BIMB SECURITIES RESEARCH

MARKET INSIGHT
PP16795/03/2013(031743)

Monday, 9 July, 2012

Oil & Gas Sector News Flash

Active Newsflow
Petronas has awarded its third Small Field Risk Service Contract (RSC) to Canada based Coastal Energy. The RSC involved the development and production of petroleum from Kapal, Banang and Meranti cluster of small fields (KBM cluster). The cluster is located 20km off peninsular Malaysia at water depth of 60 meters. First oil is targeted from Kapal field within one year followed by Banang field a year later. The development scheme will involve the deployment of Mobile Offshore Productions units (MOPUs) and Floating Storage and Offloading vessel (FSO). The general contract terms structure is similar to the early two i.e Berantai and Balai. Coastal Energy is now finalizing an arrangement for a local companys participation. This contract came after some delay where we first targeted this third RSC to be awarded sometime in May. Pegged to the current two RSCs, we expect the capex could come to the tune of USD1bn while development which will be taking place in stages could take at least 3-5 years to complete. Given the lack of newsflow, as of now it is rather too speculative for us to pick a name as Coastal Energys local partner which could take up to between 30%-40% stake in the project though names like Petra Energy and TH Heavy Industries have emerged. For small to mid-size domestic companies to participate, we expect cash call would be required to fund their stake. While Coastal Energy has yet to disclose the clusters full development scheme, announcement by the company which has pointed towards utilization of MOPUs and FSO are positive for local service providers though we wish to highlight that from the development of Berantai and Balai, it seems to be a preference by the RSC players to own those assets rather than entering into leasing arrangement. As for the rest of the 5 marginal field clusters, we expect news to continue to flow-in though we do not expect all of them to be awarded this year. Petronas is expected to dish out the Front End Engineering and Design (FEED) contract for the Angsi fields vessel based Chemical Enhanced Oil Recovery (CEOR) contract by end of the month. The FEED is targeted to be completed in 3 months time and focus on maturing the concept for a proposed CEOR vessel equipped with 15 days storage to support liquids injection at 150,000 barrels per day. The final contract will also include work on the modification to the Angsi central processing platform and a satellite platform, plus inter-platform pipelines. The vessel is also targeted for deployment for Shell operated St. Joseph field. With the FEED contract, market is now expecting the start-up of the project which could cost up to USD1bn to slip into 2014 versus Petronas early target of by end of 2013. Uzma which was involved in the basic engineering study for the project is also likely to be tapped for this FEED, however, we expect potential contribution (if any) to be small. With Petronas looking at MISC for the supply of vessel, this would directly disappoint other local players that are looking for the job opportunity, including Bumi Armada. The level of disappointment is even higher for the other similar project i.e Shells St. Jospeh CEOR project, where Shell seems to have written-off the first tender round due to higher than expected cost quoted by bidders. Though the new plan is not finalized yet, the giant has since then returned to market but apparently has scaled down the size of the pilot project by looking at vessel capable of injecting 2,000 barrels per day of chemicals as compared to initial plan of 10,000 barrel. Given these developments as well as the continuous delay in the dish out of FPSO/FSO contracts, we recognized there is increasing risk to our estimates on Bumi Armada which we would re-visit after the release of its second quarter result.

Chiong Tong Chai chiongtc@bimbsec.com.my 03-26918887 ext 175

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9 July 2012 Petronas is speculated to put up a tender for a processing platform of up to 25k tonnes and 7 satellite platforms for the Bokor redevelopment programme by end of this year. The redevelopment programme is part of the USD12bn production sharing contract (PSC) deal between Petronas and Shell signed early of this year to realize 750m barrels of oil reserves and to boost the recovery rate for the Baram Delta and four fields in the North Sabah development area from 36% to 50% through various Enhanced Oil Recovery (EOR) initiatives. Bokor is a candidate for in-fill drilling plus water-alternate-gas enhanced oil recovery development aimed at lifting output to 140,000 barrels per day (bpd), up from the current 60,000 bpd. This tender is largely expected and should it be tendered out by end of the year, we expect it would be awarded in the first half of next year. However, we were surprised with the report that Petronas has extended the expressions of interest for the job to regional yards i.e Singapore and Indonesia, a departure from its traditional policy on local preference. Historically, international bids were only largely observed for field developments in Malaysia-Thailand Joint Development Area and Malaysia-Vietnam Commercial Arrangement Area. It was suggested that, Petronas intentions in doing so is to put cost under control and to ensure fast project execution through EPCIC contract. With this, we expect pricing is now getting even more competitive and could also further put smaller domestic players into a more challenging position as they do not offer full suite of services to cater for EPCIC contract. It was also quoted that tenders for two other billion Ringgit platform contracts i.e Semarang and Dulang, are also likely to be issued out this year as both are targeting to hit production start-up in 2015. Our view. We continue to Overweight the sector. Maintain Buy on Dayang (TP: RM2.43), Dialog (TP: RM2.78), Uzma (TP: RM2.70) while Trading Buy on Wah Seong (TP: RM2.28), Neutral on Bumi Armada (TP: RM4.44) and Sell on MMHE (TP: RM4.37).

www.bimbsec.com.my

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9 July 2012
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Total return (price appreciation plus dividend yield) is expected to exceed 10% in the next 12 months The stock is expected to perform ahead of the market in the next 12 months The stock is expected to outperform the market in the next 3 months The stock is expected to perform in line with the market in the next 12 months The stock is expected to underperform the market in the next 3 months An expected price depreciation of more than 10% in the next 12 months

SECTOR RECOMMENDATION OVERWEIGHT The Industry as defined by the analysts coverage universe, is expected to outperform the relevant primary market index over the next 12 months NEUTRAL The Industry as defined by the analysts coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months UNDERWEIGHT The Industry as defined by the analysts coverage universe, is expected to underperform the relevant primary market ndex over the next 12 months Applicability of ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies. Disclaimer The investments discussed or recommended in this report not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of BIMB securities Sdn Bhd may from time to time have a position in or either the securities mentioned herein. Members of the BIMB Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgements as of this and are subject to change without notice. BIMB Securities Sdn Bhd accepts no liability for any direct, indirect or consequential loss arising from use of this report.

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BIMB SECURITIES SDN BHD (290163-X) A Participating Organisation of Bursa Malaysia Securities Berhad Level 32, Menara Multi Purpose, Capital Square, No. 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur Tel: 03-2691 8887, Fax: 03-2691 1262 http://www.bimbsec.com.my

Kenny Yee Head of Research

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