It was reported over the weekend that Petroliam Nasional Bhd (Petronas) had aborted the award and tender for the marginal field risk service contract (RSC) for the Tembikai and Cenang gas fields off Terengganu.
According to the reports, the award was cancelled mainly due to the lack of gas pipelines to transport gas from the fields for processing. The initial plan was to utilise the Angsi pipeline, the nearest gas pipeline to Tembikai and Cenang, to transport gas from the fields to processing plants in Kerteh.
However, the Angsi pipeline will most likely be utilised for the Angsi field, an enhanced oil recovery (EOR) project, for the next 10 to 15 years instead. In addition, news articles highlighted that Petronas will most likely invite bids from foreign oil and gas (O&G) players to bid for new RSCs in February or March this year.
We are neutral on the news, as we are confident that Petronas will continue to roll out its 2011 to 2015 RM300 billion capital expenditure (capex) programme with one of the main emphasis being marginal field RSCs. We believe Petronas will keep the ball rolling on RSC awards, as awarded fields have achieved significant progress. In particular, production of first oil commenced at the first field, Berantai, in December 2012.
Furthermore, fast track production at marginal fields is one of the main solutions to address the issue of projected long-term decline in reserves and domestic O&G production. In addition, high oil prices, in the range of US$90 (RM277) to US$100 per barrel are a catalyst for increased investment in O&G exploration and production. Currently, the price of crude oil is US$97 per barrel and we expect prices to average in the range of US$83 to US$88 per barrel in 2013.
In addition, the news indicates that future RSCs would most likely be oilfields, due to insufficient gas transport pipelines.
This means more pipe laying contracts may be awarded in future, benefiting the likes of SapuraKencana Petroleum Bhd (“buy”, target price: RM3.46) and pipe coating specialist, Wah Seong Corp Bhd (not rated). We believe Petronas needs to address the shortage of gas pipelines off Terengganu, which is a main area of gas production. This would in turn enable the national oil company to achieve its objective to expand production of hydrocarbon reserves to arrest declining production rates.
Out of 106 available marginal fields, Petronas has lined up 24 marginal fields for RSC awards, with nine ready for development (less Tembikai and Cenang). To date, Petronas has awarded three RSCs, hence there are 21 remaining fields that offer ample opportunities for participation by Malaysian O&G players. Bumi Armada Bhd, Dialog Group Bhd,
SapuraKencana, Perisai Petroleum Teknologi Bhd (“buy”, TP: RM1.39), Scomi Group Bhd, TH Heavy Engineering Bhd, and Daya Materials Bhd are among the local players eyeing marginal field RSCs. Maintain “overweight” on the sector as we expect rapid news flow on domestic O&G projects, fuelled by Petronas’ accelerated capex spending programme, that will provide multi-year earnings expansion for its beneficiaries. — TA Securities, Jan 29
This article first appeared in The Edge Financial Daily, on Jan 30, 2013.
