Oil & Gas Weekly Review: 12th – 18th January 2009
• Continued demand deficiency problems.
Oil prices lost some 10.58% during the week on continued demand related fears. Reports on growing stockpiles coupled with negative economic news (industrial production numbers in the US showed a 2% decline during the week) continued to weigh down on oil prices. The IEA reported another downgrade to its 2009 demand forecast, slashing its expectations by 1m bld to 85.3m barrels a day of global consumption and is expecting the first 2 year decline in oil consumption since the 1982- 1983 period. To note, the full effect of the OPEC’s ongoing production cuts will only be seen in full effect in mid Feb.
• Some bad, some good news.
During the week, the industry showed more signs of weakening as ConocoPhillips announced that it was going to release 1350 workers and cut its capex. Besides that, the company would take a US$34bn charge to write down assets which have declined in value. We believe that there will
be more of such news in other oil majors in weeks to come but whether or not the effect would flow down to Malaysian asset owners waits to be seen. Besides that, Saudi Aramco is pressuring contractors to lower commercial bids to go ahead with its US$10bn gas field. This could
certainly dampen the EPCC market for future contracts we believe. On the flipside, CNOOC announced that they are powering ahead with increasing production by 5% this year. Also, issues on supplies from Russia have reportedly been resolved while China, taking advantage where funding is needed, is making big moves into Iran to secure reserves.
• And at home.
Dayang Enterprises announced the first contract this year so far (for listed companies at least) reporting a RM200m contract from Petronas Carigali & Murphy Sabah for maintenance activities until 2011. Besides this, Kencana announced that it was going ahead to build its 2nd rig which would be ready in May 2010. On worrying news, M3nergy announced a contract cancellation for the development of a marginal field in Malaysia.
This would indeed be the case considering that marginal fields would not be viable with oil prices at this level. As for other companies involved in this area, we only know of Tanjung Offshore which has a MOPU chartered to a marginal field. There could be concerns on contract renewal going forward.
• Maintain NEUTRAL on the Sector.
General weakness was seen during the week for share prices alike as negative sentiments in the market weighed down prices across the board. To note, KNM continues to see daily high volumes and we believe the stock to be attracting a lot of retail interest.
Entry filed under: Business, Finance, Stock Market. Tags: 2009, Capex, china, CNOOC, commercial bids, ConocoPhillips, Dayang Enterprises, economic news, EPCC market, Gas, IEA, Industrial Production, Iran, January, Kencana, KNM, maintenance activities, MOPU, Murphy Sabah, Oil, oil prices, OPEC, Petronas Carigali, Russia, Saudi Aramco, Tanjung Offshore, weekly review.