PETRA ENERGY BHD

Rating: Buy (maintained) Target price: RM0.83

PETRA Energy is one of the best proxies to ride the oil price recovery due to its 30% stake in the Kapal, Banam, Meranti risk-sharing contract.

Affin Hwang Capital believes the current high oil price environment provides a good opportunity for it to undertake production enhancements in the field.

Based on the research house’s estimates, field production could be ramped up 50% higher from the current 4,500 barrels per day by December 2018.

Affin Hwang Capital also sees the possibility of an extension or renewal of the risk-sharing contract, which expires by mid-2020.

This is due to the current high oil prices and its good production track record.

To recap, Petra Energy has an outstanding orderbook of RM1.6bil, comprising RM1bil from the Petronas MCM and the remaining RM600mil from the Pan Malaysia hook-up.

The hook-up contract, which expires in 2018, will be up for renewal.

The company’s management is currently bidding for a Pan Malaysia five-year extension. Demand for decommission and abandonment works is expected to be on the rise moving forward due to ageing platforms, facilities and pipelines.

Prospects should turn around, underpinned by a marked improvement in earnings visibility as current high oil prices should boost the Kapal, Banam, Meranti risk-sharing contract’s profitability.