Malaysia’s oil and gas (O&G) sector could very well remain immune to falling oil prices as it continues to be bolstered by monies flowing from Petroliam Nasional Bhd (Petronas).
CIMB Research said it expected Petronas’ spending to continue flowing to refiners as well as O&G service companies.
It also said the shale gas revolution, which was one of the contributing factors for the decline in the oil price, was positive for liquefied natural gas (LNG), liquefied petroleum gas and ethane shipping products.
This would translate into stronger order prospects for gas carriers and product and chemical tankers, CIMB Research said.
Brent crude, the global benchmark, declined to US$82.60 a barrel on Oct 16, the lowest in almost four years.
While lower oil price implied that there would be a cut in exploration and production (E&P) activities, CIMB Research said this would be especially so for unconventional production that could only be economically justified when the oil price was high.
“We deem ultra-deepwater, Artic drilling, Australian LNG, Canadian heavy oil sands and marginal field development as unconventional sources of production,” it said.
Additionally, there was not much incentive for oil companies to raise production levels in a well-supplied environment, CIMB Research added.
It said Petronas might review its capital expenditure programme if the oil price dropped to US$60 per barrel, which it understood was the breakeven point for newer initiatives such as marginal field development and enhanced oil recovery.
On companies with significant operations outside Malaysia, it noted that UMW Oil & Gas Corp Bhd had said that its contracts in various Asean countries were intact and that there was no provision for price revision in the contracts.
It said Bumi Armada Bhd had confirmed that its order book, which was mainly driven by long-term floating production storage and offloading contracts outside Malaysia, was locked and not affected by fluctuations in oil price.
Given SapuraKencana Petroleum Bhd’s exposure to exploration and production through SapuraKencana Energy Inc, CIMB Research said it would suffer from a sustained lull in oil price.
CIMB Research advised investors to avoid exposure to deepwater activities, which have suffered the steepest cutbacks.
“We also advise investors to avoid the yards as they are leveraged to the capital investment cycle, which is dependent on oil prices and sentiment. On the flip side, we favour players that are exposed to development and production spending and shallow water activities,” it said.
Shallow water activities accounted for 70% of offshore production and remained profitable for oil companies even when oil prices fall, it added.
