OIL COMPANIES WILL STILL CUT CAPEX THIS YEAR - AMINVESTMENT BANK

KUALA LUMPUR, July 14 -- Oil producers are expected to proceed with their planned production cuts this year despite a measure of optimism returning for crude oil prices, AmInvestment Bank said.

The investment bank said this was due to the continuous depressed global demand amid the prolonged COVID-19 movement restrictions and social distancing measures across the new normal as well as potential long-term changes in energy usage.

It said Petroliam Nasional Bhd (Petronas), which had earlier indicated intentions to maintain domestic capital expenditure (Capex), has announced 21 per cent cut for Capex and 12 per cent reduction for operating expenditure (Opex) this year.

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"This is similar to the 20 per cent to 30 per cent Capex reductions for 2020, which were earlier announced by Exxon Mobil Corp, Royal Dutch Shell Plc, Saudi Aramco and Petroleo Brasileiro SA (Petrobras),” it said in a research note today.

AmInvestment Bank said in the first half of this year, new contract awards to Malaysian operators dropped 62 per cent year-on-year to RM2.2 billion with the worst fallout is expected to come in the second half of this year onward.

It said most participants in the sector, except those in storage and recurring maintenance services, would be adversely impacted.

"Those with upstream production-sharing contracts such as Sapura Energy Bhd and Hibiscus Petroleum Bhd will suffer from lower prices and offtake, followed by fabricators such as Malaysia Marine and Heavy Engineering Bhd and offshore support providers Bumi Armada Bhd and Velesto Energy Bhd,” it said.

However, it said the earnings of service providers involved in maintenance and tank storage facilities such as Dialog Group Bhd and Serba Dinamik Holdings Bhd would be resilient against the cyclical nature of industry dynamics.

AmInvestment Bank said it remained cautious on companies with high gearing levels such as Sapura Energy, which needed to restructure its RM10 billion debt by the end of this year.

"However, the rest of the players are relatively comfortable at this juncture as Serba Dinamik has recently raised a 10 per cent equity placement, while Bumi Armada has reclassified a RM1.3 billion short-term debt to long term due to higher asset utilisation,” it said.

It said although there is a risk that Velesto Energy could reverse to a loss in the second half of the financial year 2020 (2HFY20) due to lower rig utilisation, its gross cash position should be able to meet its debt obligations for this financial year.

Meanwhile, AmInvestment Bank has maintained oil price forecast for 2020 at US$40-US$45 per barrel and 2021 at US$45-US$50 per barrel. 

It said for comparison, the US Energy Information Administration's short-term outlook projected crude oil price at US$34 per barrel for 2020 and US$48 per barrel for 2021.

The investment bank said among “buy” calls are Dialog Group and Serba Dinamik due to their resilient non-cyclical tank terminal and maintenance-based operations, while Petronas Chemicals Group Bhd has a high correlation to the recent oil price upturn.

"However, as we continue to view the still low oil prices and earnings of upstream service companies to be worse than the previous 2015-2017 down-cycle, which led to multiple financial distress to oil and gas corporations, we retain our 'sell' calls for Bumi Armada, Sapura Energy and Velesto Energy," it said.

At 11.10 am, Petronas-linked companies -- Petronas Chemicals and Petronas Gas were six sen and two sen higher to RM6.28 and RM16.72 respectively, while Petronas Dagangan was two sen lower at RM20.70.

Sapura Energy was flat at 9.5 sen, Hibiscus Petroleum declined one sen to 60.5 sen, Bumi Armada dropped half-a-sen to 22 sen, Velesto Energy was unchanged at 14.5 sen and Serba Dinamik down four sen to RM1.67.

-- BERNAMA