Oil & Gas Sector: Comments by Petronas’ CEO on the NOC’s cost review exercise with the potential negative implications ranging from projects deferment to cancellation have set the industry’s headline risk to highest level since the last 3 years. The statement is the most bearish signal to the industry since the heydays of RM300bn capex as we are now halfway through the 5 year spending period and one year before the domestic O&G contracting activities are expected to peak based on the RM300bn spending. Moving forward, this headline risk will continue to be a predominant feature in our discussion. Given the events unfolded, we made a ‘short trip’ to revisit our 2011 inaugural sector report to guide us in our sector call. The ‘short trip’ appeared to suggest ‘Game Drivers’ that underpin our sector Overweight call remains valid. In addition, we interpret the cost review exercise as largely confine to development projects at this juncture. However, our sector call comes with cautious bias as the positives are now counterweight by Petronas’ cost review exercise and talks in re-prioritization of big ticket spending by the government which may affect O&G projects which is inherent with high import contents. All said, an outright sector downgrade is hinged on the cost review results by Petronas and/or from market activities observations.
Posted on: Fri, 06 Sep 2013 01:34:16 +0000