RLE poised to capitalise on rising oil prices

RLE's MD Wan Hassan says Petroliam Nasional Bhd has signalled that it was investing some RM40bil to RM55bil into capital expenditure (capex) over the next five years.“This development is indeed a good sign for us, ” he says

THE continued rise in Brent Crude Oil prices is likely to restore and increase the fortunes of some companies operating in the oil and gas (O&G) space.

Reservoir Link Energy (RLE) Bhd which was listed on the Ace Market of Bursa Malaysia on July 15 last year is poised to also be a beneficiary of strong oil prices.

Executive director Thien Chiet Chai tells StarBizWeek that the journey of taking the company public was a long one.

“Back then, we had initially wanted to take the company public in 2014 but the oil market crashed.

“So we had to continue the business until late 2018. I think it was a blessing in disguise since we are now a stronger company offering more products and services, ” he says.

Pursuant to the oil market crash of 2014/2015, the company had reported a net loss of RM3.67mil on the back of revenues of RM9.58mil in its financial year ended Dec 31,2016 (FY16) due to lower O&G industry activities that year.

Today, the company is in a stronger position and with a net gearing ratio of near zero time, it can further capitalise on any upside of the oil market.

“We are expecting a double-digit growth in net profit in the FY21 ending Dec 31, ” Thien says.

RLE, which is an upstream O&G company, had reported a 21.75% year-on-year (y-o-y) growth in net profit in FY20 from the previous year and the company is poised to repeat the performance this year.

The company had also recorded a 9.36% rise in y-o-y revenue in FY20.

“We saw our strongest quarter ever in the fourth quarter of FY20 with a net profit of RM7.3mil. We are expecting good growth in FY21 due to a couple of factors.

“Oil prices are recovering while the Covid-19 pandemic is being brought under control and demand is picking up. Also the Organisation of the Petroleum Exporting Countries aren’t resuming all its production cuts immediately, ” he adds.

He notes that there is another fundamental shift in the oil market.

Previously, the oversupply situation in the market is due to the United States being a net exporter of oil as a result of shale oil drilling.

“US President Joe Biden would likely see a green energy agenda.

“Oil prices should stay quite strong from now on and some are saying that oil could probably even shoot up to US$80 per barrel, ” Thien says.

RLE will also see a further boost from the resumption of its works in Mauritania, West Africa which had been affected by the Covid-19 pandemic.

Thien expects all the company’s projects to go full swing by the second quarter of this year.

“Our operations in Malaysia had never stopped. Some of the jobs that slowed down were not so critical, ” he says.

There are a number of projects that RLE had tendered for and they looked rather promising, according to Thien.

“Our order book is about RM200mil. Most of our contracts are call-up projects which do not have a contract value.

“Our tender book stands at between RM900mil and RM1bil.

“The contracts usually have a net profit margin of 10% to 15%, ” he adds.

Thien is the single largest shareholder with a 13.38% stake while the company’s chief executive officer and managing director Datuk Wan Hassan Mohd Jamil holds a 5.18% stake.

A Sarawak-based construction and building materials company, Pansar Bhd, has a 10.39% stake in RLE.

Meanwhile, Wan Hassan says Petroliam Nasional Bhd has signalled that it was investing some RM40bil to RM55bil into capital expenditure (capex) over the next five years.

“Of the amount, some 50% will be spent on domestic investment while the rest will be overseas.

“This development is indeed a good sign for us, ” he says.

Brent Crude Oil is near the US$70 per barrel level and expectations for a positive spillover into projects are heating up.

Earlier in the week, MIDF Research said, in its report, that it is expecting a significant uptick in activities within the O&G sector in the second half of 2021.

“Despite the recent rally in oil prices that had resulted in Brent breaching US$70 per barrel – a level last seen in 2019; we opine that oil majors worldwide will continue to withhold their exploration and production capex spending at least until the end of the first half of 2021, ” MIDF Research said.

“Demand recovery has been rather sluggish and the oil price rally is mainly driven by supply disruptions and deliberate cuts by Opec+ nations, ” the research house added.

It also upgraded its call on the sector to a “positive”.

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