THE BUZZ
Yesterday, Petra Energy announced that it had entered into aMemorandum of Understanding (MOU) withBaker Hughes (M) SB to undertake oil and gas projects in Malaysia. The MOU willgive Petra Energy a solid platform to vie for various projects in the local O&G value chain. Under the MOU, both parties will co-operate to provide capability developmentservices, including deploying their respective expertise and knowledge inO&G projects for operators in Malaysia.
OUR TAKE
A short take on BakerHughes. Baker Hughes is one of the world's top-tier oilfield servicecompanies that assists O&G operators to make the most out of theirreservoirs via high-performance drilling, evaluation, completion and productiontechnology and services as well as integrated operations and reservoirconsulting. Ultimately, the O&G operators will see the benefits of Baker Hughes's services in the form of lower production costs, lower operating risksand higher productivity in their projects. Baker Hughes's scope of work covers deepwateras well as unconventional hydrocarbons, apart from conventional hydrocarbons.As a group, it has about 57k employees in more than 80 countries.
A potential foreign partner in future marginal oilfields? We would notbe surprised if this happens because: (i) Petra Energy's management had earlierindicated its intention to participate in the marginal oilfield developmentprogramme spearheaded by Petronas, and (ii) Baker Hughes fits the criteria as oneof Petra Energy's foreign partnerssince the former has the technology andexpertise in drilling evaluation and reservoir development. However, webelieve Baker Hughes is unlikely be Petra Energy's only foreignpartner since such a partnership should also involve O&Goperators responsible for getting the O&Gout of the reservoir.
Positive news but nochange to FY12-FY13 earnings forecasts. As the partnership is currently atthe MOU stage, we are still unsure of what developments lie ahead, as well as thepotential earnings contribution from such developments to Petra Energy going forward. Having saidthat, we believe this MOU will bepositive for the company and its efforts to move up the value chain beforeparticipating in marginal oilfield developments.
Maintain Buy. Ourfair value for Petra Energy remains unchanged at RM1.50 based on the existingPER of 13x FY12 earnings. We think that after carrying out a 'kitchen-sinking' last year, the company should expect betterfinancial performance moving forward. Wealso believe that all the company has made all the necessary provisions and write-offsto incorporate the true and fair valuation of all its existing projects todate. Ultimately, we expect the company to deliver consistent quarterlyperformance as it can now focus on its core business in the provision ofbrownfield services, which provide stable and recurring income.