KUALA LUMPUR: In the current environment of prolonged low oil prices, dubbed the “lower for longer” era, players in the oil and gas (O&G) industry are defying the odds through collaboration.
Returns may be less than favourable, but industry players are staying focused on deep-water exploration and production activities, albeit higher costs involved in initial stages for such ventures.
Shell Malaysia chairman Datuk Iain Lo said the deep-water business was under pressure, like other segments in the industry, and this called for collaboration among O&G industry players in order to remain sustainable.
“Collaboration is important as it brings together the best capabilities and encourages assumptions to be challenged and boundaries to
be pushed.
“Such effective collaboration doesn’t happen overnight. It requires a long-term commitment from the parties involved but it allows us to jointly achieve something we wouldn’t be able to do alone.
“This is particularly true in today’s ‘lower for longer’ world. Now that we have built this capability in Malaysia, we all have the responsibility to sustain these skills and talent so that they stay relevant,” said Lo.
He was speaking at the conclusion of the onshore fabrication and commissioning for the Malikai deep-water platform in Pasir Gudang, Johor, recently.
The 27,500-tonne Tension Leg Platform will be making a 1,400km journey from Pasir Gudang to the Malikai field, 100km off Sabah.
Meanwhile, RAM Ratings Services Bhd said the current weak outlook was expected to persist and oil prices would only begin to spike from 2018.
“We envisage the oversupply gap to only narrow more significantly by mid-2017 as global production growth slows amid a relatively sustained pace of consumption,” it said.
RAM anticipated some upside in crude prices in the second half of this year, although they are likely to remain constrained by oversupply until a more pronounced uptrend is seen in the second half of 2017.
“Efforts to ramp up capacity will likely be hampered by a dearth of resources from support services within the oil and gas industry,” RAM said in its sector analysis report recently.
“We believe that the supply shortfall may take one to two years to address, supported by fields with short life cycles (such as the American shale formations) that are also relatively quick to develop and produce,” it said.
RAM expected prices to remain volatile in the following months.
“Despite the recent uptrend, we believe prices are likely to be pressured by significant uncertainties over the growth of supply from Iran (and Saudi Arabia, if it decides to maintain its market share), as well as concerns about unsustainable consumption expansion in major consumer markets,” it added.
Based on the performance of 31 domestic-listed O&G players, the aggregate drop in revenue last year came up to a moderate 18 per cent although pre-tax profits plummeted 57 per cent, exacerbated by the impairment of assets and intangibles.
“The collapse in crude prices and the persistently weak outlook have led to the deferment or cancellation of about US$400 billion (RM1.6 trillion) of projects for the global oil and gas sector.
“Petronas (Petroliam Nasional Bhd), too, has been scaling back both its capex (capital expenditure) and opex (operating expenditure) since 2015, as have other international oil companies operating in Malaysia. This has resulted in a significant slowdown in the domestic O&G sector,” observed RAM consumer and industrial ratings head, Kevin Lim.
“Among the 31 domestic-listed O&G players, more than two-thirds posted year-on-year declines in their pre-tax profits last year, with about a quarter of them incurring losses. However, their fortunes varied according to the sub-segment or type of services within the sector,” he said.
Meanwhile, Maybank Investment Bank Bhd said mergers and acquisition (M&A) opportunities were ample as a result of a debt-driven shakeout.
“The low oil price has resulted in a swift response to cost-reduction through renegotiation of contracts, cash conservation through delay of projects, debt refinancing and strategic collaboration exercises,” it said in a research note.
“It also opened a window of opportunity to exploring M&A options. There are 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,” it added.