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Wednesday, September 11, 2013

Boom time for oil & gas contractors

Source: http://www.thesundaily.my/news/826578

PETALING JAYA (Sept 11, 2013): It's boom time for offshore oil and gas contractors, as international oil companies search further and deeper to quench global thirst for fuel, even as crude prices continue to trade north of US$100 (RM328) a barrel.

"We can expect a good mix of local, regional and international jobs to be awarded to Malaysian oil and gas players and we can expect Petronas to keep the momentum going as it pushes for more deepwater, high pressure, high temperature and high carbon dioxide oil fields,'' MIDF Research said.

It added that the timing for the launch of the RM60 billion Refinery and Petrochemical Integrated Development (RAPID) project has little impact on listed oil and gas companies, as most of them are focused on the upstream side of the industry.

The delay, it said, will affect firms intending to participate in the civil and engineering construction works.
In the meantime, the year so far had been a blast of oil and gas service providers.

MIDF Research estimated at least RM29 billion worth of contracts were awarded to oil and gas players listed on Bursa Malaysia during the first eight months of this year.

This is more than double the amount recorded for the whole of 2012. The firm said earnings from projects secured in the first half of this year should kick in from the third quarter onwards.

While talks about Petronas and the government "sequencing" some big projects may dent sentiment on contractors, this may not be the case.

"In 2012-2013, only 28% of the total job awards have been from Petronas,'' MIDF Research said.

For example, Daya Materials Bhd was the biggest winner in recent weeks after it bagged two long term subsea contracts from Technips Norge worth at least RM426 million.

August was the slowest month this year in terms of contracts award with only RM732 million worth of jobs handed out.

"We believe that the sustained oil prices, increase in job activities and sustained capex by international oil accompanies will continue to spur and drive locally-listed oil and gas service providers,'' MIDF Research said.

One of the most anticipated awards is the risk sharing contract (RSC) by Petronas, which may come this year. The last RSC award was for the Kapal, Banang and Meranti fields in July last year to Coastal Energy and Petronas Carigali.

So far, only three RSCs had been awarded since 2011.

The RSC job, which is focus on development of marginal fields, requires huge capital outlay and new technology that may be out of reach for most small contractors.

To speed up the development of marginal fields, Petronas has recently set up a unit, Vestigo Petroleum Sdn Bhd to partner small companies and foreign experts.

But with more local oil and gas contractors going international, the more reliable gauge for the health in the oil and gas industry has to be the capital expenditure (capex) of international oil companies and global crude oil price.

Estimates showed that the top 25 international oil companies have increased their capex to US$421 billion in 2013from US$379 billion in 2012. The amount is expected to reach US$425 billion in 2014.

Rising spending will fuel activities in the oil and gas sector, but the biggest drive for companies to spend will be dictated by global crude price.

The most widely used oil price benchmark Brent crude yesterday continued to hold above US$112 a barrel amid dissipating worries about possible US-led military strike against Syria and violence in Egypt.

While supply side issues remained unresolved, demand for fuel is rising, albeit at a slower pace.

In a recent report, the International Energy Agency (IEA) said global oil demand growth is expected to expand by 1.1 million barrels per day in 2014 to 92 million barrels per day.

Projection by the US EIA showed that supply may grow at a slower pace in 2014 to 91.4 million barrels a day.

With tight supply in the market, the good times will continue to roll for oil and gas companies.

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