“Companies that haven’t gone through restructuring exercises, especially their debts and improve their operational efficiency, will be affected by the current challenging environment, ” Icon Offshore Bhd managing director Datuk Seri Hadian Hashim(pic) told StarBiz.
PETALING JAYA: The recent plunge in global crude oil price could lead to consolidation of the local oil and gas (O&G) players.
The sharp drop in global oil prices has taken a toll on local O&G share prices, with many companies’ valuations now trading below the broader stock market.
For instance, companies such as HIBISCUS PETROLEUM BHD, DAYANG ENTERPRISE HOLDINGS BHD and Carimin Petroleum Bhd are trading at a price-earnings ratio (PE) valuation of five times.
Serba Dinamik Holdings Bhd, at 11 times PE, was way lower than the FBM KLCI PE valuation of 14.8 times.
Despite the attractive valuation, many O&G companies are facing a challenging working environment moving forward as the coronavirus (Covid-19) pandemic would drag demand growth for the next three to six months at least.
“Companies that haven’t gone through restructuring exercises, especially their debts and improve their operational efficiency, will be affected by the current challenging environment, ” Icon Offshore Bhd managing director Datuk Seri Hadian Hashim told StarBiz.
He points out that there will be consolidation among the local service providers should the low oil price environment prolonged for a period of time.
It is worth noting that many oil majors around the world had already cut their capital expenditure (capex) for this year which in turn would see a slow order book replenishment among the service providers.
For instance, according to TA Securities, Royal Dutch Shell has cut its capex for 2020 to US$20bil from US$25bil previously, Saudi Aramco slashed to US$25bil-US$30bil from US$35-US$40bil and Petrobras cut to US$8.5bil from US$12bil previously.
Taking the cue from the global trend, it is only a matter of time before the national oil company Petroliam Nasional Bhd (Petronas) would start to cut its capex of RM28bil for this year.
Hadian reckoned that Petronas is likely to reduce the number of its operating rigs to cope with the current oil price.
“However, operating expenditure such as rigs maintenance is expected to be continued, ” he said.
He hoped that the banks would extend the moratorium of loan deferment for the O&G players to alleviate the financial burden resulting from the slowdown in activity as a direct impact from the Covid-19 outbreak and movement control order (MCO).
“The O&G industry was just about to recover from the last oil price crunch which started in 2014, ” he added.
On the effect of the MCO to the company, Hadian said that the provisions for Icon’s vessels are affected because of the closure of operating bases or limited capacity.
“We have asked for special dispensation from the authorities to permit limited movements for crew change and also for yards to be opened.
“Otherwise so far no Covid-19 cases from any of the 300 of our crew members, ” he said.
TA Securities has downgraded its 2020 oil price assumption to US$40 per barrel from US$50 previously driven by expectations of deep oil demand contraction as the global economy has now entered into recession.
“Furthermore, we expect substantial supply glut as Opec and Russia ramp up production to wrest market share, ” it said.