No year-end respite for O&G firms

  • Business
  • Thursday, 07 Dec 2017

PETALING JAYA: There was no year-end respite for battered oil and gas (O&G) service providers, as Petroliam Nasional Bhd (Petronas) signals lower demand for their services over the next three years despite recovery in the price of crude oil.

Share prices of key companies involved in the jack-up rig business such as UMW Oil & Gas Corp Bhd (UMWOG) and Sapura Energy Bhd saw extended losses yesterday on news that Petronas is halving its rig requirement.

UMWOG closed unchanged at 31 sen while Sapura Energy lost 6 sen at its close.

Analysts pointed out that stocks such as UMWOG remained within their recent trading range despite the onslaught of the dilution from the recent rights issuance with marginal losses, while Sapura Energy continued on its downtrend.

StarBiz reported on Tuesday of the sombre outlook that is still clouding the O&G industry following the drastic fall in oil prices more than two years ago.

Petronas said in its Petronas Activity Outlook report that the need for jack-up rigs that is used in exploration activities had been reduced by half to about 10 rigs for the 2018-2020 period, compared to 20 from 2013-2014.

The report noted that the national oil company’s demand for tender-assisted drilling rigs is also down significantly by about 60% for the next two years compared to during the peak period of oil between 2013 and 2014.

However, a local analyst covering the industry said the muted-reaction was kind of expected, noting that share prices had already corrected to levels that were much closer to reality today compared to two years ago.

“I think expectations are more realistic now, given the correction of oil prices. We have to also note the advancement in technology in the jack-up rig scene that allows for the same output of oil to be extracted with increased efficiencies today compared to three years ago,” he said.

He said these increased efficiencies would mean lower capital expenditure (capex) requirements on the part of Petronas.

“Note also that capex for Petronas is lower because daily charter rates have corrected downwards from their peak levels prior to the 2014 oil price correction,” he added.

He noted that share prices could also be supported by oil prices in the bigger picture which is seen to have largely bottomed some time back.

In a report issued earlier this week, Public Investment Bank Research reaffirmed its overweight stance on the O&G sector as oil prices stabilises at the present US$63 per barrel levels in 2018.

The research house said the current price is enough for oil majors to restart their capex plans, considering the lower cost of production and better efficiencies in the sector.

“We concede that the O&G industry is more concerned on robust activity at stable oil prices, rather than very high oil prices at this juncture which is not sustainable,” it said.

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