OIL & GAS. Rationale for report : Thematic Research

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Alyson Payne
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1 OIL & GAS 26 July 2013 US Gulf of Mexico s jackup index at record levels Alex Goh alexgoh@ambankgroup.com Investment Highlights Rationale for report : Thematic Research (OVERWEIGHT) According to the IHS Petrodata monthly Offshore Rig Day Rate Index report, the US Gulf of Mexico 250ft to 300ft Jackup category increased in July, reaching a record index level. The Deepwater Floating Rig Day Rate Index experienced a slight drop, while other categories remained unchanged MoM. There was no significant change in fleet utilization amongst all the market categories in July. (See Charts 1-4). The US Gulf of Mexico 250ft to 300ft Jackup Day Rate Index increased MoM by 36 to reach a record high of 535, the highest level experienced in this category since the index began in January Fleet utilisation declined by 1%-point MoM to 71%, but is still much improved from just 60% in July last year. The Mid-Water Depth Semisubmersible Day Rate Index was unchanged MoM at 885 in July, but slightly lower than the 900 level the index recorded in July Fleet utilisation in July was unchanged MoM but 2%-point higher YoY at 78%. The Northwest Europe Standard Jackup Day Rate Index remained for the fourth consecutive month at 589, but is still 28 points higher YoY. Fleet utilisation for this category also remained MoM at 100%. The Deepwater Floating Rig Day Rate Index decreased slightly MoM but still 4 points up YoY at 895. Utilisation for this category of rig was unchanged over the past 3 months at 98%. The robust recovery in US Gulf of Mexico jack up day rates will have positive spillover effects on charter rates in Southeast Asia, especially in Malaysia. Hence, this augurs well for the IPO listing of UMW Oil & Gas, scheduled on 1 October this year. Other operators are also hoping to move into the jackup rig segment, including Perisai Petroleum, Coastal Contracts and Alam Resources. Tanjung Offshore, which had earlier disposed off its offshore support vessel division to Ekuinas, is currently looking at acquiring a foreign service provider that owns offshore rigs, which could be potentially worth up to RM1bil. We maintain our OVERWEIGHT call on the sector with 2Q2013 orders surging 2.2x QoQ and 4.4x YoY to RM16.5bil from the umbrella hook-up & commissioning contracts and Petrobras charter for 3 new flexible pipelay support vessels to SapuraKencana. In the short- to medium-term, excitement in the sector will still largely stem from the larger field projects in Malaysia such as the enhanced oil recovery projects; gas cluster developments for the North Malay basin; as well as in Sabah and Sarawak which are tied to the completion of the Bintulu LNG complex expansion in Our top pick for the sector is SapuraKencana Petroleum while our other BUYs are Alam, Dialog Group and Petronas Gas. TABLE 1 : SECTOR VALUATION MATRIX Market Fair PE Div yield ROE Stocks Call capitalisation value CY13F CY14F CY13F CY14F FY13F P/BV RMmil RM/share x x % % % x Alam Resources BUY 1,220 UR Boustead Heav y Industries Corp BUY Bumi Armada HOLD 11, Dialog Group BUY 7, KNM Group HOLD MMHE SELL 7, Petronas Gas BUY 42, SapuraKencana Petroleum BUY 24, Wah Seong Corporation HOLD 1, Source: AmResearch PP 12246/05/2013

2 CHART 1: MID-WATER DEPTH SEMI-SUBMERSIBLE DAY RATE INDEX CHART 2: DEEPWATER DAY RATE INDEX AmResearch Sdn Bhd 2

3 CHART 3: U.S. GULF OF MEXICO 250 TO 300-FT. JACKUP DAY RATE INDEX CHART 4: NORTHWEST EUROPE STANDARD JACKUP DAY RATE INDEX AmResearch Sdn Bhd 3

