PETALING JAYA: Analysts are projecting a better outlook for the oil and gas industry, given that the stabilising crude oil prices above US$60 per barrel, stronger crude demand leading to larger inventory drawdown, as well as sustained disciplined production cuts by Opec and non-Opec members throughout 2018 and beyond.
According to Kenanga Research, the recent oil price retrenchment from US$70 per barrel to US$62 per barrel was not surprising due to the strengthening of US dollar and rising US output.
“Reading through Petronas’ results, it seems like the local oil giant is coping well in the challenging environment largely attributable to its successful cost cutting measures.
“Moreover, with the anticipation of better oil prices, Petronas is increasing its capex spending by 24% to RM55bil this year with the oil price assumption of US$52 per barrel,” said Kenanga Research.
The higher capex spending for 2018 followed Petronas’ financial year 2017 (FY17) core net profit increase of 27% to RM46.6bil, amid higher crude oil prices and largely successful cost reduction initiatives.
However, with fourth quarter FY17 capex decreasing by 14% quarter on-quarter and 26% year-on-year to RM11bil, AmInvestment Bank highlighted that the overall exploration and development (E&D) spending trend is likely to be proportionately lower than for RAPID, which remains Petronas’ priority as its completion is scheduled in the first quarter of 2019.
With improved crude oil prices, Petronas is now targeting a 19% growth in 2018 dividends to RM19bil, up from RM16bil both in 2016 and 2017.
Late in 2016 when oil prices averaged at US$44 per barrel, Petronas had earlier planned to lower its 2017 dividend by RM3bil to RM13bil.
“As asset utilisation rates have begun to improve, we expect charter rates to have bottomed out even in the absence of any upward trajectory at this juncture,” said AmInvestment Bank.
Meanwhile, UOB KayHian’s sector theme is to invest in companies that have visible earnings upgrades and do not depend on Petronas work orders.
Hence, international companies have a stronger correlation to the global industry recovery, and floating production, storage and offshore (FPSO) is still a clear sector earnings driver.