AmInvest Research Reports

Author: AmInvest   |   Latest post: Mon, 18 Jan 2021, 9:44 AM


Oil & Gas - Trump bump likely to be temporary

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Investment Highlights

  • Trump tweets, oil prices up... for now. US President Donald Trump tweeted that he expects Saudi Arabia and Russia to cut daily production by 10mil, and potentially up to 15mil barrels after speaking to Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman. Trump also said he had invited American oil executives to the White House to discuss revival measures which would aid the oil industry that is hurt by a demand contraction due to both the novel coronavirus (Covid-19) pandemic and the current price war. This development comes just after a day after the Russian president’s press secretary said that no one has launched any talks about a potential new oil production deal to replace the Opec+ format. While Brent spot oil price has recovered by US$6/barrel to US$30/barrel, we view this as temporary as the two major oil producing countries are unlikely to agree and adhere to such drastic cuts.
  • Such cuts will mean 44%–66% of Saudi-Russian production. Currently, Saudi Arabia has ramped up its production from its quota-restricted 10mil barrels daily to nearly 12mil barrels, of which we understand that up to 300K barrels may be from its existing storage facilities being released for exports in its price war with Russia, which has a daily production of 11mil. A daily production cut of 10mil–15mil could mean an improbable 44%–66% reduction for the 2 major oil producers, relegating them to production levels which are only half of the current US output of 13mil barrels. Given that the budget breakeven for the Russia government requires oil prices to be at US$42/barrel and Saudi US$84/barrel, such a drastic cut in production will worsen their fiscal positions.
  • Bigger impact from Covid-19 impact than Saudi-Russia price war. We view the ongoing Saudi-Russia oil price war, which catalysed the plunge in crude oil prices following the failure of the meeting between Opec and its allies on additional production cuts, has a lower impact compared with the massive Covid-19-inflicted demand loss, which the IEA and oil trader Vitol both estimated at 20mil barrels/day, with some forecasts reaching 30mil barrels from the growing global lockdown. This accounts for 25%–37% of 2019 global demand. In an unprecedented regime which has never occurred in wars, famine or oversupply conditions, the world has essentially begun to shut down in transportation, in which vehicles account for 40% of global crude oil demand and airlines 10% while petrochemical 30%. As such, Vitol has indicated that global storage facilities are expected to reach maximum utilisation by the end of this month with the duration of Covid-19 remaining uncertain at this stage
  • Production capex cutbacks, payment deferrals and contract renegotiations. National oil producers have begun to cut back on production, with Brazil’s Petrobras doubling its daily reduction to 200,000 barrels – 9% of its current output of 2.1mil barrels. We highlight that during the 2015–2017 down cycle when the oil price fell to US$26/barrel, Petrobras did not significantly scale back its production while only slowing down on its exploration and development capex rollout. This major offshore producer has signalled intentions to delay payments and renegotiate contracts with its suppliers to conserve its cash flows, a move which it did not resort to in the past.
  • Extensive impact on all. The worst impacted will be those with upstream production sharing contracts such as Sapura Energy and Hibiscus Petroleum, followed by fabricators such as MMHE and offshore support providers Bumi Armada and Velesto Energy. Even though companies such as Dialog Group will benefit from heightened demand for tank terminal storage facilities, we expect project deferrals and cost renegotiations on existing contracts by oil majors to compress margins and volume for specialist/maintenance services as well as engineering, procurement and construction activities. While VLCC petroleum tanker rates have escalated on the rapid increase in floating storage demand, MISC is unlikely to capitalise on it in the near term as its large vessels are on long-term charter; yet its LNG vessels may encounter charter terminations, which had occurred during the previous down cycle.
  • Remain UNDERWEIGHT on the sector with the fair values of the stocks under our coverage being pegged to 5-year P/BV lows. Regardless of upstream, midstream or downstream segmentation, we expect the massive global demand destruction from Covid-19 on top of the Saudi-led price wars to continue depressing industry sentiments extensively in the foreseeable horizon. As we continue to view the decimation in oil prices and companies’ earnings to be worse than the previous crisis which led to multiple financial distress to O&G corporations, we have already switched to NTA for stocks such as Sapura Energy. Hence, we retain our SELL calls for Bumi Armada, Dialog Group, Sapura Energy, Serba Dinamik and Velesto Energy.

Source: AmInvest Research - 3 Apr 2020

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Talib diam lar retard. still want to holland people in netx ?
03/04/2020 2:05 PM

Type Announcement
Description SAPURA ENERGY BERHAD - Members' Voluntary Winding-Up of Dormant Subsidiary Companies
Sapura Energy Berhad (“SEB”) wishes to announce that the following dormant indirect wholly-owned subsidiaries and a subsidiary of SEB (the “Companies”) had ceased operations and each held their Meeting of Members on 31 January 2020, at which it was resolved that the Companies be wound-up voluntarily pursuant to:
(a) Section 439(1)(b) of the Malaysian Companies Act 2016; (b) Section 290(1)(b) of the Singapore Companies Act, Cap. 50; and (c) Section 131A of the Labuan Companies Act 1990 respectively ("Voluntary Winding-Up") and that the following persons be appointed as Liquidators of the respective Companies, for the purpose of such winding-up:

Companies malaysia
Sapura Infrastructure Sdn Bhd
Sapura Metering Sdn Bhd
Sapura Steelworks Sdn Bhd
Petcon (Malaysia) Sdn Bhd
Sapura Marine Drilling Sdn Bhd
Liquidators Encik Mohammed Izad bin Ariffin of TMF Administrative Services Malaysia Sdn Bhd

Sapura Marine Rig 1 Pte Ltd
Liquidators Ms Sophia Lim Siew Fay of TMF Singapore H Pte Ltd

Sapura Drilling T-19 Pte Ltd
Sapura Drilling T-20 Pte Ltd
SapuraKencana FLB-1 Pte Ltd
Sapura SS Corporation
SapuraKencana 1200 Pte Ltd
Liquidators By way of Alternative Procedure for Voluntary Winding-Up
(No Liquidator required)

The Companies are currently dormant and have no intention to carry on any business in future. The Voluntary Winding-Up will save cost and time to monitor and maintain the Companies on regular basis.

The Voluntary Winding-Up of the Companies will not have any material financial and operational impact on SEB Group for the financial year ended 31 January 2020.

None of the Directors and/or major shareholders of SEB or any person connected with them have any direct or indirect interest in the Voluntary Winding-Up.

This announcement is dated 4 February 2020.
03/04/2020 3:57 PM
qqq33333333 serba's business is turbine maintenance, not OG.......

this is essential service under energy.
03/04/2020 4:00 PM
qqq33333333 Trump bump......one tweet can change every thing meh?
03/04/2020 4:01 PM
firehawk unless he order to bomb the oil fields in Saudi and Russia, otherwise the result will be like how he battle the virus .....
03/04/2020 4:03 PM
king36 So Alam will fall back to 0.04 again...????
05/04/2020 1:01 PM
limgor dont bring ppl to holand la am invest
07/04/2020 9:45 PM

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