Oil & Gas Sector

By Am Research
21 May 2012


Mid-depth semi-sub rig rates regain lost ground (OVERWEIGHT)

- IHS Petrodata reported rig day rates for mid-water depth (2,001-5,000 feet) semi-submersible rigs rose significantly over the last month, reversing the decline over the past two months. Deepwater floating and US Gulf of Mexico jack-up rig rates recorded a marginal increase while the Northwest Europe Standard Jack-up index declined. But rig utilisation rates were stable in all categories (See Chart 1-4).

- The resilience of the overall rig market is still reflected the in the mid-to-deep semi-submersible rig rates, with global rig utilisation remaining at a comfortable 81% (See Chart 6) and underpinning our bullish conviction for the sector against a backdrop of accelerating global capital expenditure programmes. 

- The highest increase was in the mid-water depth semi-submersible day rate index which rose 191 points to 860, erasing the lost ground of the past two months. Fleet utilisation for this category of rigs is unchanged at 79% over the past five months.

- The deepwater floating rig day rate index registered a moderate increase of four points to 902, the first time since April 2009 that this index has been over 900 points. Utilisation for this category is almost full at 99% this month, the same level over the past three months.

- US Gulf of Mexico (250 to 300ft) jack-up day rate index rose at a slightly faster rate, by 8 points to 359 this month. This is 93 points greater than the rig index level recorded for this category in May last year. Fleet utilisation slipped by 1ppt to 58%. This is still a vastly improved scenario compared to the utilisation levels of 28% back in 2009, 39% in 2010 and 35% in 2011 – lagging the European markets due to the pro-green stance of the Obama administration and post-Deepwater Horizon oil spill crisis in 2010. We expect a further upside for this segment, as US drilling activities regain momentum.

- Northwest Europe standard jack-up day rate index was the only market that showed a decline, dropping 61 points to 529 in May with the utilisation level still at a high 90%, which has sustained for almost a year. This is still a robust charter rate – 200 points higher than in May last year. 

- The firm global rig rates underpin the medium- to long-term prospects for local rig operators such as UMW Oil & Gas, SapuraKencana Petroleum and Perisai Petroleum. We expect fresh news over the next few months from Petronas’ RM15bil fast-tracked programme to develop gas reserves from a cluster of fields in the North Malay basin, off Peninsular Malaysia as well as other enhanced oil recovery jobs in East Malaysia. News flow momentum is also gaining traction for Petronas Carigali’s and Murphy Oil’s floating liquefied natural gas vessels for the Kanowit and Rotan fields, respectively. We maintain MMHE as our top pick in the sector as it is the only domestic yard which has a proven track record in complex engineering platforms with deepwater capabilities.  We retain our OVERWEIGHT view on the sector with our other BUY calls being Bumi Armada, Dialog, SapuraKencana Petroleum and Petronas Gas.  

[Source]

DIALOG (FV RM3.07- BUY) Company Update: All Progessing Well

By OSK Research Report

10 May 2012

All is Well

Recently, we met up with Dialog’s management, from which we gather that the 

company is making good progress in its Pengerang deepwater terminal and Balai 

marginal oilfields projects. Dialog has reclaimed more than 150 acres of land to 

construct the terminal, which is more than sufficient for Phase 1. Meanwhile, the 

Balai marginal oilfield’s pre-development stage is slated for completion by 2013, if 

not this year. Overall, we see the company’s prime projects being well on track 

and progressing as scheduled. Maintain Buy.

Recently, we met up with Dialog’s management, from which we gather  that  the company is making good progress in its Pengerang deepwater terminal and Balai marginal oilfields projects. Dialog has reclaimed more than 150 acres of land to construct the terminal, which is more than sufficient  for Phase 1. Meanwhile, the Balai marginal oilfield’s pre-development stage is slated for completion by 2013, if not this year.  Overall, we see the company’s prime  projects  being well on track and progressing as scheduled. Maintain Buy.

Good progress at  Pengerang  terminal. To recap, Dialog  has  to reclaim  about 500 acres of land and has to date reclaimed more than 150 acres, which is sufficient to build its phase 1 centralized tankage facility (CTF). Phase 1 would have a storage capacity of 1.3m cubic meters out of a total planned 5.0m cu m for the entire CTF project. We also understand that with the portion of land reclaimed to date, the capacity of phase 1 can be extended by another 1.0m cu m if required. Otherwise, the existing capacity of 1.3m cu m for phase 1 is targeted to be ready by 2014, with construction slated to be completed by end-2013.

Balai marginal oilfield also  on track. We understand that Dialog together with its partners, Roc Oil Malaysia and Petronas Carigali, expects to complete the predevelopment stage by 2013, if not this year. Dialog’s portion of the risk-sharing contract in the Balai marginal oilfield is 32%, while Roc Oil and Petronas Carigali hold 48% and 20% respectively.  For this contract, which is for a period of 15 years, the 3  parties are expected to rent a drilling rig together with a work barge from a third party, rather than owing these assets This will create new job opportunities for the other O&G services providers.

Company with a balanced risk appetite. Despite starting off in a relatively prudent and slow pace, we believe the company has  made steady  progress throughout the years, largely owing to its  solid  management team. In comparison with its smaller peers, we have  great  confidence that Dialog  would  be able to deliver on its Pengerang CTF and Balai marginal oilfield projects, especially since management has conducted extensive studies even before kicking off preliminary works. Thanks to its good balance of recurring income and higher risk projects,  Dialog would  also have an attractive risk-return profile going forward.

Maintain Buy. Our fair value for Dialog remains unchanged at RM3.07, based on a sumof-the-parts valuation. It  has been  our favourite defensive O&G stock for some time  in light of its steady business model, which provides a good cash flow.

Fair value: RM3.07

Price: RM2.22

[Source]