4 TABLE 1: UPCOMING OIL & GAS PROJECTS EPCIC jobs Location Scope of works RMmil Likely bidders Upstream Ex x on-mobil's enhanced oil recov ery Rejuv enation of Tapis, Telok, Seligi, Guntong, Semangkok, Irong Barat, Tabu and Palas oilfiields off Peninsula, Sabah Central processing platforms, gas compression sy stems, process equipment, MOPU, tender rigs, offshore v essels. 10,000 MMHE, SapuraKencana, Wah & Saraw ak. Carigali-Hess' North Malay gas project- fast track basis North Malay basin (Blocks PM301 and PM302), near JDA Central processing plafform, 8 w ell head platforms, 200km pipeline 16,000 MMHE, SapuraKencana, Wah Shell's deepw ater Malikai project Malikai field, off Sabah Fabrication of tension leg platform, installation of pipelines and facilities 5,000 MMHE, SapuraKencana, Wah Petrronas Carigali's EOR projects Dulang, Semarang, Bokor 3 Central Processing Platforms for enhanced oil recovery. 5,000 MMHE, SapuraKencana, Wah Petronas' 1mil tonne FLNG Kimanis gas field 1st floating liquiefied natural gas carrier 6,000 Technip-Daew oo, MMHE Murphy Oil, 1.5mil tonne FLNG Rotan, off Sabah 2nd floating liquiefied natural gas carrier 9,000 JGC Corp, Toyo Engineering Shell Malay sia's EOR projects Baram Delta, off Saraw ak and North Sabah Enhanced oil recov ery proejcts 38,000 MMHE, SapuraKencana, Wah 25 marginal field projects Peninsula, Sabah & Saraw ak New risk-sharing contract from Petronas. 52,500 SapuraKencana,Dialog Group, Petra Energy, Scomi Marine, Puncak Niaga, UMW Oil & Gas, Bumi Armada Petronas' umbrella tender for shallow w ater jobs Peninsula, Sabah & Saraw ak 5-y ear Hook-up & Commissioning, maintenance contracts. 10,000 SapuraKencana, Day ang, Alam, Perdana Petroleum Downstream Petronas' Refinery & Petrochemical Integrated Development and other mutlinationals Tank Terminal Projects Pengerang, Johor Refinery, petrochemical projects 120,000 Dialog, SapuraKencana, Muhibbah Engineering, Ranhill, KNM Southern Johor- Pengerang, Tanjung Bin, Tank terminals for crude oil, 10,000 Dialog, MMC, Benalec, Tanjung Langsat petrochemicals, LNG. Muhibbah Engineering, Ranhill LNG Regassification plants Malacca, Lahad Datu, Pengerang, Lumut LNG Regassification plants 12,000 Dialog, Muhibbah Engineering, Ranhill Malay sia LNG Train 9 Bintulu, Saraw ak 3.6 mil tonne increase to MLNG's liquefaction facilities 10,000 JGC Corporation, Chiyoda- Saipem Petronas' Samur ammonia/urea plant Sipitang, Sabah Fertilizer plant 4,500 Muhibbah Engineering, Ranhill Total 308,000 Source: AmResearch, various sources AmResearch Sdn Bhd 4

CHART 5: WORLD OFFSHORE RIG COUNT & UTILISATION RATE CHART 6: PETRONAS CAPEX RMbil 50 45 40 35 30 25 20 15 10 5 0 44.0 37.6 37.1 10.2 34.9 32.0 10.7 30.8 28.2 16.9 11.6 9.6 10.3 21.1 9.1 17.

5 CHART 5: WORLD OFFSHORE RIG COUNT & UTILISATION RATE CHART 6: PETRONAS CAPEX RMbil FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 9MDec2011 9MFY12 Others Exploration & production Source: Petronas AmResearch Sdn Bhd 5

6 CHART 7: CONTRACT AWARDS OF MALAYSIAN O&G OPERATORS RMmil 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000-3,497 2,213 1,870 4,501 3, ,759 Global financial meltdown 540 1, ,539 1,131 4,303 1,920 7, ,749 1, ,591 7,591 1QFY08 4QFY08 3QFY09 2QFY10 1QFY11 4QFY11 3QFY12 2QFY13 Source: AmResearch Published by AmResearch Sdn Bhd ( P) (A member of the AmInvestment Bank Group) 15t h F l oor B a ng un an A m B a nk Gr ou p 55 Jalan Raja Chulan Kuala Lumpur Tel: ( 03) ( re sea rc h) F a x: ( 03) Printed by AmResearch Sdn Bhd ( P) (A member of the AmInvestment Bank Group) 15t h F l oor B a ng un an A m B a nk Gr ou p 55 Jalan Raja Chulan Kuala Lumpur Tel: ( 03) ( re sea rc h) F a x: ( 03) The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmResearch Sdn Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmInvestment Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice. For AmResearch Sdn Bhd AmResearch Sdn Bhd 6 Benny Chew Managing Director

OIL & GAS. Second wind for marginal fields? Rationale for report : Thematic Research

OIL & GAS. Second wind for marginal fields? Rationale for report : Thematic Research 3 May 2013 Alex Goh alexgoh@ambankgroup.com +603 2036 2291 Investment Highlights OIL & GAS Second wind for marginal fields? Rationale for report : Thematic Research (OVERWEIGHT) Marginal field developments