KUALA LUMPUR: KUALA LUMPUR: Earnings of local oil and gas (O&G) firms are not likely to shrink further as the downtrend in crude prices has largely stabilised and even tested new highs recently, analysts said.
The 31 listed O&G companies saw aggregate 2015 revenue drop a moderate 18 per cent but pre-tax profit plummet 57 per cent, exacerbated by the impairment of assets and intangibles.
RAM Ratings expects average Brent crude price of US$40 (RM163.60) a barrel this year and US$45 a barrel next year.
It said crude prices are likely to stay volatile in the coming months, pressured by a slew of uncertainties over supply growth and concerns on unsustainable consumption growth in major consumer markets.
“Among the 31 listed local O&G players, more than two-thirds posted year-on-year declines in pre-tax profit last year, with about a quarter incurring losses. However, their fortunes vary according to the sub-segment or type of services within the sector,” said RAM Ratings head of consumer and industrial ratings Kevin Lim.
The collapse in crude prices and the persistently weak outlook have led to the deferment or cancellation of about US$400 billion worth of projects for the sector.
Petroliam Nasional Bhd (Petronas), too, had been scaling back its capital expenditure and operating expenditure since last year, just like global oil firms operating in Malaysia, Lim said. This had resulted in a significant slowdown in the local O&G sector.
“O&G players providing products and services to the upstream exploration and development segments have been most directly and severely affected by the cuts in capital expenditure
“In particular, O&G players providing offshore support and drilling vessels have been badly affected, with most suffering losses on the back of depressed daily charter rates and low utilisation levels,” he said.
On the other hand, downstream O&G players such as petroleum refiners have benefited from soft crude prices. They enjoyed relatively stable demand for their products.
The firms with improved earnings include Petron Malaysia Refining and Marketing Bhd and Shell Refining Company (Federation of Malaya) Bhd.
Maybank Kim Eng, meanwhile, said Petronas’ focus is centred on delivering the US$27 billion Petronas Integrated Complex (PIC) project, which comprises of a mega world-scale refinery and petrochemical integrated complex.
Construction is on track, overall project progress at 32 per cent with the PIC start-up target set for the first quarter of 2019.
“The petrochemical engineering procurement and construction packages are likely to be announced by the fourth quarter, followed by the delivery of the Pengerang Co-generation project in June next year and the regasification facility starting in December next year,” it said.
Maybank Kim Eng feels there may be merger and acquisition opportunities this year and next year. Emerging drivers will be from a debt-driven shakeout as small-scale, highly-leveraged companies breach debt covenants, resulting in fire-sale transactions.
“There will be fire-sale transaction opportunities, should there be a breach in the debt covenants. Uncertainties and differences in valuation expectations between buyers and sellers are the greatest hurdles. There is currently a buyer-seller mismatch in expectations,” said the research firm.