KUALA LUMPUR (Jan 3): AmInvestment Bank Bhd Research said it will extend its 2020 crude oil price forecast of US$60-65 per barrel to 2021, mainly due to US crude inventories sliding by 2% to 441 million barrels since mid-November against the backdrop of Saudi Aramco's recent listing.

In a note today, the research house said it has maintained its 'overweight' call on the oil and gas sector as prospects have radically brightened with rising asset utilisation globally, which supported service providers' improving results.

"After four years of low charter rates, recovery in asset utilisation has begun to drive up charter rates for rigs and vessels in tandem with rising offshore activities.

"Rig charter rates are beginning to track upwards on tightening utilization rates to near 70% while older rigs are being retired amid slowing new units from China yards.

"In November 2019, Velesto Energy Bhd secured a fresh charter at sharply higher daily rates of US$90-100k for its Naga 8 jack-up rig from Carigali Hess Operating Company for a firm three-year period with three extension options of six months each to be deployed at Block A-18 of the Joint Development Area administered by the Malaysian-Thailand Joint Authority," it said.

AmInvestment said this is 29% to 32% higher than the US$70,000-US$76,000 for Velesto's four fresh jack-up rig charters which were secured in April last year.

Furthermore, AmInvestment also said Malaysia's 2019 contract awards slid 6% year-on-year (y-o-y) to RM11.5 billion due to slower order flows in the fourth quarter of 2019 (4Q19), which fell 35% quarter-on-quarter (q-o-q) and halved y-o-y to RM2.2 billion.

It said this followed multiple awards to Sapura Energy Bhd, Malaysia Marine & Heavy Engineering Holdings Bhd (MMHE) securing a RM2.5 billion Kasawari central processing platform job and Bumi Armada Bhd's 30% stake in Oil and Natural Gas Corp Ltd's KG-DWN 98/2 floating production storage and offloading charter in the previous quarter.

"In our view, the slower order flows could be temporary, given that award timelines tend to be lumpy in the first and fourth quarters of the year.

"Over the longer term, offshore projects in Brazil, Mexico, the Middle East and West Africa are poised to regain traction with Sapura Energy and MMHE being selected for Saudi Aramco's Long Term Agreement programme, which allows them to bid for the kingdom's massive offshore projects that could reach US$150 billion over the next 10 years," it added.

In addition, it said Westwood Global Energy Group is projecting global drilling and well services expenditure to grow 19% to US$1.9 trillion for 2019-2023 from 2014-2018.

Moreover, the research house said Petroliam Nasional Bhd (Petronas)' 3Q19 capital expenditure (capex) rebounded by 78% q-o-q and 59% y-o-y to RM13 billion largely from upstream projects against the backdrop of the dwindling tail-end development of the US$27 billion Pengerang Integrated Complex in Johor, which has reached a completion stage of 99.8%.

However, it said international spending has accelerated at a faster pace, which led to the proportion of overseas projects rising to 54% in 3Q19 from 44% in 3Q18.

"Nevertheless, 3Q19 domestic spending still increased by 39% q-o-q and 29% y-o-y to RM6 billion, which supports our view of a gradually rising capex trend.

AmInvestment said this is underpinned by Petronas' 2019-2021 Activity Outlook, which projects a gradual improvement in the utilisation of rigs, vessels, pipeline/offshore installations this year.

Given that capex for the cumulative nine months of 2019 has risen by 9% y-o-y to RM29 billion, it said it expects a continuation of the upward momentum this year.

The research house said it has 'buy' recommendations for MISC Bhd, Sapura Energy and Velesto, but its top picks are still companies with stable and recurring earnings such as Serba Dinamik Holdings Bhd and Dialog Group Bhd.

"We like the recurring income business model of Dialog and Serba Dinamik, which are involved in operation and maintenance services, while Dialog's earnings visibility is further secured by the Pengerang Deepwater Terminal project with its enlarged buffer zone.

"Our fair value for Serba Dinamik has been adjusted to RM3.00 from RM6.50 due to the recent one-for-two share split, two-for-five bonus and 881 million free five-year warrants at exercise price of RM2.62," it said.