Oil & Gas Weekly Review: 1st – 7th December 2008

December 10, 2008 at 8:51 am Leave a comment

· Next stop US$40?
Oil prices are indeed approximating the US$40 level as expected as oil prices fell another 19.3% during the week. Prices steepened their loss as the OPEC declined to cut output during its meeting over the week. However, another meeting is scheduled for 17th December and supply cuts are highly anticipated again. Lacklustre demand (particularly from the US) continues to weigh down heavily on oil prices and another 2m bpd is expected to be cut by the OPEC. We believe that with continued output cutting there will eventually be a turnaround point for oil prices especially
with demand number start to kick back in.
· Petronas announced results, SKS in a US$14bn deal.
Petronas announced a 46% increase in 1H09 profits during the week and capex spending showed the bulk spend overseas. The group also said that they would not slow in acquisitions and championed more M&A efforts in the industry. On the local front, PLC’s were relatively quiet during the week and also no contracts were announced. Alam Maritim announced the continuation of their vessel financing scheme through private equity and is transferring 5 of its to be delivered vessels to the PE arm. We expect that this will follow with a lease back agreement when the vessels are delivered and would ease the group’s highly leveraged balance sheet. Besides this, KNM came out with a formal announcement of scrapping its deal to buy Elimetal citing non-fulfilment of conditions precedent. We have adjusted our earnings in response to the
announcement continue to have a HOLD call on KNM until FYE to be assured of no impairments made to their goodwill. Other than that, Malaysia (through SKS group) has sealed some LNG deals with Iran worth US$14bn to develop two major gas fields in Iran and build an LNG plant of which output would be some 120,000 boe a day.
· And abroad… China lends Brazil a helping hand
China appears to be intent on making inroads into more oil reserves and is making its move into Brazil in a big way. It was announced over the week that Brazil was negotiating an US$10bn credit line with China to help develop its pre-salt reserves. Petrobras claimed that their pre-salt reserves were still profitable at the US$30 per barrel level and also reported new reserve findings during the week.
· Maintain NEUTRAL on the Sector.
We still don’t see any near term catalyst to upgrade the sector and still push forward concerns on order book growth/replenishment into 2010.

Continued decline
Stocks prices came off again during the week following oil prices with the biggest dips seen in KNM, Dialog and Wah Seong. Other than the continued weakness in oil prices, there were no company specific catalysts known for the sell down in stocks. We expect trading to continue to be choppy going forward until crude oil prices stabilise.

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