Spotlight on asset ownership & marginal fields
Asset ownership and marginal field development were the main industry takeaways from our recent Malaysia Oil & Gas Day
1) Asset ownership: More companies are scouting for assets to achieve sustainable earnings growth. Among the six featured companies, Perisai (PPT MK, Outperform) is the most aggressive with its asset base expansion.
2) Marginal field development: SapuraCrest (SCRES MK, Outperform) and Kencana (KEPB MK, Outperform) are ahead of the pack but other service providers, including Dialog (DLG MK, Outperform) and Petra Energy (PENB MK, Not Rated), are catching up.
We remain OVERWEIGHT on the oil & gas sector, with the potential re-rating catalysts being the Economic Transformation Programme (ETP) newsflow and more contract awards. Our top pick is SapuraCrest.
CIMB Malaysia Oil & Day 2011
Our Malaysia Oil & Gas Day conference on Tuesday was as well-received as our inaugural event in 2008. Some 90 fund managers and buy-side analysts attended the conference, indicating healthy interest in the sector generated by the high oil price environment and the sector’s prominence in the ETP.
Asset ownership
An increasing number of Malaysian companies are going into asset ownership, breaking away from low-margin services and volatile project-basis type of operations. This demonstrates the companies’ commitment to consistent and sustainable earnings growth where there is less chance of margins being compromised or order books going through a prolonged dry spell. During the company presentations, we learned about the race for bigger fleets of pipelay barges and drilling rigs as the demand for these assets is intensifying. In the marine support segment where there is an oversupply of 5,000 AHTS vessels, companies are now eyeing workboats and
workbarges.
Figure 1: Featured companies / Company Representatives
Dialog
Chew Eng Kar - Director, Corporate serv ices
Ngau Sue Chin - Manager, Corporate finance
Perisai
Zainol Izzet Mohamed Ishak - Managing director
Yeo Peck Chin - CFO
Petra Energy
Kamarul Baharin Albakri – Ex ecutiv e director & CEO
Ahmadi Yusoff – Ex ecutiv e director
Chung Chee Onn – Financial controller
T. Thiruchelvam – Manager, Group corporate communications
Alicia Ann – Senior ex ecutiv e, Group corporate communications
Petra Perdana
Shamsul Saad - Managing director
Dato' Henry Kho - Ex ecutiv e director
Francis Koh - Ex ecutiv e director
Soon Fook Kian - GM, Corporate finance
Abdul Ghani Hamat - Senior manager, Corporate affairs
Petronas Dagangan
Rozaini Mohd Sani - GM, Finance
Ahmad Kushaini Ramli - Senior Manager, Strategic Planning
Mohd Zaki M Isa – Senior Manager, Financial & Management
Muhammadiah Muhammad - Manager, Strategic Planning
Nur Asy irin Ibrahim - Business Analy st, Strategic Planning
SapuraCrest
Rohaizad Darus - CEO
Zulkifli Abd Rani - COO
Azmi Arshad - CFO
Aliza Ashari - Deputy CFO
Sazly na Sapiee - Financial controller
Datuk Kris Azman Abdullah - Ex ecutiv e director (Sapura Group)
Chow Mei Mei - Ex ecutiv e director (Sapura Group)
Azlan Asidin - Ex ecutiv e director (Sapura Group)
Sy ed Hasan Alsagoff - CFO (Sapura Group)
- Perisai’s asset base is undergoing radical improvement. The company started FY11 with only one revenue-generating asset, namely pipelay barge Enterprise 3 (E3). However, going by the corporate exercises in 1Q alone, it will end the year with 10 assets, namely the E3, Intan’s eight vessels (two AHT vessels, three AHTS vessels and three crew boats) and Garuda’s jack-up rig, Rubicone, which is being converted into a mobile offshore production unit (MOPU).
- In Feb 11, Petra Energy, which is 29.6% owned by Petra Perdana (PETR MK, Underperform), indicated that it may raise funds via the capital market but did not mention the type of the fundraising and the timeline. At our event, management disclosed that the fundraising could involve a rights issue to finance the expansion its current fleet, which consists of three workbarges and two workboats.
- Petra Perdana currently has 25 vessels. In Jun 11, the company will accept delivery of a 300-men workbarge, Petra Odyssey, which has yet to land a contract. One of the company’s newer vessels, Petra Superior, which is also a 300-men workbarge, has been booked for a Petronas Carigali job. Currently, workbarges can fetch charter rates of about US$20,000/day, lower than US$25,000/day a few years ago.
- SapuraCrest does not discount the possibility of adding another pipelay barge to its current fleet which consists of a deepwater barge Sapura3000 and shallow-water barges LTS3000 and Quippo Prakash. The new barge could come in handy if the company succeeds in its bid for a Petrobras contract that requires the deployment of a pipelay barge. Management did not specify if the fourth barge will be a deepwater barge or a shallow-water one. For the drilling business, management stressed that a 6th rig is possible only if there is a contract. Currently, the 51:49 SapuraCrest-Seadrill JV owns five rigs.
- Debt-free Petronas Dagangan (PETD MK, Outperform) sits on a cash pile of RM1bn. Management is on the lookout for suitable assets for acquisition to strengthen its retail network, which goes beyond the petrol stations and includes bulk depots and bunkering facilities nationwide. We understand that Shell may exit East Malaysia’s LPG market where it is trailing behind Petronas Dagangan.
Marginal field development
The ETP projects that have been announced so far, i.e. marginal field development, Pengerang tank terminal and Tanjung Agas industrial park, have kept up the excitement level in the sector. The project that has created the most buzz among the service providers and investors alike is marginal field development, which gives players such as SapuraCrest and Kencana a shot at moving up the value chain from service providers to developers and producers. At the event, SapuraCrest updated us on the Berantai contract and a few companies talked about their efforts to get a piece of the action in marginal field development.
• SapuraCrest has started on the transport & installation works required for the Berantai contract, helped by its in-house pipelay barges. Management indicated that some contribution from the contract is expected to be booked in 2HFY1/12. To recap, on 31 Jan 11, a consortium comprising Petrofac (50%), SapuraCrest (25%) and Kencana (25%) secured the 9-year, US$800m Berantai marginal field contract. SapuraCrest is in charge of the transport & installation portion of the works required under the contract. Kencana will undertake the engineering, procurement, construction and commissioning (EPCC) portion.
• Perisai’s RM210m Garuda acquisition will give the company access to a MOPU. The new asset will help position the company to offer solutions for marginal field development. With the MOPU to be delivered in 2H11 and a Petronas licence clinched in late Feb 11, Perisai is strategically placed to bid for marginal field projects.
• Petra Energy also aims to become a marginal field partner over the long term. The rights issue it is mulling over may be the first step in that direction. The company said that the proceeds will be used to enhance its financial capability and support Petronas’s initiatives.
Current Prices / Target Prices
Dialog 2.31 / 2.67
Kencana 2.61 / 3.40
Perisai 0.88 / 1.40
Sapura Crest 3.69 / 5.12
Wah Seong 2.09 / 2.50
Petra Perdana 1.09 / 0.87
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