‘Neutral’ call on oil & gas sector

PETALING JAYA: AmInvestment Bank has maintained its “neutral” stance on the oil and gas (O&G) sector, noting the persistent low asset utilisation levels would mean negative cash outflows for many service operators in 2017.

The research house said in a note last Friday, it prefers companies with stable and recurring earnings such as Dialog Group and Yinson Holdings.

“Our ‘hold’ calls are for Sapura Energy, MISC, Bumi Armada and UMW Oil & Gas, while Petronas Gas is a ‘sell’ due to the upcoming implementation of the incentive-based regulatory tariff-setting mechanism,” its analyst Alex Goh said.

Commenting on oil prices, Goh said according to IHS Markit’s APAC Energy Sales director Martin MittagLenkheym, oil prices are expected to be “lower for longer” as the market slowly shifts from a supply glut to a balance.

Nevertheless, he said the research house maintained its 2017 crude oil price forecast of US$45-US$50 per barrel versus Petronas’ US$45 per barrel and Bloomberg’s Brent price consensus of US$56 per barrel.

“Our 2018 oil price forecast is US$50-55 per barrel, below Bloomberg’s US$62 per barrel as we view that the price direction may still be tenuous given rising US shale production, which has risen by 9% to 9.2 million barrels per day since August 2016 together with the doubling of rig counts while the market closely monitors for breaches in Opec members’ quota adherence,” he noted.

In addition, Goh said IHS expects a solid and focused merger and acquisition recovery with estimated US$250 billion (RM1.1 trillion) assets worldwide that could be up for grabs as reserves are much cheaper to acquire compared to the costs of finding and developing them.

He said this is being led by private equity and sovereign wealth funds that are seeking for partnership transactions.

However, Goh said the overall domestic upstream capital expenditure (capex) spending is still in downtrend.

Hence, he said it continues to view that the Malaysian upstream capex trajectory still faces weak prospects as new orders secured by Malaysian operators fell 11% year-on-year to RM2 billion in Q1’17, which mostly stemmed from Sapura Energy’s offshore installation and rig services.

“With a lower 2017 dividend commitment of RM13 billion versus RM16 billion last year, Petronas president and CEO Datuk Wan Zulkiflee Wan Ariffin has indicated that the group’s capex may increase 20% y-o-y to RM60 billion this year with average Brent crude oil prices assumed at US$45 per barrel.