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PETALING JAYA: While crude oil prices remain volatile, the worst appears to be over for the oil and gas sector, which is rebalancing itself from the fallout from Covid-19 that saw a collapse in demand.
However, local oil and gas service providers are going through tough times with fewer jobs planned and analysts say activities in Malaysian waters are unlikely to return to pre-pandemic levels over the next 12 to 18 months. , especially with capital spending (capex) cut by the national oil company Petronas.
“In the context of low oil prices, the oil companies, including Petronas, will proceed with significant investment cuts. The reduction in capex will lead to a lack of new projects and contract awards. This will result in intense competition in an oversupplied market, ”TA Research said.
According to TA Research, this, in turn, would compound weaknesses in daily charter rates and fleet utilization, leading upstream service providers to face profit and balance risks.
Meanwhile, Kenanga Research sees more impairments, asset disposals, debt refinancing and possible mergers and acquisitions (M&A) among service providers as companies undergo cost-saving measures to meet their debt obligations.
“It is almost certain that the second half of 2020 will see better results compared to the first half, helped by the slight rebound in crude prices and the relaxation of the movement control order.
, which needs to restructure its RM10bil debt by the end of this year. “src =” https://apicms.thestar.com.my/uploads/images/2020/09/08/850491.JPG “onerror =” this. src = “https://cdn.thestar.com.my/Themes/img/tsol-default-image2017.png” “style =” height: 409px; width: 620px “/>Against the backdrop of a sharp drop in demand in upstream oil services, the bank’s research arm said it remains cautious of highly-leveraged companies like Sapura Energy Bhd, which needs to restructure its RM10bil debt by the end of this year.
However, it is unlikely that production and activity levels will return to pre-pandemic levels for at least the next 12 to 18 months, ”he said in a report yesterday.
In the first half of this year, Petronas incurred a total capex of RM14.8 billion, down from RM15.7 billion in the same period last year and most of it was spent on local and upstream projects. .
This was also in line with the group’s plan to cut capex by 21% this year.
“However, the group’s discretionary operating expense (opex) has not yet dropped significantly from last year’s levels and therefore we could expect more cost-saving measures in the second half to meet its cut. 12% planned in opex for 2020. ” Kenanga said.
At the time of writing, international benchmark Brent crude oil fell to $ 41.65 a barrel after the world’s top oil exporter Saudi Arabia was reported to cut its official October sales price to Asia. , an indication that demand for oil remains weak.
However, analysts believe that the bear cycle has bottomed and the worst experienced in April this year, when Brent fell to $ 14 a barrel, the lowest since 1999.
Futures also reversed to a record negative US $ 38 per barrel due to lack of storage capacity.
“So far this year, Brent crude prices have averaged US $ 42 per barrel with spot prices at US $ 43 per barrel currently from the year’s low of US $ 14 per barrel on April 22.
“This is supported by the fall in US crude oil inventories by 6.0% to 508 million barrels from a record high of 541 million barrels in June,” AmInvestment Bank said in a report.
The research house has kept its forecast of the price of crude oil between 40 and 45 dollars per barrel for this year and between 45 and 50 dollars for 2021.
For comparison, the Energy Information Administration’s short-term outlook projects crude oil prices at $ 41 a barrel for 2020 and $ 50 for 2021.
Against the backdrop of a sharp drop in demand in upstream oil services, the bank’s research arm said it remains cautious of highly-leveraged companies like Sapura Energy Bhd, which needs to restructure its RM10bil debt by the end of this year.
There is also the possibility of Velesto Energy Bhd reversing to a loss at 2HFY20 due to less platform utilization.
Bumi Armada BhdOn the other hand, although it is still likely to experience asset impairments towards the end of the year, it has shown stabilizing profitability from better operating performance of its floating production, storage and offloading (FPSO) vessel, Armada Kraken, it said.
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