The immediate beneficiaries of higher crude oil price are those with direct exposure to E&P activities, analysts opine.
KUCHING: The immediate beneficiaries of higher crude oil price are those with direct exposure to exploration and production (E&P) activities, analysts opine, which include among others, Hibiscus Petroleum Bhd (Hibiscus Petroleum) and Sapura Energy Bhd (Sapura Energy).
AmInvestment Bank Bhd (AmInvestment Bank) recapped that Brent crude oil prices surged by US$3 per barrel to almost US$67 per barrel on Thursday following the Organisation of the Petroleum Exporting Countries and other oil producers (Opec+) decision to largely maintain production levels in April this year given the fragile demand recovery from the Covid-19 pandemic.
“This was the highest Brent oil price for over a year since Dec 30, 2019 when the Saudi-Russia price war in March 2020 and subsequent Covid-19 pandemic caused a sharp demand drop in the following month,” the research firm said in its oil and gas (O&G) sector update.
“While Russia was allowed to raise output by 130,000 barrels per day and Kazakhstan by 20,000 barrels per day in April this year, Saudi Arabia surprised the market by extending its voluntary production cut of one million barrels per day which has been in effect since February this year.
“With an aim to see lower inventory levels, Saudi Arabia will make the decision in the coming months on the timing to gradually phase out its cut.
“This comes after Saudi Aramco’s chief executive officer (CEO) Amri Nasser said that crude oil demand is expected to improve within a few months with most of the growth from China, East Asia and India, while projecting 2022 global demand to increase by five per cent year on year (y-o-y) to 99 million barrels per day.”
Given the rise in crude oil price currently, AmInvestment Bank has raised its crude oil price forecast to US$55 to US$60 per barrel for 2021 from US$50 to US$55 per barrel vs an average of US$59 per barrel since the beginning of this year.
For 2022, the research firm maintained its projection at US$55 to US$60 per barrel given the possibility of a sharp resurgence in US shale production at the current favourable prices following an unusually cold US weather over the past month together with the removal of all Opec+ production quotas.
AmInvestment Bank’s view was also supported by the 11 per cent drop in US crude inventories to 484 million barrels currently from the all-time high of 541 million barrels in June last year.
The research firm noted that for comparison, the EIA’s Short-Term Energy Outlook currently projects Brent oil price at US$53 per barrel for 2021 and US$55 per barrel for 2022.
“Among the stocks in our coverage, the immediate beneficiaries of higher crude oil price are those with direct exposure to E&P activities such as Hibiscus Petroleum and Sapura Energy.
“Based on 2021 oil price forecast at our higher range of US$60 per barrel, we estimate that raise Hibiscus Petroleum’s earnings per share (EPS) could increase by 72 per cent for financial year 2022 (FY22F) and 66 per cent for FY23F. Consequently, this could raise Hibiscus Petroleum’s fair value to RM0.95 per share from RM0.79 per share currently.”
For now, AmInvestment Bank maintained Hibiscus Petroleum’s forecasts and valuations based on the lower range of its 2021–2022 crude oil forecast of US$55 per barrel given the inherent price volatility amid a potential surge in US shale output over the coming months.
“For Sapura Energy, the positive boost to the mostly gas-based upstream operation of the group’s 50 per cent-owned Sapura-OMV from a higher average crude oil price of US$60 per barrel could reduce its FY22F loss of RM101 million by 30 per cent.
“For the other O&G players who are largely service providers, the higher price regime could translate to increased confidence to roll out engineering, procurement, construction and installation projects.”
The research firm expected Malaysia Marine and Heavy Engineering Holdings Bhd and Sapura Energy to be the main beneficiaries for a re-energised order book cycle towards the second half of this year.
It also expected an increase in rig and vessel requirements which could improve charter rates and utilisation levels for Velesto Energy Bhd and Icon Offshore Bhd.
“Floating, production, storage and offloading (FPSO) players such as Yinson Holdings Bhd and Bumi Armada Bhd will continue enjoy the windfall from multiple projects which have reached final investment decisions in Latin America and Africa amid a limited list of operators who are still financially sound after the past cyclical downturns.
“Players in operation and maintenance such as Dialog Group Bhd and Serba Dinamik Holdings Bhd could also expect improving orders over the longer term with the completion of major fabrication works.”
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