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 in Malaysia may be getting a second wind from the findings that their reserves may be much larger than earlier estimated. Petroliam Nasional (Petronas) has announced that the Cendor field development, the first marginal field development in the country, has performed above expectations and has significantly increased the recoverable reserves in block PM304, off Terengganu (See Chart 3). The group confirmed the presence of oil and some gas-bearing reservoirs after drilling to a depth of over 1,000 metres. Recall that drilling was undertaken by Petrofac (Malaysia PM304) Ltd, the operator for Block PM304, together with joint-venture partners PETRONAS Carigali Sdn Bhd, Kuwait Foreign Petroleum Exploration Company and PetroVietnam Exploration Production Corporation Ltd. The Cendor field was first discovered by Amerada Hess in 2001. However, the discovery was initially regarded as marginal with estimated recoverable resources of only 12 million barrels of oil and was therefore deemed too risky and uneconomical for development. In May 2004, Petrofac acquired Amerada Hess interest and assumed operatorship of Block PM304. According to Petronas announcement yesterday, the efforts undertaken successfully transformed Cendor from a field deemed marginal, which means reserves of below 30 million barrels, to one of the biggest oilfields in Malaysia. Cendor was developed using leased Mobile Operating Production Unit (MOPU) and first oil was achieved in September 2006. This culminated in Cendor Phase 2 development and other new developments in PM304 which increased the estimated recoverable resource to over 200 million barrels, 16.7x from its original estimate. These other developments in PM304, through fast-tracked efforts in the last two years, are expected to commence production in stages throughout 2013 which will propel production to 30,000 barrels per day by end of the year. This significant increase in reserves from marginal fields augurs well for prospective marginal field developments in the country. The Berantai field, which commenced production in 2012, has raised its estimated recoverable gas resources by 15% from the estimates of around 30 million barrels in 2011. Additionally, the pre-development work of the Balai Cluster has also given early indication of increase in resources estimates. Petronas had earlier indicated that there are 106 marginal fields with estimated reserves of 580 million barrels of oil. We understand that the Tembikai marginal field risk-service contract (RSC) is currently under review after the bid by the jointventure between Scomi Group-Cue Energy Resources fell through. But unlike the earlier RSCs for Berantai, Balai-Bentara and Kapal, Banang and Meranti clusters were awarded to SapuraKencana-Petrofac, Dialog-Roc Oil-Petronas Carigali and Coastal Energy-Petra Energy, respectively, we believe further studies are required before other operators are willing to venture into new marginal field developments. Hence, news flow on this front may only materialise in the longer term. Nevertheless, excitement in this sector will be further supported by contract awards emanating from the RM60bil RAPID project in Pengerang and tank terminal projects in Southern Johor, together with the massive gas cluster projects off Sabah and Sarawak, which are tied in to the completion of the Bintulu LNG complex expansion in 2015. Hence, we maintain our OVERWEIGHT call on the sector with BUY calls for SapuraKencana Petroleum, Bumi Armada, Dialog Group and Alam. 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 696 1.30 8.9 8.0 1.7 1.9 13.2 1.3 Boustead Heav y Industries HOLD 517 2.90 10.8 3.8 3.1 3.1 13.0 1.5 Bumi Armada BUY 11,626 4.65 20.1 17.9 0.7 0.8 13.7 3.2 Dialog Group BUY 5,678 3.14 22.0 16.9 1.3 1.3 15.7 4.6 KNM Group HOLD 415 0.49 11.1 9.0 2.4 3.0 4.5 0.3 MMHE SELL 6,112 3.30 26.3 23.5 2.6 2.6 9.7 2.4 Petronas Gas BUY 39,574 21.60 23.2 20.5 3.0 3.2 17.8 4.5 SapuraKencana Petroleum BUY 15,413 3.70 19.1 14.9 0.3 0.3 13.0 2.4 Wah Seong Corporation HOLD 1,198 1.86 15.2 12.3 4.9 5.5 8.0 1.2 Source: AmResearch PP 12246/05/2013
CHART 1: MALAYSIA HYDROCARBON PRODUCTION & PETRONAS ENTITLEMENT CHART 2: PETRONAS CAPEX RMbil 50 45 45.6 40 10.2 15.2 35 13.7 10.7 30 16.9 11.6 25 9.1 20 9.6 33.8 15 6.9 26.4 27.5 30.4 10 19.1 20.7 23.3 5 10.7 11.5 0 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 CY2011 CY2012 Others Exploration & production AmResearch Sdn Bhd 2
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 recov ery. 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 3
CHART 3: LOCATION MAP FOR BLOCK 304 Source: Maps & Globe Specialist AmResearch Sdn Bhd 4
CHART 3: SALES GAS DELIVERY (MMSCFD) Published by AmResearch Sdn Bhd (335015-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 50200 Kuala Lumpur Tel: ( 03) 20 7 0-2 44 4 ( re sea rc h) F a x: ( 03) 20 7 8-3 16 2 Printed by AmResearch Sdn Bhd (335015-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 50200 Kuala Lumpur Tel: ( 03) 20 7 0-2 44 4 ( re sea rc h) F a x: ( 03) 20 7 8-3 16 2 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 Benny Chew Managing Director AmResearch Sdn Bhd 5