With the oil and gas (O&G) sector being one of the crucial sectors for the Malaysian economy and stock market, the downward spiral of oil prices in the last four months have left many jittery. Malaysian oil and gas heavyweights such as SapuraKencana Petroleum Bhd, Bumi Armada Bhd and UMW Oil & Gas Bhd have not been spared. Along with the tumbling financial markets, they are now down 16.7%, 20% and 16.2% respectively in the last one month.
Petronas is the sole rights owner of all oil revenues. If Petronas reduces production, it will affect supporting industries such as services provider Sapura Kencana Petroleum Berhad and marine engineering firm Coastal Contracts Berhad. Analysts have started to factor in the lower oil prices and have cut earnings forecasts for Malaysian oil and gas related companies. Since mid-June, earnings per share (EPS) for 2014, 2015 and 2016 of the oil and gas sector have been downgraded by -5.3%, -3.3% and -3% respectively. These are modest declines compared to the huge drop in oil prices, because corporate earnings of supporting industries are not directly related to oil prices. Investors tend to view all oil and gas companies as being directly affected by global oil prices. On average, share prices of Malaysia oil and gas companies have declined by -20%, with Perisai Petroleum and Alam Maritim being the worst hit, both dropping by about -30%. However, underlying business fundamentals can differ, like perhaps some companies may even benefit from cheaper oil feedstock.
Petroliam Nasional Bhd’s (Petronas) cautionary statement has sent negative vibes to the sector and crude oil price remain uninspiring, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) said in a recent sector analysis. “Given our cautious outlook, we believe investors should stay stock-selective and focus on companies that either has significant order-book to support forward earnings visibility, and/or companies that have an exposure to the brownfield/rejuvenation segments (which are marginal fields, brownfield alliances, mantainance; well intervention), since Petronas might look to existing oil and gas fields to meet crude oil production goals and capital expenditure (capex) classified projects might see sluggish times ahead,” it added.
CIMB Research in its report, Implications of Lower Oil Prices, says oil majors typically cut back on exploration and production activities when oil prices are low. “Oil prices should have a laggard impact on oil service companies but we have observed that global offshore orders and oil prices have moved in lockstep. We also expect drillship and rig orders to slow further due to lower offshore activity,” it says. However, CIMB Research points out that the exception would be Malaysia, where it expects Petronas spending to continue flowing to O&G and related sectors, namely refiners, as well as O&G service companies.
Last month, Petronas announced that it plans to ramp up production in its Gumusut-Kakap field, with analysts saying that it could reach 80,000 to 90,000 barrels per day (bpd) by next year, from its current 20,000 to 30,000 bpd. This increase in production will require more services, from human resources to offshore service vessels. Despite the gloomy outlook, an O&G industry executive opines that oil prices will go up again.
According to The Star, Malaysia’s economy is expected to expand between 5% and 6% in 2015 as the economic growth momentum continues from 2014, led by the private sector. The mining sector is expected to see faster growth of 2.8% (0.7%) on higher production of crude oil and natural gas and also enhanced oil recovery and additional fields. The start of several oil-and-gas related projects will help drive the construction sector’s growth rate of 10.7% (12.7%) supported by the oil and gas (O&G) related projects such as the Refinery And Petrochemical Integrated Development (RAPID) and ongoing transportation-related infrastructure projects. In the perspective of Petronas, when it comes to oil, it’s all about money politics. Who are the main players in the game? Saudi Arabia, the United States, Canada, China and Iran. Maybe the US needs to weaken Russia now. Low oil prices will definitely hurt Russia, as half of its budget money comes from O&G exports. Winter is coming in the US. Through experience, especially if the winters are particularly cold, oil prices will nudge up.
Petronas is the sole rights owner of all oil revenues. If Petronas reduces production, it will affect supporting industries such as services provider Sapura Kencana Petroleum Berhad and marine engineering firm Coastal Contracts Berhad. Analysts have started to factor in the lower oil prices and have cut earnings forecasts for Malaysian oil and gas related companies. Since mid-June, earnings per share (EPS) for 2014, 2015 and 2016 of the oil and gas sector have been downgraded by -5.3%, -3.3% and -3% respectively. These are modest declines compared to the huge drop in oil prices, because corporate earnings of supporting industries are not directly related to oil prices. Investors tend to view all oil and gas companies as being directly affected by global oil prices. On average, share prices of Malaysia oil and gas companies have declined by -20%, with Perisai Petroleum and Alam Maritim being the worst hit, both dropping by about -30%. However, underlying business fundamentals can differ, like perhaps some companies may even benefit from cheaper oil feedstock.
Petroliam Nasional Bhd’s (Petronas) cautionary statement has sent negative vibes to the sector and crude oil price remain uninspiring, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) said in a recent sector analysis. “Given our cautious outlook, we believe investors should stay stock-selective and focus on companies that either has significant order-book to support forward earnings visibility, and/or companies that have an exposure to the brownfield/rejuvenation segments (which are marginal fields, brownfield alliances, mantainance; well intervention), since Petronas might look to existing oil and gas fields to meet crude oil production goals and capital expenditure (capex) classified projects might see sluggish times ahead,” it added.
CIMB Research in its report, Implications of Lower Oil Prices, says oil majors typically cut back on exploration and production activities when oil prices are low. “Oil prices should have a laggard impact on oil service companies but we have observed that global offshore orders and oil prices have moved in lockstep. We also expect drillship and rig orders to slow further due to lower offshore activity,” it says. However, CIMB Research points out that the exception would be Malaysia, where it expects Petronas spending to continue flowing to O&G and related sectors, namely refiners, as well as O&G service companies.
Last month, Petronas announced that it plans to ramp up production in its Gumusut-Kakap field, with analysts saying that it could reach 80,000 to 90,000 barrels per day (bpd) by next year, from its current 20,000 to 30,000 bpd. This increase in production will require more services, from human resources to offshore service vessels. Despite the gloomy outlook, an O&G industry executive opines that oil prices will go up again.
According to The Star, Malaysia’s economy is expected to expand between 5% and 6% in 2015 as the economic growth momentum continues from 2014, led by the private sector. The mining sector is expected to see faster growth of 2.8% (0.7%) on higher production of crude oil and natural gas and also enhanced oil recovery and additional fields. The start of several oil-and-gas related projects will help drive the construction sector’s growth rate of 10.7% (12.7%) supported by the oil and gas (O&G) related projects such as the Refinery And Petrochemical Integrated Development (RAPID) and ongoing transportation-related infrastructure projects. In the perspective of Petronas, when it comes to oil, it’s all about money politics. Who are the main players in the game? Saudi Arabia, the United States, Canada, China and Iran. Maybe the US needs to weaken Russia now. Low oil prices will definitely hurt Russia, as half of its budget money comes from O&G exports. Winter is coming in the US. Through experience, especially if the winters are particularly cold, oil prices will nudge up.
2 comments:
informative post thanks for sharing i know moving is not easy .. i thin Moving services in ST Catharines should be more focused on customer's needs
I know about the using policy and the important of using Gas in Malaysia. Because they are always use business gas for their business purpose.
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