O&G set to see increase in upstream investments
KUALA LUMPUR: The oil and gas (O&G) sector is set to record mild rises in upstream capital expenditure (capex) investments, both globally and locally, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) observed in its latest sector update.
According to Kenanga Research, recovering from underinvestments in the previous few years given the oil price weakness, global project final investment decisions (FIDs) is expected to see an uptick in 2019, largely driven by massive new fields in the MiddleEast such as Marjan, Zuluf and Berri.
“Meanwhile, on the local front, Petronasisalsoexpectedtoincrease its 2019 capex to over RM50 billion, of which approximately RM30 billion will be for upstream,” the research arm said.
“This comes after it constrained upstream capex for the past several years as Petroliam Nasional Bhd (Petronas) focused its capex efforts on the downstream.”
The research arm believed the upstream capex could be used for new fields under development such as Kelidang, Limbayong, Kasawari and others, as well as recent discoveries, as was the case in South Sumatra.
“While overall contract flows have still yet to see any impressive surge, we feel that there may be certain value-chains that we can keep an eye on given the current industry landscape.
“Firstly, we believe fabrication players, for example Malaysia Marine and Heavy Engineering Holdings Bhd (MHB) and Sapura Energy Bhd (Sapura Energy), could benefit from increased upstream investments, especially ones with established global exposures as it would allow them to capitalise on potential jobs from Middle-East massive fields.
“Particularly, both MHB (in consortium with TechnipFMC) and Sapura Energy are shortlisted candidates under the Long-term Offshore Agreement, allowing them to bid for offshore jobs from Saudi Aramco.”
Meanwhile, Kenanga Research had also noticed an increase in global floating production storage and offloading (FPSO) activities, potentially benefiting local players such as Yinson Holdings Bhd (Yinson) and MISC Bhd.
“With the number of upcoming green fields, we may also see these two as potential beneficiaries, while Yinson is also actively bidding for jobs in Brazil and Ghana. Offshore maintenance players, for example Dayang Enterprise Holdings Bhd, could also see an increase in work orders as compared to two to three years ago given deferments throughout the down years, while names with exploration and production (E&P) exposure, example Hibiscus Petroleum Bhd and Sapura Energy, may see less volatile earnings amidst the more stabilised oil prices.”
While overall contract flows have still yet to see any impressive surge, we feel that there may be certain value-chains that we can keep an eye on given the current industry landscape. Kenanga Research