“An accelerated rebalancing of global crude oil market (via supply cut by OPEC & non-OPEC members) will spur capex recovery. Our crude oil price assumption of US$55 per barrel average for 2017 is unchanged. Petronas’ RM60bil capex target for 2017 is another positive,” it said.
“On the domestic front, we are seeing a revival in upstream activities (i.e. rising drilling works), a positive. Tenders pipeline are also on the rise, of which most (i.e. OSV, maintenance) are back-loaded into 2H17,” Maybank said.
The research house said Petroliam Nasional Bhd (Petronas) 1Q17 YoY earnings rebound was positive but was expected, generally in tune with its peers
“We sense optimism in its outlook assessment albeit with a cautious undertone, on a modest recovery in oil price expectation.
“We take the view that the O&G sector has bottomed and is on a cyclical recovery,” Maybank said.
It said its key select preferred “buys” were SAKP (TP: MYR2.30), Yinson (TP: MYR4.30), Dialog (TP: MYR2.23) and Wah Seong (TP: MYR1.30).
Petronas reported an impressive 79% year-on-year (YoY) jump in core earnings to RM11bil in 1Q17.
The YoY strength was on higher average hydrocarbon prices realised and ongoing cost management, which offset lower overall production.
Capex spending increased by 6% YoY to RM12bil (92% spent on domestic activities, mainly on RAPID). Operating cashflow grew 51% YoY to RM18bil.
Maybank said Petronas maintained a conservative outlook for 2017, expecting an average US$45 per barrel oil price level.
“It has pledged to cut production by 20,000 bpd for 1H17 as part of its commitment to non-OPEC members. Its capex target for 2017 is RM60bil (unchanged) and is dedicated to delivering RAPID (60% completed) with a 1H19 deadline,” it added.
Maybank said the proposed 50% sale of its refinery and steam cracker plants to Saudi Aramco, which is a monetisation of its investment in RAPID, was a major positive that would drive its upstream capex, improve cash flows and ensure dividend delivery to the Government (RM13bil in 2017; RM16bil in 2016).