A bullish 2021 unlikely for O&G- sector
KUCHING: Affin Hwang Investment Bank Bhd (Affin-Hwang Capital) is not overly optimistic for oil and gas’ (O&G) outlook for the year ahead on the back of a lackluster 2020.
Excluding the lumpy RM7.7 billion contract awarded to Serba Dinamik Holdings Bhd (Serba Dinamik) which was deemed a one- off, normalised year to date ( YTD) contract value was down by 45 per cent year on year (y- o-y).
This led Affin-Hwang Capital to expect global oil majors’ capital expenditure (capex) moving into 2021 to decline for the second consecutive year, by six per cent, suggesting a cautious view on global oil prices.
“Back home, a clearer outlook for 2021 would only be known after Petronas’ Activity Outlook report which tends to be released by the end of December,” it said in a sector outlook yesterday.
“After two consecutive years of modest oil capex recovery in 2018-2019 by a respective five per cent, global oil majors slashed capex by 24 per cent in 2020 in response to the crash in global oil prices.
“Based on our compilation, capex is expected to decline by another six per cent year on year (y- o-y) in 2021, suggesting a cautious view given the rather fluid and volatile environment.”
To note, Petronas’ total capex for the first nine months of 2020 (9M20) stood at RM22.5 billion, in line with its earlier target to cut capex by 21 per cent. Domestic capex, which made up RM12 billion, suffered a more drastic drop of 23.4 per cent yo-y as compared to its overseas segment, which was down 21 per cent y- o-y.
The domestic segment continues to make up the bulk of total capex at 53 per cent, relatively similar to 9M19’s 54 per cent, reaffirming the national oil company’s commitment to focus on and support the local space.
Year to date, total contract value announced stands at RM20.1 billion, a significant 61 per cent drop from the RM52 billion announced in 2019.
“We gather that despite oil prices stabilising near US$ 50 per barrel, local service providers’ consensus view is that the outlook is murky and rather fluid moving into 2021 with limited visibility from end clients,” Affin-Hwang Capital continued.
“Meanwhile, the FPSO market is expected to improve in terms of number of contracts to be awarded. 2021 is expected to see six or seven contracts being rolled out, and to increase further to nine in 2022.
“Petronas recently revived the FPSO LimBaYong, which has an estimated size of US$700 million to US$ 800 million and is expected to be awarded sometime in 2021.
“Based on prospective global market tenders, the engineering and construction ( E&C) projects are only expected to revert to pre- COVID levels in 2023. Meanwhile, the
drilling market is expected to remain robust moving into 2021 or 2022.”
Meanwhile, the collective production cut compliance rate by the Organisation of Petroleum Exporting Countries and its peers (Opec+) has been high and has over complied five out of the past seven months, up until November 2020.
In the latest agreement, Opec+ group aimed to lower production cuts by 500 kbpd, from 7.7mmbpd to 7.2mmbpd in January 2021. The group will be meeting monthly to assess the production cuts for the subsequent month, from the initial 5.8mmbpd target set earlier.
Back home, a clearer outlook for 2021 would only be known after Petronas’ Activity Outlook report which tends to be released by the end of December. Affin-Hwang Capital