Opec deal un­likely to lift M’sian O&G sec­tor

> An­a­lysts don’t ex­pect im­me­di­ate pick-up in oil & gas cap­i­tal ex­pen­di­ture


PETALING JAYA: The Or­gan­i­sa­tion of Petroleum Ex­port­ing Coun­tries’ (Opec) plan to cut oil pro­duc­tion, which has boosted global oil prices, is not ex­pected to have an im­me­di­ate pos­i­tive im­pact on the Malaysian oil and gas in­dus­try, ac­cord­ing to an­a­lysts.

This is be­cause most of the oil and gas play­ers are in­volved in the ser­vices seg­ment within the in­dus­try. Hence, an­a­lysts said, they don’t ex­pect the lo­cal oil and gas stocks to see sig­nif­i­cant im­prove­ment in their fi­nan­cial per­for­mance.

Down­stream firms are gen­er­ally de­pen­dent on up­stream play­ers for their jobs, and the promised pro­duc­tion cut will need time to trickle down to prop­ping up oil prices amid un­cer­tain global out­look, be­fore it war­rants a pickup in up­stream ac­tiv­i­ties.

Up­stream play­ers are Petro­liam Na­sional Bhd (Petronas), Shell, Sa­pu­raKen­cana Petroleum Bhd and Hibis­cus Petroleum Bhd, to name a few.

Ke­nanga Re­search an­a­lyst Sean Lim opined that while the re­vival rate of up­stream ac­tiv­i­ties will not be so en­cour­ag­ing, it will def­i­nitely in­still more con­fi­dence to oil ma­jors to fork out more cap­i­tal ex­pen­di­ture (capex).

“I think the process (of pump­ing in money) will be slow be­cause cash con­ser­va­tion is the pri­or­ity at this point of time,” he told Sun­Biz.

MIDF Re­search an­a­lyst Aaron Tan Wei Min con­curred, say­ing that any bud­get­ing has to be as­so­ci­ated with oil com­pa­nies’ long-term view and out­look on the in­dus­try.

“Oil price is just one of many fac­tors to be con­sid­ered. So I don’t think that capex will be re­vised up­wards. None­the­less, if oil prices are sus­tain­able at above US$50 (RM207), or maybe US$60 (RM248) per bar­rel, then there is a pos­si­bil­ity that capex will be re­vised,” he opined.

To turn pes­simism into op­ti­mism, Tan said the global oil mar­ket has to see a more mean­ing­ful and sus­tain­able price level, which could take years.

“Even though it is sus­tained for six months to one year, it’s still not mean­ing­ful enough,” he said.

Tan high­lighted that the cost struc­ture for up­stream play­ers has be­come lower in the cur­rent low oil price en­vi­ron­ment, which could see re­duc­tion in ser­vices jobs even though oil prices bounce back to a cer­tain high level.

“They’ve re-reg­u­lated their ac­tiv­i­ties, what they want is ef­fi­ciency. Al­though you’re ex­tract­ing more oil, you do not nec­es­sar­ily need more FPSO (float­ing pro­duc­tion, stor­age and of­fload­ing) or ex­tra work­ers, that’s not the case any­more,” he ex­plained.

Last week, Opec, which pro­duces about 41% of the world’s crude oil, said it will cut pro­duc­tion to be­tween 32.5 and 33 mil­lion bar­rels per day from 33.47 mil­lion in Au­gust, a move that sur­prised the mar­ket. A fi­nalised plan how­ever, will only be an­nounced at their next meet­ing sched­uled for Nov 30.

An­a­lysts are still main­tain­ing their fore­casts for oil prices for 2016 and 2017 at the mo­ment, with Tan pro­ject­ing US$45 and US$50 per bar­rel and Lim US$47 and US$51.

Lim said if there are more ag­gres­sive cuts in oil pro­duc­tion, oil prices could rise above US$50 or reach close to US$60 a bar­rel.

The global oil mar­ket has to see a more mean­ing­ful and sus­tain­able oil price level be­fore pes­simism turns into op­ti­mism.

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