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Monday, January 7, 2013

M'sian O&G sector set for busy year

By Maybank Research
Overweight (unchanged)

PETRONAS' push for domestic production growth will extend into 2013. We expect the pace to intensify after a subpar year in 2012.

Projects planned for 2012 but which missed the deadline will be rolled out in 2013. This means 2013 will likely see capex escalate, offering local service providers opportunities to capitalise on.

We remain “overweight” on the sector with preferred picks being Dialog, Bumi Armada and Sapurakencana Petroleum (SAKP), and Perisai in the small-cap space.

Drilling activities look set to increase with the higher number of rigs (i.e. jack-ups, semi-submersibles, tender-assisted) planned for deployment in 2013 (+50% year-on-year to 30+ units) underscoring rising offshore activities.

This will augur well for the offshore support vessel (OSV) segment. Utilisation rates are set to improve, albeit on steady charter rates.

Demand for platform support vessels (PSVs) and workboat/barges will be strong, followed by higher-spec Anchor Handling Tug Supply (AHTS) vessels to support drilling, hook-up and commissioning (HUC), as well as brownfield activities.

Contract-wise, Petronas Carigali Sdn Bhd's (PCSB) 34 OSV tenders will be awarded by the first half of 2013.

Petronas will continue to focus on the enhanced oil recovery (EOR) and marginal field activities.
The much-anticipated but much-delayed Angsi field chemical EOR (CEOR) and St Joseph CEOR projects are likely to be announced in 2013.

We also see three firm early production system (EPS) contracts Kayu Manis, Tj Baram and Permas up for grabs. These projects would help expedite the recovery in domestic hydrocarbon production.
Our channel checks suggest that up to seven centralised processing platforms (CPPs) are due to be awarded in 2013-2015 with 70 smaller platforms (<20k p="p" tonnes="tonnes" under="under" way.="way.">
With the Refinery and Petrochemical Integrated Development (Rapid) project fast gaining momentum, contracts for onshore structural works worth billions of ringgit, will follow soon.
In the pipeline are the developments of Petronas' petrochemical and refinery facilities, regasification terminal and power plant, as well as two foreign-owned petrochemical/refinery plants in the vicinity.

After much delay, the Malacca regasification terminal will start operations in the first half of 2013. This means an additional supply of 1,000mmscfd (+33%) of natural gas to the system, fuelling growth for the power and manufacturing sectors.

The Government is targeting a market-driven price environment by 2017. Having said that, we expect the next gas price adjustment to occur in June 2013 after the general election.

SAKP, Bumi Armada and Dialog are our preferred picks in the O&G sector for their growth prospects, balance sheet strength and stronger job wins outlook. SAKP should leverage on the drilling and pipe-laying activities locally and globally.

Bumi Armada is a primary beneficiary of new FPSO contracts and M&A opportunities. Dialog is a direct play on the Rapid and tank terminal opportunities in Asia.

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