Local O&G companies still on upbeat note
KUALA LUMPUR: When the 4th Malaysia Oil and Gas Services Exhibition and Conference 2018 (MOGSEC 2018) ended last week, one cannot help but discern that local players in the oil and gas (O&G) industry came away feeling upbeat and optimistic about the potential of hydrocarbons.
And why not? Crude oil prices are trending up and the benchmark Brent crude had whisked towards the US$82.88 level over the weekend, the highest in four years.
In the past week, the improved scenario had impacted positively on more than 20 O&G stocks on Bursa Malaysia.
According to market watchers, there was further clarity for the O&G players as they were told to take advantage of 28 tax incentives specially meant for the Malaysian O&G industry, which were compiled in the just-launched Malaysia Tax Incentives Compilation and Guide for the O&G services and equipment (OGSE) sector.
Petronas president and chief executive officer Tan Sri Wan Zulkiflee Wan Ariffin aptly put his finger on the pulse when he said that O&G players are now changing gears from the survival to growth mode as the number of investments had increased slightly in tandem with higher oil prices and better prospects.
Reflecting the uptrend, 20 rigs are in operation across Malaysian waters in September 2018 compared to 15 at the end of 2017, he had told reporters recently.
Amidst the air of optimism, Wan Zulkiflee also cautioned that it was important to be mindful of the unpredictable industry landscape.
As such, local O&G players should tread carefully and respond cautiously towards the price up trend as volatility is expected to continue due to trade wars and geopolitical risks.
Wise words indeed as the OGSE sector constitutes roughly 20 per cent of the Malaysian economy and is crucial to the country’s growth.
The sector is expected to see an annual growth of five per cent, achieve a projected Gross National Income (GNI) of RM131.4 billion and create 52,300 additional jobs by 2020 in three key areas by expanding the downstream sector, lifting domestic production and pushing for renewable energy.
The buoyant forecast should be heart-warming for local O&G companies like Sapura Energy, Velesto Energy, Deleum, Hibiscus Petroleum, Reach Energy, Sumatec Resources and Scomi, to name a few.
Deleum, in particular, recently benefited from two contracts awarded by Petronas Carigali Sdn Bhd under integrated corrosion solution and a new contract from Sarawak Shell and Sabah Shell under oilfield services.
Another beneficiary from the upturn was KKB Engineering, whose subsidiary was awarded a RM226 million contract by Petronas Carigali to provide engineering, procurement, construction and commissioning of wellhead platforms in offshore Sarawak.
The advice from the Minister of International Trade and Industry, Ignatius Darell Leiking at MOGSEG 2018 comes in handy in that an important factor towards the development of Malaysia’s OGSE sector was to have more localforeign partnerships.
That is in particular pertinent for Sapura Energy as it pushes for more growth amidst the industry upswing.
It now aims to obtain shareholders’ approval to sign a sales and purchase agreement with Austria’s OMV Ak ti en ge sell sc haft( OM VA G) for the latter to take up a 50 per cent stake in Sapura Upstream, its exploration and production subsidiary, so that the merged entity can address more business opportunities in a bigger market.
The merger, as well as Sapura Energy’s proposed rights issue, are estimated to bring in some RM7 billion to put the group on a stronger financial footing as they will slash its net debt to equity ratio to as low as 0.6 times, a level lower than the ratio of 0.8 times at its inception several years ago and from the current 1.6 times.
While Sapura Energy has cautioned that the current year is still going to be difficult, one can deduce that things have improved.
It recorded a smaller pre-tax loss of RM80 million in the second quarter (Q2) ended July 31, 2018 compared to a pre-tax loss of RM108 million in the first quarter (Q1). Revenue grew to RM1.3 billion in Q2 from RM1.1 billion in Q1.
With more investments and contracts, other companies in the same boat as Sapura Energy are hoping that the continued industry recovery can help them see more black ink as they pursue more “black gold” and other related businesses to meet the continued demand for energy around the world. — Bernama