RAM Rating: Varying fortunes for local oil and gas players

KUALA LUMPUR: RAM Ratings has indicated varying fortunes for local oil and gas (O&G) players.

“Among the 31 listed domestic O&G players, more than two-thirds posted year-on-year (y-o-y) declines in pre-tax profit last year, with about a quarter incurring losses.

“However, their fortunes vary according to the sub-segment or type of services within the sector,” said RAM Ratings’ Head of Consumer and Industrial Ratings Kevin Lim, in a statement today.

Based on their performance, the aggregate drop in revenue last year came up to a moderate 18% although pre-tax profit plummeted 57%, exacerbated by the impairment of assets and intangibles.

The collapse in crude prices and persistently weak outlook led to the cancellation of USD400 billion worth of projects for the global oil and gas (O&G) sector.

RAM Ratings said Petronas, too, has been scaling back both its capital expenditure (capex) and operational expenditure (opex) since 2015, as have other international oil companies operating in Malaysia.

It also said O&G players providing offshore support and drilling vessels had been badly affected, with most suffering losses on the back of depressed daily charter rates (DCRs) and low utilisation levels.

“DCRs that dropped by up to 25% in 2015 are expected to decline further this year, while vessel utilisation levels are also expected to fall further, as contracts expire.

“Nonetheless, companies with meaningful business diversity have been partially cushioned against the effects of the O&G slump,” it added,

Meanwhile, RAM Ratings said those catering to the operational requirements of upstream production, such as operational supplies, maintenance, upgrading and fabrication of process equipment, had been the least affected in terms of earnings deterioration, with pre-tax profit falling up to about 25%.

On the other hand, downstream O&G players such as petroleum refiners have benefited from soft crude prices.

“They also enjoy relatively stable demand for their products and these companies, which have been reporting improved y-o-y earnings, include Petron Refining and Marketing Bhd and Shell Refining Company (Federation of Malaya) Bhd.

“However, as the downtrend in crude prices has largely stabilised, even testing new highs recently, we do not expect any further substantial earnings deterioration for the sector,” the rating agency said.

RAM has assumed an average Brent Crude price of USD40/barrel for 2016 and USD45/barrel for 2017.

“We expect crude prices to stay volatile in the coming months, pressured by a slew of uncertainties over supply growth as well as concerns about unsustainable consumption growth in major consumer markets,” it said.

– BERNAMA