Subdued but improving oil and gas industry in 2016

KUALA LUMPUR: The oil and gas industry endured another challenging year in 2016 as the global supply glut continued to haunt the market, pushing global crude oil prices to their lows.

In fact, benchmark Brent dived to as low as US$ 27.88 per barrel in January from a high of US$114.81 recorded in June 2014.

Save for the intervention by the Organisation of the Petroleum Exporting Countries (Opec) in December, which injected some positive vibes to prices, the industry was mostly quiet with little news making the headlines throughout the year.

The decline in oil prices has also forced the government to recalibrate the 2016 Budget in January as the initial budget tabled in Parliament in October 2016 forecast oil price to average US$ 48 per barrel this year.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid described the sector this year as weak in various fronts.

“For one, we have seen the sharp fall in Petronas’ capital expenditure which was down 28 per cent, year-to- date, for the nine-month 2016 period to RM35.9 billion from RM49.7 billion in the corresponding period last year.

“In that sense, we can expect companies along the value chain, especially those involved in the upstream activities, to be the immediate casualties,” he told Bernama.

Mohd Afzanizam said assets under- uti l isat ion became common with significant impact to the cashflow and profitability among players.

“In a nutshell, players are scaling back their investments in view of oil price uncertainties,” he said.

Hibiscus Petroleum Bhd Managing Director Dr Kenneth Pereira said it took Opec and nonOpec producers to collectively intervene to real ly make a difference and stabilise oil prices, the main driver of financial performance for industry participants.

“For our small company, we could only hope that the main players would act logically and rationally for a collective good.

“After two years of pain and uncertainty, it seems we are getting there,” he said.

Among the positive stories of the industry during the year was the success of special purpose acquisition company (SPAC), Reach Energy Bhd, to obtain approval from shareholders for its qualifying acquisition (QA) of the onshore oil and gas field called Emir- Oil LLP in Kazakhstan, for US$154.89 million ( RM640.54 million).

This made Reach Energy the second SPAC, after Hibiscus Petroleum Bhd, to become a fullfledged oil and gas firm.

However, it was not the same story for two other SPACs, Sona Petroleum Bhd and CLIQ Energy Bhd, which had to be liquidated after failing to obtain the QAs before their deadlines set under the SPAC guideline by the Securities Commission.

Sona Petroleum, in a filing to Bursa Malaysia in July, announced that the company would appoint a liquidator for winding up purposes after failing to acquire QA before July 31 while earlier in April, CLIQ Energy made the same announcement after failing to obtain the QA before April 9.

Overseas, the consortium, led by Petronas, received the nod from the Canadian government to build a US$ 27 billion liquefied natural gas plant on Canada’s Pacific Coast after more than three years of regulatory review.

The approval, however, came with more than 190 conditions and Petronas said it would review the conditions attached before deciding whether to move forward with the project. — Bernama