Neutral on O&G sector as prices stabilise

KUCHING: Theoilandgas(O& G) sector has once again garnered a ‘neutral’ recommendation from analysts, given the volatility in the oil price direction over the next six months.

For AmInvestment Bank, unresolved US- China trade dispute, deteriorating global economic growth outlook and easing of US pipeline constraints were other factors which led to another neutral rating on the sector.

“With US crude inventories up 13 per cent since September last year and Brent crude prices averaging US$ 61 per barrel to date, we maintain 2019 price forecast at US$ 65 to US$ 70 per barrel,” the research firm said.

“As a comparison, the Energy Information Administration ( EIA) is projecting US$ 61 per barrel for 2019 and US$ 62 per barrel for 2020, with US daily production projected to increase by 22 per cent since the beginning of 2018 to an all-new record of 12 million barrels in January this year, almost within reach of the EIA’s forecast of 12.4 million barrels for 2019.”

It noted that US production is expected to grow further by six per cent to 13.2 million barrels next year.

As Brent crude oil prices at over US$ 60 per barrel are still above Petroliam Nasional Bhd’s ( Petronas) 2018 internal crude oil assumption of US$ 52 per barrel for project feasibility studies, AmInvestment Bank did not expect any substantive changes to the group’s field development activities.

The research firm expected a moderate recovery in domestic rol louts as the group has introduced new fiscal term enhancements involving selfadjusted cost recovery and a profit-sharing mechanism based on revenue over cost index for new deepwater production sharing contracts to attract new exploration investments and to open new fields in Malaysia.

“Despite the ongoing oil price volatility, we have not seen any impact yet on the upward contract award trajectory with Malaysia’s 2018 contract awards rising 54 per cent year on year (y- o-y) to RM11.6 billion.

“This is due to the award of Pan Malaysia umbrella contract renewals, Sapura Energy Bhd ( Sapura Energy) securing the engineeiring, procurement, construction, installation and commissioning (EPCIC) work for the Pegaga central processing platform ( CPP) and Serba Dinamik Holdings Bhd’s (Serba Dinamik) EPC and operation and maintenance (O&M) jobs.

Meanwhile, MIDF Amanah Investment Bank Bhd said downstream companies continue to perform very well during the quarter as the supply and demand dynamics for both petrochemical and petroleum-derivative products were within expectations and production volume sales in general grew to record high.

“Operating margins were relatively stable owing to more favourable average selling prices during the quarter,” it said in a corporate outlook. “However, petrol station operators such as Petronas Dagangan were impacted due to inventory lag losses arising from the steep decline in crude oil price.

“Service providers on average faired reasonably due to increasing offshore activity levels owing to an encouraging crude oil price environment. The outliers registering losses for the quarter were MMHE, Wah Seong, Favelle Favco and Bumi Armada due to segment specific or company specific complications.”