Changes in global oil landscape to impact Malaysian O&G players
KUALA LUMPUR: Fundamental changes in global crude oil landscape will inadvertently impact Malaysian oil and gas (O&G) players both downstream and upstream.
Analyst Kong Ho Meng from RHB Research Institute Sdn Bhd (RHB Research) explained that the lower crude oil price environment is not new to the global scene, with fundamental reasons for the major swings in crude oil prices include economic, geopolitics, and natural disasters.
These events or situations, given time, will rectify themselves and allow commodity prices to revert back to norm under the given demand and supply situation.
“This time, though, it is different. As a result of the US shale oil revolution, we are facing a change in the fundamentals in the dynamics of crude oil supply,” he explained.
“Something has got to give. At the moment, it seems that some of the higher cost producers are cutting capital expenditure or production.
“At the same time, it seems that calls from weaker Organisation of the Petroleum Exporting Countries (OPEC) members to cut production quotas are also coming into play.
“Whatever happens, something has got to give.”
Kong believed that crude oil prices would see some positive movements, possibly over the next three to six months as supply is lowered – either from the higher cost producers or from the OPEC members cutting production quotas.
He expected that crude oil price would trade in the US$90 to US$100 perbarrel (bbl) range, averaging US$95 per barrel over the next 12 to 24 months.
“For the 16 stocks under our coverage, we provide investors with sensitivity analyses that not only incorporate different oil price scenarios, but also assumptions of changes in both local and global oil major capital expenditure (capex) spending,” he added.
“Oil price movements will have direct impact on exploration & production (E&P) players like SapuraKencana Petroleum Bhd and Dialog Group Bhd.
“The decision on capex spending will affect day rates, availability of future contracts and orderbook replenishment rates. These will affect asset operators in the rig and offshore support vessels (OSV) segments, as well as pure service players.
“Forfloatingproductionsystems players, while production capex should be relatively sheltered from oil price movements, they could also face project award delays.”
The research team at TA Securities Holdings Bhd (TA Research) believed new deepwater projects would be at risk.
To recap, Petronas’ three core focus areas for its 2012 to 2016 RM300 billion capex program includes the development of marginal oilfields, enhanced oil recovery and deepwater projects.
“Given the uncertainty in oil price direction, and potentially lower prices, we believe there is high likelihood of costlier projects being shelved or delayed, particularly deepwater fields.
“This is because the economic break even price (BEP) for deepwater projects is significantly higher compared to shallow water. Infield estimates BEP of US$30 to US$40 per barrel for shallow water fields in Southeast Asia, whereas IHS-CERA estimates much higher BEP of US$75 to US$80 for offshore deepwater fields.
“Meanwhile, BEP for local EOR projects range between US$30 to US$80 per barrel as indicated by Petronas.Ontheotherhand,weare less concerned on the feasibility of marginal fields, as long as oil prices hover above US$60 per barrel, which is the BEP threshold guided by Petronas.”