Oil & gas companies to look out for in 2014

By Jose Barrock

In the fifth and final part of our oil and gas year ender series, KiniBiz looks at some of the stocks in the sector that may generate some interest. Most analysts and pundits believe the good run for oil and gas counters will sustain into the coming year. KiniBiz takes a look at some of the companies that may excite in 2014.

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With Petroliam Nasional Bhd (Petronas)’s RM300 billion capital expenditure (capex) from 2011 to 2015, the oil and gas sector seems likely to see another exciting year in 2014.

According to news reports, Petronas spent some RM45 billion in capex in 2012 and RM41 billion in 2011, which is RM15 and RM19 billion respectively below the budgeted RM60 billion annually from 2011 to 2015.

This year, Petronas’ first-half capex amounted to RM23 billion. Second half numbers were not yet available.

Despite the numbers being below that of its planned capex, the oil and gas sector was among the darlings of the local bourse, with RM10 billion worth of hook-up, construction and commissioning jobs being dished out under the Pan Malaysian banner and the market eagerly awaiting another multi-billion award under the transport and installation banner of the same Pan Malaysia contracts.

Whether the oil major will bump up its capex next year is not clear, nevertheless these are some of the companies that may be worth looking out for in 2014.

This list is excluding SapuraKencana Petroleum Bhd which was featured yesterday.

The other key oil and gas players:

Dialog Group Bhd

Year to date, Dialog Group Bhd’s stock has gained almost 30% to around RM3.10.

Much of the excitement surrounding the company stems from its risk service contract (RSC) award, for the Balai cluster offshore Bintulu, back in August 2011.

Dialog has 32% of the venture while its partners ROC Oil Holdings Sdn  Bhd, which is Australia-based has 48%. The exploration arm of the oil major Petronas, Petronas Carigali Sdn Bhd owns the remainder 20%.

Other than the RSC, Dialog’s involvement in Pengerang, Johor, where it is building a RM5 billion deep water oil terminal including a storage, loading and regasification terminal, partnering Dutch outfit Royal Vopak, and the state, also garnered it much fanfare.

Dialog is helmed by its executive chairman Ngau Boon Keat, an oil and gas veteran who was among the pioneers in Petronas where he started as a refinery engineer back in 1972, giving him more than 40 years of experience in the industry.

Ngau has some 23.5% in Dialog, making him the largest shareholder.

Dayang Enterprise Holdings Bhd

East Malaysia based Dayang Enterprise Holdings Bhd was among the star performers on the Bursa Malaysia this year with its share price gaining as much as 130%, based on its current price of RM5.60.

Much of the excitement stemmed from Dayang bagging the lion’s share of the RM10 billion Pan Malaysia hook-up, construction and commissioning or HUCC jobs awarded mid this year. Dayang bagged some RM4 billion worth of contracts or a 40% chunk of the available jobs.

Other than the Pan Malaysia HUCC contract, Dayang also strengthened its hold on offshore services provider Perdana Petoleum Bhd, mopping up shares on the open market this year to hold 26% equity interest from 19% previously.

Dayang’s balance sheet and management are among its strengths.

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.

The company’s largest shareholder is Naim Holdings Bhd, which has some 33.6% in the company but is not involved in the management of Dayang. Naim is the vehicle of Hasmi Hasnan and Abdul Hamid Sepawi, bith close associates of Sarawak chief minister Abdul Taib Mahmud.

Other significant shareholders of Dayang are managing director Tengku Yusof Tengku Ahmad Shahruddin with about 10% equity interest, and the Ling family which has more than 22%.

UMW Oil & Gas Corp Bhd

UMW Oil & Gas Corp Bhd’s stock was floated on the main market of the Bursa Malaysia in early November this year, and the company’s stock has gained some 23% since then.

The initial public offering (IPO) of UMW Oil & Gas has been talked about for many years now, with a listing in Hong Kong even bandied about back in 2006.

Hence UMW Holdings Bhd (which is UMW Oil & gas’ 55.2% parent) listing of its unit could be a precursor of better things for the company.

UMW Oil & Gas’ mainstay lies in drilling, which in FY2012 contributed to 80% of revenue and 90% on net profits, but it also has an oilfield services unit.

Its key drilling assets are a semi-submersible Naga 1, and three jacks-up rigs Naga 2, Naga 3 and Naga 4 which have been chartered out until FY2018. According to analysts who cover the company’s stock, there could be an additional three jack up rigs delivered next year.

UMW Oil & Gas seems to be on a solid footing as charter rates for jack-up rigs has been trending upwards since 2011, with the momentum unlikely to stop soon.

To illustrate, according to CIMB Investment Bank, UMW Oil & Gas is leasing out its jack-up rigs at around US$150,000 per day “which is about 23% higher than the global average given the strong demand for jack-ups in this region.”

UMW Oil & Gas currently has an order book of RM1.4 billion, which marks a 122% gain from RM632 million a year ago.

Barakah Offshore Petroleum Bhd

At the time of writing, Barakah Offshore Petroleum Bhd’s stock has been suspended from trading, as the company is one of three outfits awarded part of the RM10 billion Pan Malaysia Integrated Offshore Installation contracts.

