News  Last week, Dialog Group (DIALOG) announced that it has completed the farm-in for 20% participating interest in the Production Sharing Contract for the three fields D35, D21 and J4, located offshore Sarawak, Malaysia from ROC oil (ROC).

 PETRONAS Carigali Sdn Bhd (PCSB) is the operator of the PSC and still retains responsibility for the operations and maintenance of the facilities. However, ROC has been appointed as the PSC Development Manager.

Comments  No consideration amount was announced by Dialog; however, we understand from ROC Oil’s announcements that Dialog will share USD10.9m (RM35.4m) for its 20%-stake of the D35 acquisition costs previously incurred by ROC Oil (c.USD25m).

 According to some reports, the field is a re-development field and has two phases already planned. Phase 1 has an initial estimated capital investment of up to USD250m (RM800m); inclusive of minimum work commitment of USD70m (RM224m). Phase 2 has a work commitment of USD50m (RM160m) but cost estimates are still to be refined.

Outlook  Phase 1 commenced in early 2014 and is designed to increase oil production rate and enhance the fields production potential through a series of intervention activities and facility debottlenecking projects. Phase 1 has a minimum work commitment of USD70m.

 Phase 2 is expected to significantly expand the production and overall recovery potential from the fields. Phase 2 is subject to a Field Development Plan (FDP) sanction, which is hoped to be achieved in 2015. Phase 2 has a minimum work commitment of USD50m. According to ROC, the full Phase 2 cost estimates will be refined during the study period.

 Pengerang Phase 1A has achieved mechanical completion on 31 Mar and received the first oil shipment on 12 Apr. The construction work for phase 1B has been completed and is now being commissioned for start-up. Phase 1C is due for mechanical completion by end-2014.

 Phase 2 should be “good-to-go” given that the Final Investment Decision (FID) for Petronas’ RAPID project has been approved. For now, the finalised tank terminal capacity and equity stake is pending. We have already included an additional 0.72m cbm of storage capacity into our sum-ofparts forecasts from FY17 onwards.

Forecast  We maintain our earnings forecasts for now pending confirmation with management with regards to financial details for the D35 field, inclusive of further details on Phase 2 of Pengerang.

Rating Maintain MARKET PERFORM.

Valuation  We maintain our CY15 SoP-based valuation TP of RM1.83.

Risks to our Call (i) Delays in its in-house EPCC jobs and projects.

 (ii) New capex intensive projects which will be a drain on cashflows.

Source: Kenanga