Tough times ahead for O&GDayang, Coastal Contracts among few to keep an eye on — RHB Research
Posted on March 17, 2015, Tuesday
KUCHING: With early jack-up (JU) project terminations, data from RHB Research Institute Sdn Bhd (RHB Research) suggests that near term JU market conditions in Southeast Asia are set to worsen, as exploration and production (E&P) operators exercise early termination.
This will exacerbate idle JU rig concerns in the region, as rig owners face difficulties securing replacement contracts post declining tenders and increasing bidding competition or contracts, it said in a note yesterday.
To note, new contract awards lately were merely on spot charters. Both IHS Petrodata and Riglogix recorded utilisation declines, the latest being 66 per cent.
Although Southeast Asia’s national oil firms – Petronas, PTT, Pertamina and PetroVietnam – signalled cuts in capital expenditure between 10 to 15 per cent, RHB Research anticipates more than 15 per cent downside pressure on new charter rates of high-specification JU rigs.
“Channel checks suggest a day rate full repayment could compensate under termination for convenience for some contracts, but an early termination may not guarantee full compensation or termination fee for all cases.
“From our channel checks, there are currently very few work orders for Dayang Enterprise Holding Bhd’s (Dayang) hook-up, construction and commissioning (HUCC) contract from Shell at a contract value of RM2.4 billion.
“As the work is on a call-out basis, there are no work orders for Dayang at the moment from Shell.”
RHB Research said the yard for this contract is currently idle and is being utilised for the Bardegg-Baronia engineering, procurement, construction and commissioning (EPCC) project. This is not specific to Dayang as Petra Energy Bhd is also going though a slow work orders period, it added.
Perdana Petroleum Bhd’s vessels currently chartered to Dayang are also being off-hired as they are utilised for Shell’s HUCC contract.
As Petronas defers projects including the US$4 billion Kasawari turnkey, Kumang F12 gas, US$1 billionn Sepat gas, RHB Research said contract termination or off-hire risk is material.
“Coastal Contracts Bhd (Coastal Contracts) remains a safer investment for JU rigs. For JU rig exposure, we prefer the group as it is the only one taking real efforts to dispose of one of its JU rigs by 2015.
“We retain our forecasts for the service players, as there is no confirmation given by the companies. For JU rigs, we see Coastal Contracts protecting shareholders’ value as it takes real effort to dispose of a JU rig by 2015.”
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