Monday, September 24, 2012

Only semenanjung players kencana, sapura and dialog given huge petronas contracts

Local players ready for deepwater O&G fields with Petronas

by Venu Puthankattil. Borneo Post November 1, 2011, Tuesday

DEEPWATER FIELDS: The ratio between shallow waters and deepwater O&G production is still at 70:30 but over time, the deepwater portion will pick up after all the easy O&G finds are depleted, says Yap. — AFP photo
KUCHING: The oil and gas (O&G) industry is expected to eventually venture forth into exploration for oil fields and gas fields in deeper waters on the back of Petroleum Nasional Bhd’s (Petronas) reiteration of its licensing policy for the industry.
The national oil corporation stated last week that there was no change in its licensing policy related to companies engaged in Malaysia’s upstream O&G industry in response to media reports speculating that Petronas would do away with the policy.
Specifically, under the Petroleum Regulation 1974, both local and foreign companies wishing to commence or even carry out any business or services related to Malaysia’s O&G upstream operations must apply for a licence from Petronas.
OSK Research Sdn Bhd analyst Jason Yap told The Borneo Post, “We note that Petronas has embarked on a long term plan to nurture the local O&G service providers – with the first few being Kencana Petroleum Bhd (Kencana), SapuraCrest Petroleum Bhd, and Dialog Group Bhd (Dialog) – which have been awarded marginal oilfields to expose these companies to upstream O&G activities.
“Secondly, we understand that most of the local O&G service providers currently have spare capacity as O&G activities have slowed compared with before the global economic recession in 2008 when their capacity was mostly tailored to local needs,” Yap added.
Noting this spare capacity, the analyst said it did not make economic sense for Petronas to obtain resources from non-local O&G services providers whose capacity was mostly built to meet the requirements of their respective countries or regions of operation.
“Finally, this licensing requirement does not prevent foreign companies from participating in Malaysia’s O&G sector as what is required is a partnership with a local licence holder,” he stressed.
“In fact, such participation facilitates the transfer of technology and helps enhance the competence of the local companies while at the same time allowing the foreign companies to benefit from the development of the country’s resources,” Yap pointed out.
With an improving global economic outlook and crude oil price having gone back to around US$90 per barrel, Yap believed that O&G activities would gradually pick up, which would then benefit all O&G service providers through better utilisation rates and higher sales per unit or services per hour rates.
On the local front, he expected the industry to see more marginal oilfield developments as well as the increasing need for brownfield services to boost O&G production while waiting for the commencement of deepwater activities on a large scale after pre-development preparations would be completed.
“We gather that the ratio between shallow waters and deepwater O&G production is still at 70:30 but over time, the deepwater portion will pick up after all the easy O&G finds are depleted.
“This may not be so soon since there are still many untapped areas. Also, with better technology now, this opens up opportunity to areas which are shallow, but not previously tapped before.
“Hence, we think Petronas is now preparing local O&G supporting services providers for marginal oilfield (shallow water) developments first before embarking into the more challenging terrain (deepwater),” Yap opined.
With regards to capital expansion to venture into deep fields, he stated that most of the local players were capable of providing support services. However, to be the main contractor for such fields, there might still be some learning curve challenges for them.
His crude oil price forecast for financial year 2011 (FY11) was US$85 to US$95 and US$80 to US$90 for FY12. However, this was with the expectation that the global economy would slow down. In the event that it did not do so, he would revise the oil prices for FY12.
Yap remained positive on the O&G sector, stating OSK Research’s top picks as Kencana with a fair value pegging at RM3.17 per share and Dialog with a fair value of RM3.66 per share.

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