouts are largely foreign engineering groups but locals such as KNM, MMHE and Dialog may be involved as subcontractors,” it said.

AmResearch has a “buy” calls are for MISC, Dialog Group, Yinson Holdings and SapuraKencana Petroleum, while “hold” calls are for Alam Maritim Resources, Bumi Armada, MMHE, Petronas Gas and UMW Oil & Gas.