By Lawrence Yong
Stocks of a handful of mid-small cap Malaysian drilling rigs-related companies may rally as the market has underestimated the 2013 demand for drilling rigs as state oil company Petronas looks to bump up offshore oil and gas exploration in Malaysia.
In a report on the local drilling rigs sector issued Wednesday, Hong Leong Investment Bank (HLIB) research said that its survey indicate that 38 rigs will be needed by end 2013, over two thirds more than the 22 rigs operating locally in 2012.
“Domestically, the ETP driven RM300 billion capex spending to enhance exploration, enhanced oil recovery (EOR) and marginal fields require a massive level of drilling activity which we believe the financial markets underestimate,” HLIB said.
HLIB recommended investors to buy five stocks with are drilling-related: Scomi Energy (Scomies), Uzma Bhd, Perisai Petroleum Teknologi Bhd, SapuraKencana Petroleum (SAKP), Perdana Petroleum and UMW.
“Although our top five buy calls have risen an average of 108% since initiation (July 2012), we believe that the tsunami of drilling activity has not been fully factored into the forecasts, valuations sentiment and hence price of selected drilling related stocks,” the bank-backed research house said.
In a widely-publicized move, Petronas has said that it would boost upstream exploration, with nearly half of its RM300 billion capex for 2011-2015 period to be spent in Malaysia. Petronas and associated production sharing contractors — Shell, ExxonMobil and Murphy Oil — have in May awarded RM6-8 billion hook up, construction and commissioning (HUCC) contracts to renew old offshore production platforms. This sharply boosted the share prices of Petra Energy, Dayang Enterprise and SapuraKencana.
The HLIB report said that the next slate of companies that offer the best exposure to oil sector upswing are companies that can back drilling activities, where margins could be as high as 30%. HLIB quoted an industry survey, which revealed that. Over the next six years from 2013 to 2018, a total of 954 wells are expected to be drilled in Malaysia. This would represent an annual average of 159 wells drilled, or an increase of 30.3% from the historical 2009-2012 period. Malaysia would also compete with international demand for rigs as high oil prices have prompted a global search for deepwater oil everywhere.
Among HLIB’s top picks is Scomies, a recently restructured arm of IJM-owned Scomi Group, which has a lead position in providing drilling fluids and waste management. Through recent acquisitions, Scomies now specializes in lubricating drill bits and brings cut earth to the surface to prevent further environmental damage.
The report also downplayed talk that there may be an oversupply of rigs as builders have also stepped up rig building, these were insufficient in the short term, as about half of the world’s jack up rigs are 30 years old. Currently, only one in three operating rigs is currently Malaysian-owned, HLIB said.
“Petronas prefers locally owned rigs, consistent with its localisation policy. Hence, we believe the utilisation of locally owned rigs maybe higher than average,” it noted.
HLIB reaffirmed that Perisai, UMW and SAKP are among companies renewing their barge rigs assets and can be expected to earn the most from newer and higher specification rigs.
You must be logged in to post a comment.