By Jose Barrock
The oil and gas sector is thriving largely as a result of the large number of contracts awarded under the Pan Malaysia cluster of contracts. While a gargantuan RM10 billion Hook Up Construction and Commissioning job has already set the industry buzzing, a possibly larger Transport and Installation contract which could be as much as RM15 billion is in the pipeline to be awarded soon.
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Companies in the oil and gas sector have seen some tremendous gains in terms of market capitalisation, largely as a result of the industry flourishing.
Much of the excitement surrounding the sector has been a result of the Pan Malaysian contracts, where RM10 billion worth of Hook Up Construction and Commissioning (HUCC) contracts were awarded mid this year, by state controlled oil major Petroliam Nasional (Petronas).
“The contract is one of Petronas’ largest service contracts currently in place,” said Norziana Mohd Inon, oil and gas analyst from CIMB Investment Bank.
And the good prospects have not gone unnoticed by the market.
Early this year oil and gas outfit Da
yang Enterprise Holdings’ stock was trading at RM2.40. But it was touted as a company with “a lot of potential” by analysts who covered it, due to expectations of awards of the Pan Malaysia HUCC contracts.
Similarly in early March this year Petra Energy’s stock was at the RM1.20 level, with lots of promise on the horizon.
Other players that were in the crosshairs were SapuraKencana Petroleum, but considering the company’s order book was testing the RM20 billion band then, the excitement was considerably more muted.
It is also noteworthy that even companies without HUCC expertise, but with other assets such as the marine spread benefited from the awards. One noteworthy company providing offshore support services that made a gain from the HUCC contracts is Perdana Petroleum which is 26% controlled by Dayang. Perdana’s stock has gained in excess of 70% year to date.
Another company with a good marine spread, Alam Maritim Resources has strengthened more than 114% to the RM1.50 band, from a mere 70 sen earlier in the year.
The Pan Malaysian HUCC contracts
Now Dayang’s market capitalisation is roughly RM3.1 billion and at RM5.58, is up more than 230%, year to date. Similarly Petra Energy’s market capitalisation is at about RM695 million, at RM2.16, which is 80% higher year to date.
To recap, Petronas had up for grabs, 13-packages of jobs, with five-year contracts for offshore hook-up, commissioning and maintenance services, dubbed the Pan Malaysia Integrated Hook-Up and Commissioning and Topside Major Maintenance Contracts.
The contractors offering the jobs include Petronas Carigali Sdn Bhd, Sarawak Shell, Sabah Shell Petroleum Co Ltd and ExxonMobil Exploration and Production Malaysia Inc, among others.
While the jobs were secured in middle of the year, Petronas only announced the award of the RM10 billion worth of jobs, in November this year to six players, namely Kencana HL Sdn Bhd, which is a unit of SapuraKencana Petroleum, Dayang Enterprise Sdn Bhd, a unit of Dayang Enterpprise Holdings, Petra Resources Sdn Bhd which is controlled by Petra Energy, PBVJ Sdn Bhd, a unit of Barakah Offshore Petroleum and two privately held companies Carimin Engineering Services Sdn Bhd and Sigur Ros Sdn Bhd.
The Pan Malaysia T&I jobs
And now that the HUCC portions have been awarded, Petronas could dish out the transport and installation (T&I) jobs, which some analysts say could be valued at as much as RM15 billion.
According to sources there are five packages being offered, A, B, C. D and E, on a three year duration with an option for an additional three.
Pre-qualification started in July this year, with packages A and B being open to only Malaysian companies the likes of Alam Maritim Resources, Barakah Petroleum, Puncak Niaga Holdings, Target Energy Sdn Bhd, Sigur Ros Sdn Bhd and SapuraKencana.
According to sources, Barakah and Target Energy seem slated to split Package A, while Puncak is the front runner to bag Package B. SapuraKencana is likely to bag Packages C, D and E, making it the biggest winner.
However it is still uncertain when the jobs may be awarded. Some say the awards are due anytime now, while others say that a more likely date is early next year.
Nevertheless the large jobs are proving to be a game changer for the many players which have been awarded the contracts.
The beneficiaries of the Pan Malaysia jobs
SapuraKencana Petroleum
If SapuraKencana bags Packages C, D and E of the Pan Malaysian T&I contracts, the company’s orderbook could swell from its existing RM24.8 billion to about RM30 billion, analysts say. The exact quantum however is not clear considering the size of the jobs under the Pan Malaysia T&I are still uncertain.
For its nine months ended October this year, SapuraKencana posted net profits of RM749.68 million from RM6.49 billion in revenue. Annualised this works out to revenue of some RM8.65 billion a year.
Thus the RM25 billion orderbook would last it some three years.
Nevertheless the Pan Malaysian T&I jobs could be a boon for SapuraKencana.
Under the HUCC portion as well, SapuraKencana had bagged a RM300 million to RM500 million job from ExxonMobil Exploration and Production Malaysia Inc, in end May this year.
The company has been busy this year, and completed the acquisition of Seadrill Ltd’s tender rigs business.
However the company is looking to acquire Newfield Malaysia Holdings Inc for a consideration of US$898 million cash, which could potentially thrust SapuraKencana to a new level altogether as an upstream resource owner and operator.
In a note a few days ago, Hong Leong Investment Bank said that it was “positive about its (SapuraKencana’s) future earnings growth, especially with the earnings accretive Newfield acquisition which will further enhance the already robust growth from existing businesses,” the bank backed research house said.
At present, SapuraKencana is among the largest service providers in the world, with a market capitalisation of about RM27 billion.
