This article first appeared in The Edge Malaysia Weekly on November 18, 2024 - November 24, 2024

OVER the past few weeks, contracts from Petroliam Nasional Bhd (Petronas) and its production sharing contract partners have been coming in, largely for maintenance, construction and modification (MCM) as well as hook-up commissioning (HUC) services, benefiting a number of local oil and gas (O&G) players.

“It’s been a while since we have seen so many O&G companies making announcements so close to each other as all are securing contracts. The industry is vibrant, the spillover is likely to benefit many, including the OSV (offshore support vessel) operators and, to a certain extent, the minor fabricators, as these contracts are at the operations stage and not the development stage,” the chieftain of an exploration and production company tells The Edge.

Thus far, the companies that have announced award wins include ­Miri-based Dayang Enterprise Holdings Bhd ­(KL:DAYANG), which has disclosed four contracts — Package B4 from Sarawak Shell Bhd/Sabah Shell Petroleum Co, Package A3 from Petronas Carigali Sdn Bhd as well from SKA Oil, and Package A5 SBA Southern from Petronas Carigali.

Meanwhile, Carimin Petroleum Bhd (KL:CARIMIN) announced two awards — one from Kebabangan Petroleum Operating Company Sdn Bhd for Package B9, in partnership with privately held Evolusi Bersatu Sdn Bhd, and another for Package B5 from Sarawak Shell/Sabah Shell Petroleum Co.

Deleum Bhd (KL:DELEUM) was awarded two contracts by Petronas Carigali for Package A1 and Package A4; T7 Global Bhd (KL:T7GLOBAL) received two awards, one from ExxonMobil Exploration and Production Malaysia Inc for Package B2 — Guntong and another from IPC Malaysia BV for Package B3; and Uzma Bhd (KL:UZMA) was appointed a panel contractor for integrated well continuity services by Petronas.

It is understood that T7 Global is likely to announce more contracts while Petra Energy Bhd (KL:PENERGY) may announce two to three awards and Sapura Energy Bhd (KL:SAPNRG) is likely to get a job. A few private companies, such as Eastern Pacific Industrial Corp Bhd (EPIC) and Shapadu Energy Services Sdn Bhd, are also understood to have secured at least one MCM or HUC contract each.

Carimin’s partner in Package B9, Evolusi Bersatu, is a Kota Kinabalu, Sabah-based company with a paid-up capital of RM1.5 million. It is 60% controlled by Siti Faraihah Eiddros and 20% each by managing director Muhamad Tolling and Rini Rosnahningsih Abd Rahman.

Shapadu is controlled by the family of the late Datuk Shahrani Abdullah, a prominent businessman in the 1990s and early 2000s, while EPIC is a unit of the Terengganu government.

Most of these MCM and HUC outfits are also able to handle minor fabrication works, which are likely to be undertaken in smaller yards. This means pre-fabrication players such as Malaysia Marine and Heavy Engineering Holdings Bhd (KL:MHB) are likely to be excluded from these jobs.

Dayang’s four contracts have given the company’s order book a shot in the arm, bumping it up to RM5.2 billion from RM1.4 billion as at the middle of this year.

In a report after the recent awards, Phillip Capital says, “Dayang is trading at an attractive eight times 2025 PE (price-earnings), supported by its sizable order book and attractive earnings growth prospects.

“We reiterate our ‘buy’ rating and RM4.50 target price based on an unchanged 16 times PE multiple on 2025E EPS (earnings per share).”

The brokerage house sees earnings before interest and taxes (Ebit) margins of 35% for the contracts, which came as a pleasant surprise, because prior to the awards, some industry players were suggesting that margins were likely to be thin due to heightened competition.

For the six months ended June 2024, Dayang posted a net profit of RM159.34 million on the back of RM702.96 million in revenue.

CGS International says in a report that there is now a provision in the contracts allowing the rates to be reviewed mid-way through, which is a shift away from the previous practice of fixing rates for the entire period, which enables cost fluctuations to be passed on and helps preserve profit margins.

Last Thursday, Dayang closed at RM2.27, translating into a market capitalisation of RM2.63 billion for the company.

Carimin’s two awards are likely to give the company, which is an orphan stock, (read: shares not covered by any analyst or brokerage firm), a boost. For its financial year ended June this year, Carimin posted RM46.24 million in net profit on revenue of RM309.43 million. In FY2023, the company had registered a net profit of RM22.95 million on turnover of RM254.57 million.

