‘Global out­put cut not enough to boost M’sian oil & gas ser­vices firms’ earn­ings’

The Sun (Malaysia) - - MEDIA & MARKETING -

PETALING JAYA: Hong Leong In­vest­ment Bank (HLIB) Re­search said a pro­posed cut in global oil pro­duc­tion is not suf­fi­cient to im­prove earn­ings of Malaysian oil and gas ser­vices play­ers.

In a re­search note yes­ter­day, it said this is be­cause the an­tic­i­pated oil prices im­prove­ment is not ex­pected to lift oil pro­duc­ers’ cap­i­tal ex­pen­di­ture (capex) sig­nif­i­cantly, at least in the medium term.

HLIB Re­search is of the view that the cur­rent devel­op­ment would not bring about a re-rat­ing to the over­all in­dus­try as capex spend­ing is not ex­pected to im­prove sig­nif­i­cantly while the up­stream in­dus­try still has to face as­set over­sup­ply over­hang for the time be­ing.

The in­dus­try’s re­cov­ery would be slow next year with ac­tiv­i­ties ex­pected to pick up but not suf­fi­ciently to change the cur­rent fun­da­men­tals of the oil and gas in­dus­try, it noted.

The Or­gan­i­sa­tion of Petroleum Ex­port­ing Coun­tries (Opec) in­di­cated in a re­cent meet­ing in Al­ge­ria that it could cut its oil out­put by 240,000 to 700,000 bar­rels a day to sta­bilise the oil mar­ket. The de­tails will be fleshed out at a meet­ing in Vi­enna on Nov 30 whereby cuts for each Opec mem­ber coun­try will be de­cided.

While any out­put cut is pos­i­tive for mar­ket sen­ti­ment, HLIB Re­search said, the pro­posed cut could be un­der­mined by three main is­sues: three ma­jor coun­tries – Iran, Nige­ria and Libya – are ex­empted from the cut, which means any out­put in­crease by them could off­set Opec’s pro­posed cut; se­condly, Opec’s oil pro­duc­tion is still at an eightyear high and a cut of the pro­posed mag­ni­tude might not be suf­fi­cient; with oil prices ral­ly­ing, US shale pro­duc­ers could eas­ily ramp up their pro­duc­tion within six months due to their short oil in­vest­ment cy­cle.

HLIB Re­search be­lieves its fore­cast for Brent of be­tween US$50 and US$60 (RM210 and RM252) a bar­rel would still be valid given that US$60 a bar­rel would be the es­ti­mated breakeven for US shale oil.

HLIB Re­search said the only com­pany which would be di­rectly im­pacted by oil price move­ment in its cov­er­age uni­verse would be Sa­pu­raKen­cana Petroleum Bhd.

“Ac­cord­ing to our sen­si­tiv­ity anal­y­sis, an in­cre­men­tal US$10 per bar­rel im­prove­ment in Brent oil prices would bring about 42% in­crease in our cur­rent earn­ings fore­cast,” it noted.

For as­set-based play­ers, which are val­ued us­ing the price-to-book value method, ev­ery 0.1 times in­crease in tar­get mul­ti­ple would bring 15% to 30% im­prove­ment in its fair val­ues for lo­cal oil and gas com­pa­nies.

“As for price-to-earn­ings-driven com­pa­nies, ev­ery 1.0 time in­crease would im­prove its tar­get prices for com­pa­nies by 10% to 15%,” it added.

Oil prices were trad­ing lower yes­ter­day, with in­ter­na­tional bench­mark Brent crude down 57 cents to US$51.38 per bar­rel at 1348 GMT, Reuters re­ported. US West Texas In­ter­me­di­ate crude was trad­ing at US$49.65 per bar­rel, down 70 cents from their last set­tle­ment.

Newspapers in English

Newspapers from Malaysia

© PressReader. All rights reserved.