Singapore Stock Market
Oil & Gas Sector Outlook
KEPPEL CORPORATION LIMITED
BN4.SI
SEMBCORP INDUSTRIES LTD
U96.SI
SEMBCORP MARINE LTD
S51.SI
YANGZIJIANG SHIPBLDG HLDGS LTD
BS6.SI
EZION HOLDINGS LIMITED
5ME.SI
TRIYARDS HOLDINGS LIMITED
RC5.SI
PACC OFFSHORE SVCS HLDG LTD.
U6C.SI
KIMHENG OFFSHORE&MARINE HLDLTD
5G2.SI
VARD HOLDINGS LIMITED
MS7.SI
Oil & Gas Sector - Two Years On, Whither Production Levels?
- Who has been producing more?
- Who has been most hit?
- Varying levels of exposure by companies.
Looking beyond OPEC and shale
- The IEA’s World Energy Investment 2017 report would be out in July and it will give a clearer picture of investments in the energy sector. Prior to this, we compare countries’ change in oil production across different time frames post the 2014 oil crisis while noting there could be a time lag post investments that were made earlier.
Greatest fall in production
- Mexico saw the greatest fall in petroleum and other liquids supply from 1Q15 to 1Q17, while China was a close contender for this least coveted spot from 1Q16 to 1Q17.
- PEMEX of Mexico has been battling with a persistent drop in oil production after peaking at 3.4 mil bbl/day in 2004, and has gone on to see lower production in the past two years.
- China’s oil production is a different story – it has been a victim of the 2014 oil crisis as Chinese refineries preferred to import crude rather than buy domestically produced oil due to high production costs. The oil price slump pushed mature and expensive fields out of the profitability range and local producers suspended loss-making production from some fields.
- In OPEC, Nigeria saw the largest fall in crude oil production for both time frames due to supply disruptions.
Greatest increase in production
- For all its political troubles, Brazil’s petroleum and other liquids supply grew the most among non-OPEC countries from 1Q16 to 1Q17, reaching 2.98 mil bbl/day in 1Q17.
- Within OPEC, Iran saw the greatest increase in crude oil production to 4.46 mil bbl/day in 1Q17 for both time frames with the lifting of its oil embargo.
SG companies exposure to the above countries
- As China is very much a captive market, local companies in Singapore historically have little exposure to the Chinese oil and gas sector.
- Singapore companies do have some exposure to the Mexican market, such as Ezion Holdings with PEMEX. This is not to be confused with the US Gulf of Mexico whose production actually set an annual high of 1.6 mil bbl/day in 2016 as more projects came online.
- As for Brazil, Keppel Corp and Sembcorp Marine are big players in the country and look set to remain entrenched beyond the country’s current political volatility. Both companies also have a long track record in the UK offshore sector.
- Maintain NEUTRAL on the broader sector, with a preference for larger caps such as Sembcorp Industries [Rating: BUY, Fair Value: S$3.48] and Keppel Corporation [Rating: BUY, Fair Value: S$7.36] with undemanding valuations.
Low Pei Han CFA
OCBC Investment
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http://www.ocbcresearch.com/
2017-06-02
OCBC Investment
SGX Stock
Analyst Report
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