The contracts are for a period of three years commencing 2014.

Earlier this year Barakah was also a beneficiary of the Pan Malaysia hook-up and commissioning jobs.

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.

Barakah’s wholly owned unit PBJV Sdn Bhd (formerly known as PTIS-Baxtech Sdn Bhd) , was among the beneficiaries of the RM10 billion worth of contracts awarded earlier this year.

To its credit Barakah has an impressive list of assets including the Kota Laksamana 101, a pipe laying barge which was delivered this year and built at aa cost of RM370 million.

Many market watchers have their sights set on Barakah and are generally conducting fact finding missions on the company and its prospects.

The controlling shareholder of Barakah is Nik Hamdan Daud who has about 57.8% of the company’s equity.

TH Heavy Engineering Bhd     

TH Heavy Engineering Bhd, a 29.3% unit of pilgrim fund Lembaga Tabung Haji, was in  the news this year, largely as a result of jobs it the missed out on.

On another note—a more positive one—-the fabrication company also saw the emergence of billionaire businessman Quek Leng Chan as a substantial shareholder into TH Heavy with 6.4% equity interest, via a private placement and possibly acquisitions from the open market, in May this year.

Quek’s entry has generated considerable interest in the company. The burning question however is how long Quek will remain in TH Heavy.

Back in March 2008 Quek had surfaced in Kencana Petroleum Bhd (now morphed into SapuraKencana Petroleum Bhd, after a merger with SapuraCrest Petroleum Bhd), but ceased to be a substantial shareholder in August 2009, barely 18 months after coming in.

Nevertheless Quek’s entry has acted as a catalyst and TH Heavy Engineering’s stock has more than doubled to its current levels of just above 90 sen.

A key question is will TH Heavy bag any large jobs from oil major Petronas? Punters say that with the pilgrim fund at the helm of TH Heavy, it is unlikely for Petronas to sideline the company.

Nevertheless several recent jobs which were touted to go TH Heavy’s way were skewed to competitors, raising a red flag among market watchers.

TH Heavy’s main assets are a fabrication yard in Pulau Indah and a floating production storage and offloading (FPSO) vessel, which has yet to secure a charter contract.

Boustead Heavy Industries Corp Bhd

In end November, Boustead Heavy Industries Corp Bhd (BHIC) announced the award of a RM108 million Engineering Procurement Construction and Commissioning (EPCC) of topsides for the Belum field at SK309/311 of the Sarawak Gas Development Project from Murphy Oil.

BHIC via its shipyard in Penang is actually one of seven Petronas licensed fabricators, and could benefit from the spill over jobs from offshore O&G fabrication work, if it is able to chalk up a good track record in executing existing jobs while maintain margins.

For a long time, BHIC had not bid for any fabrication jobs and talk had it that its licence from Petronas had been suspended. With this award it is clear that BHIC has had the licence re-instated.

According to Affin Investment Bank Bhd, BHIC is positioning the group as a niche fabricator for oil and gas modules that can be fitted on oil platforms or FPSO vessels – a business strategy that has worked well for some of the oil and gas service providers abroad.

Affin added the high domestic oil and gas capex will likely have a positive spill-over to all players across the industry, thereby benefiting all service providers including BHIC.

It is noteworthy that both Affin and BHIC are controlled by the Lembaga Tabung Angkatan Tentera, LTAT or armed forces fund. LTAT has more than 73% of BHIC’s stock both directly and via its flagship Boustead Holdings Bhd.

This would basically place BHIC in the same boat as TH Heavy Engineering Bhd which is controlled by the pilgrim fund Lembaaga Tabung Haji.

Scomi Group Bhd

Could 2014 be a great one for Scomi Group Bhd?

Circa end last year early January this year, market talk was rife that the company partnering Australia based Cue Energy would bag the risk service contracts (RSCs) for Tembikai, and Cenang marginal oil fields. However with the departure of its top brass, Cue pulled out leaving Scomi Group in a lurch.

Now market talk has it that Scomi Group or its 65% unit Scomi Marine Services Bhd is involved in bidding for RSCs again, which could be a potential game changer for the company.

Scomi Energy has an order book of some RM5.2 billion  largely for its mud drilling fluids, and according to Hong Leong Investment bank has the to secure an additional RM400 million worth of jobs.

Year to date Scomi Group’s stock has been trading between the 30 and 45 sen band, and was at the 36 sen region just before the market close on Friday.

Scomi Engineering Services meanwhile was at the 73 sen band.

Hong Leong Investment Bank says that a potential marginal field win will conservatively increase its target price range from between RM1.02 and RM1.14, from the current 90 sen.

Scomi Group’s shareholders include its chief executive officer Shah Hakim Zain with about 12% equity interest, his partner and son of former premier Kamaluddin Abdullah with about 11%, businessman Abu Sahid Mohamed with 7.9% and IJM Corp Bhd with 7.7% equity interest.

Yesterday: SapuraKencana Petroleum – the emerging powerhouse