KUALA LUMPUR: NATIONAL oil firm Petroliam Nasional Bhd (Petronas) is expected to rein in capital expenditure (capex) this year.
Hong Leong Investment Bank (HLIB) said despite the expected firmer oil prices this year, it would not bring about a significant catalyst for the local oil and gas (O&G) sector.
“It is not news that this year will be a better year for O&G market as the Organisation of the Petroleum Exporting Countries (Opec) has decided to reverse its decision to flood the market with its oil earlier in 2015.
“However, we believe the improvement in oil price would not bring about a significant rerating catalyst for local O&G market under coverage due to the perception that oil majors, especially Petronas, will still be hesitant to increase capex significantly, which is essential for service providers’ business activities.
“With Malaysia committed to cut 20,000 barrels of oil a day, we are adamant that Petronas will not spend more capex this year compared with last year,” it said.
“Still, higher oil prices would provide the required cushion for marginal increase in drilling activities in maintaining oil production.”
The oil prices, said HLIB, would not move beyond US$60 (RM268.8) a barrel level this year due to Opec producers’ lack of quota discipline, irreversible planned projects by non-Opec countries, the ramp up of production in the United States and Iran’s exemption from the cut.
“We believe the recent news is just a temporary fix for the global oil market and significant surge in oil prices will only bring back the vicious cycle of overproduction by the US and the market potentially going back into oversupply environment.”
HLIB kept its oil price target range of US$50 to US$60 per barrel this year. “We believe that gradual oil price recovery is healthier for the oil market in the long run. US$60 per barrel will be strong resistance for the medium term.
“The obvious beneficiary of the expected oil price increase will be oil field owners like SKPETRO (its energy segment), Hibiscus Petroleum and Reach Energy as their revenues are heavily dependent on oil prices.”
HLIB does not expect jack up rig charter rates (DCR) to markedly improve this year, saying it should remain between US$70,000 and US$100,000 per day.
This is because there is still a significantly large number of unutilised rigs in the Malaysian market. Since last year, the Malaysian drilling market has been dismal with low rig utilisation — ranging from three to six rigs due to the slowdown in oil exploration activities in tandem with the low oil prices.
“We believe the anticipated improvement in oil prices will only improve rig utilisation at an average of seven to nine rigs in Malaysia, similar to 2014 when oil prices averaged US$99 per barrel.
“However, the improvement is unlikely to warrant significant earnings turnaround for Malaysia-listed rig-owned companies such as UMW Oil and Gas Corp Bhd (UMWOG) and Perisai,” it said.
UMWOG and Perisai Petroleum Teknologi Bhd alone accounted for 10 rigs, more than the expected demand in the Malaysia market, excluding foreign-owned rigs, which could be more than willing to charter their rigs at discount in order to somewhat cover their cash-cost, HLIB added.