O&G PLAYERS OUT OF THE WOODS?
Full impact of higher oil prices on earnings can be expected as early as next year, says T7 Global chairman
OIL and gas (O&G) service providers are out of the woods and will see the full impact of the higher oil prices on their earnings as early as next year.
T7 Global Bhd chairman Datuk Seri Nik Norzrul Thani Nik Hassan Thani said with the sustained prices, oil producers would be able to generate greater cash flows to operate their activities sustainably and thus benefiting service providers as this would encourage more greenfield and brownfield work.
Oil majors seem to have regained confidence after the chronic oversupply situation that started in late 2014, when Brent crude plunged from US$100 (RM414) a barrel to a 12-year low of US$28 a barrel in February 2016.
“Based on consensus forecast and the current situation, oil prices are expected to stay in the US$70-80 range, which is good news for all O&G companies, especially service contractors like us.
“The number of projects released by Petronas (Petroliam Nasional Bhd) has also improved,” he told NST Business.
T7 Global returned to the black in 2016 and has recorded profits in the past two quarters.
Last month, Petronas announced improved earnings for the first half of this year, driven by the group’s execution of continuous business improvement initiatives coupled with increased commodity prices.
Petronas executive vice-president and chief executive officer of upstream Datuk Mohd Anuar Taib said there would be a modest increase in O&G activities in Malaysia.
According to Norway-based energy intelligence group Rystad Energy’s recent statistics, the current tailwind in the oil market was likely to propel 100 new offshore projects this year.
With a collective value of US$100 billion worth of capital investment, each project would hold an individual value of about US$1 billion, said the report.
This is in comparison to the 60 projects that were sanctioned last year and 40 in 2016.
Alam Maritim Resources Bhd group managing director Datuk Azmi Ahmad said the service providers had yet to see the full impact of the oil price increase being passed on to them.
“An increase in oil price generally benefits oil majors. Although activities are on the rise, the daily charter rate remains low. The impact may be seen next year onwards. But the utilisation rate has improved,” he said.
Alam Maritim recently completed its debt restructuring exercise after entering into supplemental agreements with its financiers, which are expected to put the company in a stronger financial position.