Dayang Enterprise Holdings
Dayang Enterprise Holdings was among the largest beneficiaries of the Pan Malaysia HUCC jobs where it bagged as much as RM4 billion worth of jobs from Petronas Carigali, Shell and a smallish RM100 million contract from Nippon Oil as well.
The company’s orderbook at present, stands at about RM4 billion. It is noteworthy that some 77% of the jobs are on-going until 2018.
Among Dayang’s strengths is its strong balance sheet.
For the nine months ended September, Dayang posted net profits of RM125.64 million from RM370.93 million in revenue. Earnings per share (EPS) for the nine months stood at 22.86 sen.
As at end September this year Dayang had cash and bank balances of RM120 million while on the other side of the balance sheet, the company had short term borrowings of RM75.7 million and long term debt commitments of RM24.9 million.
Most analysts take a positive view on Dayang’s stock with some such as Hong Leong Investment Bank pegging a target price of RM6.87, a 27% premium to its trading price of RM5.35 in the earlier part of this week.
“Many of the offshore platforms in Malaysia are over 20 years of age and urgently needs upgrading. These hook up and commissioning and topside maintenance contracts are normally recurring every five years.
“We believe Dayang will continue to be the winner and is emerging as a power house offshore HUCC player in a region of ageing O&G infrastructure,” the research house said in a note recently.
Petra Energy
Other than Dayang, another major HUCC player which benefited from the Pan Malaysia jobs was Petra Energy.
The company secured a RM2.5 billion HUCC job from Petronas Carigali for the Sarawak and Sabah region under the Pan Malaysia cluster of jobs, which nudged its orderbook up to RM3 billion. The company also a tender book of about RM1.9 billion.
Public Investment Bank Research has an Outperform call on Petra Energy’s stock and a target price of RM2.51, (a less than a 5% premium to the company’s current trading price) based on a sum of parts valuation and using a valuation of 15 times price earnings multiples and a discounted cash flow method f valuation for the company’s risk service contract or RSC for the Kapal, Banang and Meranti cluster or fields, which it is jointly developing with Coastal Energy.
Market talk has it that the company and its partner Coastal — which has since been taken over by party animal Low Taek Jho and parties linked to him — are close to first oil production at the Kapal, Banang and Meranti oil fields the two are developing, industry sources say.
Nizam Razak
The two companies were awarded a risk service contract for the fields off the shores of Peninsula Malaysia on a 70:30 basis, with Petra Energy holding the minority stake, in June last year.
Among Petra Energy’s strengths include its strong shareholding, where its largest shareholder is East Malaysian businessman Bustari Yusuf, controlling 27.5% of the oil and gas company, Wah Seong Corp which is part of the giant IGB Group, with 26.9% and current premier Najib Abdul Razak’s younger brother Mohamed Nizam Abdul Razak with 9.1%.
Nevertheless for its nine months ended September, Petra Energy posted net profits of RM12.81 million from RM333.39 million in revenue. EPS was at 3.98 sen.
Puncak Niaga
Puncak is better known for its water assets, where it has two concessions, one to treat water under Puncak Niaga (M) Sdn Bhd and another to distribute water in Kuala Lumpur, Selangor and federal capital Putrajaya under 70% owned Syarikat Bekalan Air Selangor Sdn Bhd or Syabas.
Rozali Ismail
However a few years ago, when things became clear that Puncak may need to sell its water assets as part of a consolidation exercise, the controlling shareholder of Puncak, Rozali Ismail, set up Puncak Oil and Gas Sdn Bhd, as buffer to when the company does eventually sell off its water business.
Anyway in May 2011, Puncak acquired Global Offshore (M) Sdn Bhd, which was partly owned by Nasdaq listed Global Industries Ltd.
Global Offshore which has since been renamed GOM Resources Sdn Bhd has its strengths as an installation and pipelay contractor, and through its parent company it owns and operates a pipelay barge, which is a relatively aged, more than 40 years old, but has been refurbished, and is now called DLB 264.
Puncak is among the incumbents for the Pan Malaysian T&I jobs, but is now said to have its sights on Package B of the five packages on offer.
According to Maybank Investment Bank, based on its segmental annual report, Puncak’s O&G division reported revenue and pre-tax profit of RM290 million and RM778 million, and RM20 million and RM83 million respectively in 2011 and 2012 respectively, which is largely from the Pan Malaysia T&I jobs, its barge secured a few years ago.
Puncak is trading at the RM3.30 band giving it a mrket capitalisation of about RM1.35 billion.
Barakah Offshore Petroleum
A new entrant into the Bursa Malaysia via a reverse takeover of Vastalux Energy, Barakah Offshore has certainly got the market talking.
The company continues to create waves with its shares price surging almost 50 sen from the time it was listed a few weeks ago, buoyed by more news flow on the oil and gas sector. The company’s main asset is a pipe laying barge the Kota Laksamana 101.
At present market speculation is that Barakah will share Package A of the Pan Malaysian T&I jobs with Target Energy Sdn Bhd, a privately held oil and gas company with good political connections.
According to UOB Kay Hian, assuming Barakah wins Package A, (not in concert with Target Energy) its revenue could generally improve by RM500 million to RM700 million per annum, and considering a conservative net margins of 10%, Barakah’s earnings could more than triple to between RM100 million and RM105 million from its current levels, the research house said.
For its financial year ended September 2013, Barakah posted a net profit of RM41.06 million from RM298.9 million in revenue.
Yesterday: Petronas sets the stage
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