On its prospects, Carimin says, “The industry outlook for oil and gas remains positive, with global oil price stability. Domestically, oil majors continue to invite tenders for products and services.”

Carimin ended trading last Thursday at 84 sen, giving the company a market value of RM196.5 million.

Deleum’s 86.67% subsidiary Deleum Technology Solutions Sdn Bhd has secured two contracts for the provision of manpower, tools and equipment, materials, consumables and other related services.

In a report, MIDF Research says, “We make no changes to our forecast projection for Deleum at this juncture, pending more information on the LOA (letter of award) and the group’s 3QFY2024 results. Thus, we maintain our ‘buy’ call, with an unchanged target price of RM1.62, which is at a 20% premium to Deleum’s close of RM1.35 last Thursday.”

As for Uzma, the stock has shed almost 30% of its value over the past six months. It closed last Thursday at 86 sen for a market capitalisation of RM374.4 million.

For its FY ended June 2024, Uzma registered RM50.12 million in net profit from RM600.72 million of revenue. In FY2023, the company registered a net profit of RM36.68 million on RM473.77 million in turnover.

In a note on Uzma, Phillip Capital says, “We reiterate our ‘buy’ rating and target price of RM1.78, based on a 12 times PE multiple on FY2025E EPS.”

The contract values have not been disclosed but estimates indicate that at about RM500 million a contract, the 18 packages could be valued at between RM8 billion and RM10 billion in total, which augurs well for the industry.

While the MCM and HUC portions are pegged at about RM8 billion to RM10 billion, the Malaysian Oil, Gas & Energy Services Council (MOGSC) estimates the total value of jobs, including those for subsea and offshore support vessels, to be in the region of RM30 billion.

MOGSC president Syed Saggaf Syed Ahmad said in a press release last week that the combined contract value for the MCM, HUC, subsea contracts and marine spread requirements could reach an estimated RM30 billion for the next five years. He added that it would “provide earnings visibility over five years, with potential extensions offering opportunities up to a decade”.

While Malaysian OSV Association ­(MOSVA) president Jamalludin Obeng was not available for comment, industry players say the OSV portion of the RM30 billion estimated by Syed Saggaf could be worth between RM4 billion and RM5 billion.

Considering that the bulk of the jobs are likely to be shared between three players — Perdana Petroluem Bhd (KL:PERDANA), Keyfield International Bhd (KL:KEYFIELD) and Jasa Merin (Malaysia) Sdn Bhd — the contracts could have a significant impact as well. Jasa Merin is 70% owned by Marine & General Bhd (KL:M&G) and 30% by the Terengganu government.

Perdana, which has a fleet of 15 ships — eight anchor handling tug supply (AHTS) vessels, five accommodation work barges and two accommodation work boats — has been doing well. The company is slated to announce its third quarter financials soon.

For the six months ended June 2024, Perdana made a net profit of RM40.77 million on the back of RM223.81 million in revenue. In the previous corresponding period, it posted RM389,000 in net profit from revenue of RM111.27 million.

In its review of its financial performance, the company says, “The higher revenue was mainly the result of much improved daily charter rates, higher own vessel utilisation rates of 75% compared with 50% in the corresponding period, and higher revenue generated from third-party vessel chartering … The much higher profit was achieved on the back of an increased margin from own vessel chartering as well as higher contribution from higher third-party vessel chartering activities.”

Perdana closed last Thursday at 28.5 sen, giving the company a market capitalisation of RM634.7 million. Since mid-July this year, the stock has shed about 43% of its value.

It is noteworthy that Dayang is the largest shareholder of Perdana, with 63.53% equity interest.

Keyfield International, which has 13 vessels — 10 accommodation work boats, two AHTS and one supply vessel — went public in April this year, raising RM188.1 million from the issuance of 208.96 million new shares at 90 sen a share.

It closed last Thursday at RM2.26, giving the company a market value of RM1.8 billion.

For the six months ended June, Keyfield recorded RM100.34 million in net profit from revenue of RM305.37 million. In the previous corresponding period, the company registered a net profit of RM37.57 million on revenue of RM161.97 million.

Keyfield’s CEO and executive director Datuk Darren Kee Chit Huei attributed the better showing to its strategic fleet expansion over the past few years, higher vessel utilisation rate and addition of two vessels — Keyfield Itqan and Aulia.

As at end-June this year, Keyfield’s order book for contracted charters stood at RM619.1 million.

