Nov 28, 2012

Overweight on Malaysia Oil and Gas Sector : AM

Investment Highlights
below: Oil and Gas Stocks Valuation (click to enlarge)

malaysia oil and gas stocks valuation
•  Upstream reported that Petronas Carigali is about to start  early engineering studies for the development of the giant Kasawari gas field in Block SK 316 (See Chart 1), which is expected to feed the new Train 9 at Petronas’ liquefied natural gas (LNG) complex in Bintulu, Sarawak. Technip, which has an 8% equity stake in Malaysia Marine & Heavy Engineering Holdings (MMHE), is understood to have secured the tender against three other contenders — Aker Solutions, Ranhill Worley and Wood Group Mustang.
•  Upstream understands that the engineering contract is expected to start this week and will assess the options of a standalone production facility for the shallow-water Kasawari field or a tie-in to the combined NC3 and NC8 development that is now also at the tender stage. The early engineering studies  are expected to take about four months to complete,indicating the Kasawari development will enter into front-end engineering and design (FEED) around February next year.
•  The Kasawari field has been touted as a major natural gas discovery with more than 3 trillion cubic feet of gas in place. Preliminary estimates place production potential from the field at between 500 million cubic feet per day and 750 MMcfd, at par with the 600 MMcfd that is projected from the NC3 and NC8 project.
•  Petronas is understood to be targeting first gas from the giant gas field in 2017, about two years after than the scheduled start-up of NC3 and NC8 development.Gas from Kasawari — as with the two earlier discoveries — will likely be channelled to the new train under development in Petronas’ large LNG complex in Bintulu.
•  Meanwhile, Petronas is pushing forward with a separate design competition for the planned production facilities at NC3 and NC8 fields. Technip and its yard partner MMHE have been shortlisted to participate in a parallel FEED process that will lead to an engineering, procurement, construction, installation and construction contract in 3Q2013.
•  McDermott of the US and Italy’s Saipem are also in the race, while China’s Offshore Oil Engineering Corporation has dropped out of the competition. First gas from NC3 and NC8 fields is targeted for December 2015, in line with  the projected start-up of the ninth liquefaction train at the Bintulu complex.
•  In our view, the rollout of new fabrication contracts, which temporarily slowed down in 2H2012, will start to regain momentum from 2Q2013 onwards. For MMHE, the major fabrication contract that will be officially awarded soon is likely to be the over RM1bil Malikai tension leg platform production facility.
•  We also expect the hook-up, commissioning and maintenance works, which include the replacement of expiring long-term contracts, are likely to materialise towards the end of this year. Petronas and its production-sharingcontractors are currently holding an open Pan-Malaysian tender for hook-up, construction and commissioning (HUCC) works potentially worth RM8bil-RM10bil, with interested bidders including SapuraKencana Petroleum, Dayang Enterprise, Petra Energy, and possibly,
We maintain our OVERWEIGHT stance on the sector with our top BUYs being SapuraKencana and Dialog Group.

by AMResearch