UOB KayHian said earnings risk for O&G companies had not bottomed out and that the global oil majors were expected to slash capital expenditure by between 10% to 40%.
“The sector is still fundamentally unexciting,” said UOB KayHian in a recent report.
Global oil prices hit their 11-year lows at US$36.25 a barrel last week, before it rebounded. The current oil price is a far cry from the US$115 per barrel registered in June 2014.
Investors sentiment on Malaysia has also beeb affected due to the country’s reliance on O&G revenue that is estimated to contribute up to 19% of the Government’s coffers.
Based on recent reports, the downtrend in oil prices is expected to continue until 2020. The Organisation of the Petroleum Exporting Countries (Opec) had last week estimated the price would increase to US$70 a barrel by 2020 and that competitors has proven more resilient than expected.
Goldman Sachs had earlier predicted that crude oil price would hit US$20 per barrel saying the global surplus of oil was bigger than it previously thought and that failure to reduce production fast enough would push down the price.
The global over supply situation is expected to worsen next year with Iran entering the fray and the United States lifting its 40-year ban on oil.
The drop in prices has an adverse impact on local oil and gas services providers as well as the Government which unveiled its Budget 2016 in October based on Brent crude at US$48 per barrel.
However, MIDF Research is more bullish on the direction of the global crude oil prices next year.
“Moving into 2016, we expect Brent crude oil prices to possibly trade within an average of US$50 per barrel. Our view largely rest on a better second half of the year,” it said in a research eport adding that its assumption was based on the global asset breakeven prices and average fiscal breakeven prices for global oil-producing countries.
“Despite contradicting views in the media from various Opec members regarding oil price expectations and production levels, we are of the opinion that the low oil price climate will negatively affect all of the Opec members which could cause the cartel to eventually scale down production,” MIDF explained.
UOB said that that although the national oil company Petroliam Nasional Bhd’s (Petronas) capital expenditure between 2016 and 2020 was higher than that between 2011 and 2015 (RM300bil) the allocation are largely for the downstream sector.
“Service providers with high dependency on Petronas upstream jobs like Barakah Offshore Petroleum Bhd, Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE), Perisai Petroleum Teknologi Bhd, Dayang Enterprise Holdings Bhd and UMW Oil & Gas Corp Bhd would be affected.
“Covered stocks that could face earnings risk in 2016 are SapuraKencana Petroleum Bhd, Bumi Armada Bhd, Barakah Offshore MMHE and Perisai,” UOB said.
Source: The Star