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Saturday, 20 May 2017

Petra Energy seen on track to turn around this year

More jobs: Petra Energy’s brownfield operation. The expectations of increased work orders come amid a more stable oil price environment.

More jobs: Petra Energy’s brownfield operation. The expectations of increased work orders come amid a more stable oil price environment.

DESPITE the still-uncertain prospects of the oil and gas industry, Petra Energy Bhd appears to be on track to turn around its business this year.

Having tendered for about RM1.5bil worth of local jobs, the brownfield services provider is expected to secure more new orders this year to add to its existing order book, which stands at around RM1.5bil, and expected to last through 2018.

According to an oil executive, the expectations of increased work orders for Petra Energy come amid a more stable oil price environment, which has prompted oil majors such as Petroliam Nasional Bhd (Petronas) to restart investment in upstream development on a gradual basis.

“We believe Petra Energy stands a good chance to secure new orders, even as Petronas continues to prioritise supporting local players in the current challenging environment. What’s more, the company is in a comfortable position to pursue new projects, given its healthy cash buffer to support working capital requirements,” the executive says.

Notably, Petronas is expected to award some modification, construction and maintenance (MCM)-related works in the third quarter of 2017. It is learnt that there are six packages to be dished out under the scheme, which some reports have suggested could come with a combined value of RM6bil.

According to industry analysts, Petra Energy and Dayang Enterprise Holdings Bhd are among the stronger contenders for the upcoming MCM job awards by Petronas.

Public Invest Research, in its report dated April 20, pointed out that Petra Energy stood a good chance to bag one of the six packages on offer, and that package could come with an estimated value of RM1bil.

As at March 31, Petra Energy had cash and cash equivalents of RM133.2mil, which was an improvement from RM51.1mil as at end-December 2016. Its total borrowings, on the other hand, declined to RM150mil from RM238mil over the same period.

Meanwhile, an analyst from another brokerage reckons that the prospects of Petra Energy securing more orders for hook-up and commissioning and topside major maintenance works have improved in line with a more stable oil price.

“With crude oil now seen stabilising around the US$50 per barrel level, oil majors may have found certainty to develop oil fields that are profitable below that level to produce more in order to service existing debts and capitalise on renewed demand. Hence, there could be more jobflows and this could enhance the earnings visibility of the company,” he explains.

The International Energy Agency (IEA), in its latest monthly report, states that the oil markets are on course to reach a supply-demand balance in 2017. This could further improve the outlook on crude oil prices.

According to the Paris-based agency, which advises most of the world’s major economies on energy policy, global oil markets are already rebalancing as supply cuts by the Organisation of the Petroleum Exporting Countries and its allies take effect, even though longer curbs would be needed to drain excess inventories. It expects the rebalancing to pick up pace in the near term.

In the meantime, Petra Energy is expected to see a turnaround in its business this year.

Returning to the black after four consecutive quarters of headline losses, Petra Energy over the week reported a net profit of RM5.29mil for the first quarter ended March 31, 2017, compared with a loss of RM7.08mil in the corresponding period a year earlier.

The company said its earnings were due to profit from its services segment, which would involve hook-up and commissioning and topside major maintenance as well as fabrication activities; and its production and development segment, which would involve activities in risk service contracts (RSC), rejuvenation of brownfield wells, enhanced oil recovery and production service contract.

Essentially, the turnaround of Petra Energy’s business during the quarter in review was driven by higher remuneration fees from the Kapal, Banang and Meranti (KBM) small field RSC.

Petra Energy has a 30% stake in the KBM RSC, which reported an increase in profit of almost 92% quarter-on-quarter as a result of higher lifting prices and a spillover effect in terms of production offtake.

According to Public Invest Research, earnings from Petra Energy’s production and development segment, though contingent on oil price at point of lifting, will likely continue to grow in the coming quarters.

“Production profile of an RSC is largely dependent on the drilling schedules, which we belive Petra Energy is currently in the midst of planning to stimulate production further,” it says.

As for Petra Energy’s marine assets division, which continued to incur losses in the first quarter of the year due to low vessel utilisation, Public Invest Research says, performance is expected to improve in the second quarter of the year. It notes that the company has fully impaired the depreciation costs of its vessels last year and has lowered their overall breakeven levels.

“Having secured more work orders to-date for its Pan Malaysian contract compared with 2016, with new contract replenishments such as its latest maintenance services award by Sabah Shell Petroleum Company Ltd, should underpin the group’s performance for the longer-term and see improvements in results from the second quarter of this year onwards,” Public Invest Research says.

Petra Energy’s shares have been trending upwards since the start of the year.

The counter yesterday closed unchanged at RM1.19. This represented a year-to-date gain of 26.2%.

Public Invest Research has a “neutral” recommendation on Petra Energy, with a price target of RM1.32, while AffinHwang Capital recommends “buy”, with a price target of RM1.66.

Tags / Keywords: Petra Energy , oil and gas

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