Oil and Gas:Collective approach at regional conference
Forecasts of US$75-80 per barrel by year-end. We left the 14th Asia Oil & Gas conference feeling more bullish on the oil & gas sector. After a year of violent swings, the industry is seeing signs of stability as crude oil spare capacity is on the rise. Some experts at the conference forecast an oil price of US$75-80 per barrel by year-end, in line with predictions by some OPEC members. • Wave of M&As? Declining revenues, shrinking margins and higher costs are buffeting some SMEs and could result in asset sales and industry consolidation. The beneficiaries would be bigger, cash-rich companies which get to expand their capacity at cheaper asset valuations. We are already seeing this in Sime Darby’s proposed acquisition of Ramunia – a deal that could give Sime’s yard capacity a tremendous boost. • Malaysia’s stronger ties with IOCs. Malaysia is determined to further develop untapped resources with international oil companies (IOCs). To date, Petronas has signed more than 60 production-sharing contracts (PSCs) with the IOCs. Malaysian oil & gas service providers, which include all companies in our oil & gas portfolio, are definitely benefiting from the PSCs. • Maintain OVERWEIGHT. The conference ended on a high note. Although there are challenges to overcome, the sentiment is definitely upbeat, especially with the rising oil price. Already, the companies in our oil & gas portfolio showed bottomline and margin improvement in the 1Q09 reporting season. As 1Q is typically a weak quarter, we expect an even better showing from most of the companies towards year-end. We remain OVERWEIGHT on the oil & gas sector and continue to rate Kencana as our top pick. All our forecasts, recommendations and target prices are maintained.
