- The Edge Malaysia reported that three parties have been prequalified by Petronas for the US$1.5bil Kasawari central processing platform (CPP) contract. The three parties are South Korea’s Hyundai Heavy Industries Co Ltd, a joint venture between Italy’s Saipem SpA and SapuraKencana Petroleum Bhd, and a partnership between France’s Technip SA and Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE).

- We understand the bidding is in progress and is currently being evaluated. The contract could be awarded sometime in April. Berlian McDermott, a joint venture between TH Heavy Engineering Bhd and Houston-based McDermott International Inc, did not progress beyond the prequalifying stage of this contest.

- Upstream had earlier indicated that the Kasawari field development is a 30,000-tonne CPP that includes 19,000 tonnes of topsides. The development also includes a nine-slot wellhead platform, a bridge link, a flare tower, and possibly a central collection platform weighing more than 7,000 tonnes.

- Kasawari is a major natural gas discovery with over three trillion cubic feet of gas in reserves. First gas is targeted for late 2018 or early 2019, while production is projected at between 500mil cubic feet per day (MMcfd) and 750 MMcfd of gas. Gas produced from this field will be transported to the 9th train at Petronas’ Liquefied Natural Gas complex in Bintulu, Sarawak.

- This development is the fourth CPP contract to be awarded by Petronas. We expect this to be a very close race, as one of Petronas’ main criteria is pricing. This would be especially vital, amid the national oil company’s focus at improving cost efficiency and the group’s recent announcement that it would cut its capex by 15%-20%.

- Local yards have recently lost out on major fabrication jobs due to increased competition from foreign yards. Hyundai Heavy Industries managed to secure the US$1bil Bergading CPP from US independent Hess, while the US$1bil Bardegg 2-Baronia CPP for the EOR project from Petronas is also said to have been secured by the group.

- This contract would be especially important to MMHE, as its order book has been dwindling due to lack of jobs secured. MMHE’s order book stood at RM1.7bil as at September 2014 (approximately 0.6x FY15F revenue), with only RM323mil contract wins in FY14 (lowest since FY Mar11). We understand that the group has embarked on cost cutting measures and has offered its staff severance packages. The last major job won by MMHE was the SK316 CPP awarded in October 2013.

- We maintain our NEUTRAL rating on the sector. Globally, there are ongoing revisions in project cost and scale given the increasing cost consciousness by oil majors (and not only Petronas) as crude oil prices have softened even though development costs have escalated over the past 3 years.

Source: AmeSecurities