November 14, 2011

Petronas, Shell agreement will benefit the nation

KUCHING: The recently signed heads of agreement between Petronas and Shell Malaysia will benefit the nation as well as local oil and gas (O&G) services providers.

In making the call, OSK Research Sdn Bhd (OSK Research) analyst Jason Yap commented, “We gather that Petronas’ O&G production for financial year 2011 (FY11) ending March totalled 2.1 million barrels of oil equivalent (boe) per day, down from its FY10 O&G production of 2.3 million boe per day.

“Hence, we notice that Petronas has been actively finding ways to increase its O&G production in the shortest timeframe possible through the development of marginal O&G fields, and enhanced oil recovery (EOR) projects.

“Besides producing more O&G for the country, the latest initiative creates opportunities for local O&G services providers like Kencana Petroleum Bhd (Kencana), SapuraCrest Petroleum Bhd and Dialog Group Bhd (Dialog) to vertically expand into exploration and production activities.

“This would make them more competitive beyond Malaysian waters besides giving them opportunities to replenish their order books.

“Overall, we see the EOR projects benefiting the entire O&G supporting services value chain, including the pipe coaters, vessel providers, process equipment manufacturers and others.”

However, OSK Research viewed that main beneficiaries from the initiative would be fabricators such as Malaysia Marine and Heavy Engineering Bhd  (MMHE) together with Kencana, as well as brownfield services providers like Dayang Enterprise Holdings Bhd, Petra Energy Bhd and Kencana, to a certain extent.

“They would probably get the biggest chunk of the contracts and also reap lucrative revenue as these projects are recurring in nature. In addition, the margin for services contracts can be as high as 20 per cent to 30 per cent since there will be minimal overheads involved,” Yap opined.

OSK Research maintained an ‘overweight’ outlook on the O&G sector, with the top picks for the sector being Kencana (fair value of RM3.17 per share) and Dialog (fair value of RM3.66 per share), due to their marginal oilfield exposure and their performance track records. -BorneoPost


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