THE outlook for the oil and gas (O&G) industry in 2021 looks very much like hanging in the balance judging from the underwhelming outlook of the Petronas’ Activity Outlook (PAO) for 2021-2023.
Given the challenges faced in 2020, most of the value chains saw a huge slash in actual activity levels versus what was planned during the start of the year, according to Kenanga Research.
Going into 2021, the following are the activity outlook for some of the more notable value chains:
- Drilling rigs: Total drilling demand is expected to be at 22 rigs for 2021 (from 14 in 2H 2020). The rise in demand mainly comes from hydraulic workover units (HWU) to five rigs in 2021 (from only one rig in 2H 2020).
This will mostly benefit HWU players, eg Uzma Bhd. Meanwhile, jack-up rig demand is largely expected to remain weak at 10 rigs, up only one rig from nine in 2H 2020. Kenanga Research expects jack-up rig providers, eg Velesto Energy Bhd to largely see flattish utilisation rates going into 2021.
- Offshore fabrication: The number of new offshore structures are expected to be even lower moving forward, at seven structures in 2021 and only one in 2022 (based on Petronas’ base case scenario) – versus eight structures in 2020 (planned was at 11). This may translate to lower job opportunities for fabricators, e.g. Malaysia Marine and Heavy Engineering Bhd and Sapura Energy Bhd, according to Kenanga Research.
- Hook-up and commissioning (HUC): 2021 is expected to be lower at 3.5 million man-hours versus 4.4 million in 2020. Kenanga Research expects this to translate to lower number of jobs for players, eg Dayang Enterprise Holdings Bhd and Carimin Petroleum Bhd.
- Decommissioning: Wells decommissioning is expected to rise modestly to 18 wells in 2021 from 15 in 2020. This would benefit players like Uzma.
- Supply of line pipes: Huge drop-off to 41km in 2021 from 79km in 2020. This means lower opportunities for pipe-related players, eg Wah Seong Corp Bhd and Pantech Group Holdings Bhd.
- Offshore maintenance, construction and modification (MCM): 2021 is expected to be slightly lower at 10.1 million man-hours versus 11.2 million in 2020. We expect this to translate to marginally lower work orders called for players, e.g. Dayang Enterprise and Carrimin.
- Plant turnaround: 2021 is expected to see higher number of turnarounds at 11 versus seven in 2020. This would benefit players, eg Dialog Group Bhd and Serba Dinamik Holdings Bhd.
Offshore support vessels: Demand for vessels is expected to be slightly higher in 2021 at 303 vessels versus 279 in 2020. The rise in demand is mainly coinciding with the increased demand for drilling rigs.
This will impact players, eg Alam Maritim Resources Bhd, Perdana Petroleum Bhd and Icon Offshore Bhd.
“Overall, we deem the activity outlook to be slightly underwhelming as most of the value chains are expected to see either flattish or lowered activity levels from 2020 going into 2021,” projected Kenanga Research analyst Steven Chan.
“Ultimately, we believe this downplays the possibility of a huge boost towards recovery or a resumption of pre-pandemic activity levels for the coming year.”
As fundamentals within the sector still remain weak, the Petronas’ PAO further confirms the research house’s view that a recovery trajectory would be slow and gradual.
All-in, Kenanga Research maintained its “neutral” outlook on the O&G sector with its top picks being Uzma (“outperform” with target price of 72 sen), Serba Dinamik (“outperform” with target price of RM2.50) and Dialog Group (“outperform” wit target price of RM4.35).
“Our 2021 average Brent crude price assumption also remains unchanged at US$50/barrel,” added the research house. – Jan 4, 2021