Marine & General’s fleet of 27 ships — 21 OSVs and six chemical and oil tankers — should stand it in good stead to win jobs from companies with MCM and HUC contracts.

For its first quarter ended July, Marine & General posted a net profit of RM12.99 million from turnover of RM91.19 million. In the previous corresponding period, the company made a net profit of RM7.41 million on revenue of RM84.63 million.

On its prospects, Marine & General says, “Domestic economic fundamentals are expected to improve and analysts are positive on the medium-term prospects for the Malaysian oil and gas sector. It is also expected that the budgeted capital spending by Petronas will proceed as planned. In its recent Activity Outlook, Petronas outlined its plan to grow and sustain the country’s production of oil and gas of two million barrels of oil and equivalent per day by 2025 and beyond, which will be supported by various oil and gas projects such as Kasawari, Jerun, Rosmari-Marjoram and Lang Lebah in Sarawak, Gemusut-Kakap Redev and Belud Clusters in Sabah, and Bekok Oil Redev, Tabu Redev and Seligi Redev in Peninsular Malaysia.

“In line with these developments, Petronas expects to ramp up its exploration activities and forecasts that more than 25 wells will be drilled in the next three years.”

Marine & General closed last Thursday at 31.5 sen for a market value of RM246 million.

Interestingly enough, Marine & General says, “Although the administration of oil and gas activities in Sarawak may change with the involvement of Petroleum Sarawak Bhd (Petros), the group remains confident and expects minimal impact as the requirement for vessels will remain intact.”

Petronas and Petros are in negotiations as the latter seeks to be the sole gas aggregator — responsible for carrying out all activities involving the procurement, supply, distribution and sale of natural gas — in Sarawak. Negotiations were supposed to have ended by the end of October but have dragged on.

Late last month, Sarawak Premier Tan Sri Abang Johari Tun Openg said at an event that negotiations were more or less concluded and that Petros was to be the sole aggregator for gas in the state, which would have an adverse effect on Petronas.

Abang Johari said Petronas had informed the state Utility and Telecommunication Minister Datuk Seri Julaihi Narawi, albeit unofficially, that it had agreed in principle for Petros to serve as the sole gas aggregator.

“Petronas has informed Julaihi unofficially, but we will receive the official letter soon,” he reportedly said.

Petronas, however, came out with a statement to “clarify that it is still in discussions with Petros on the proposed implementation of the Distribution of Gas Ordinance”, and news reports on what Abang Johari had said were removed.

Last week, Julaihi was reported to have said in the Sarawak Legislative Assembly that the appointment of Petros as the sole gas aggregator under the Distribution of Gas Ordinance “is non-negotiable, meaning no other gas aggregator exists in Sarawak”. He added that he had received a letter from Petronas dated Nov 1 and from Petros dated Nov 6 this year, but declined to disclose the content of the letters.

If Petros is made the sole gas aggregator, it will be responsible for the entire chain of activities, including the procurement, supply, distribution and sale of natural gas in the state, and will undertake the planning, development, operation and maintenance of the natural gas distribution network system in Sarawak, among other things.

For Petronas, this will be a blow to its earnings and could adversely impact the rating of its debt paper, and result in its forking out more in terms of finance costs, among a whole host of other adverse effects.

Sarawak has 60% of the country’s gas resources and generates a chunk of its liquefied natural gas (LNG) exports, which are on long-term contracts.

Lately, the state has snubbed the Petroleum Development Act 1974, which allows it to receive 5% in oil royalties, and is seeking a greater share of the O&G revenue. Sarawak’s claim for more royalties is backed by the Oil Mining Ordinance 1958, which it says co-exists with the Petroleum Development Act and swings things in the state’s favour.

Petros, which is wholly-owned by the Sarawak government, is allocating RM40 billion over the next five years for its capital expenditure, indicating an aggressive expansion.

It should be noted that once Petros and Petronas have ironed out their differences, it’s very likely that Sabah will commence talks with the national oil company on its benefits, as more than 60% of the oil reserves in the country are in Sabah’s waters.

An O&G official says most players are in the dark over how this stalemate between Petronas and Petros will play out.

Some executives say the exploration and production companies could be impacted as the state may want more control. “At the present time, Petronas is bottom-line driven, but the state will look at other factors, for instance employment of its people. Everything is still premature,” one high-level executive says.

“But what I do know is that whoever is in control of gas aggregation in Sarawak will still need to undertake exploration and production, so when the time comes, we’ll see what we have to do. It’s not like activities are going to stop,” he adds. 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.