TA Coverage news : Oil and Gas Sector for 2012

The News
The government has proposed to undertake two Oil & Gas (O&G) projects in Brunei. The first project, by Petronas, is to build a petrochemical complex with BASF on a 60 hectare plot of land in Pulau Muara Besar with an investment of approximately USD1.6bn (RM4.9bn) whilst the second is for the development of a
fabrication yard by Malaysia Marine and Heavy Engineering Holdings Bhd (MHB). According to newswire more details will be available by the end of the year or the beginning of 2012. MHB’s (Sell, TP: RM6.06) management refused to provide any further details citing that the project is at an infant stage at this juncture. We believe that it is likely that Petronas Chemicals (Buy, TP: RM7.28) could be involved in the Brunei project. Hypothetically speaking, Petronas, BASF, the Bruneian government and Petronas Chemicals could form a joint venture for the project. This will allow Brunei to leverage on the petrochemical industry in return for Petronas’s exploration rights. Petronas has already begun exploration in the CA1 and CA2 areas and in Block M, which is outside CA1 and CA2. Since his tenure, Prime Minister Datuk Seri Najib Tun Razak seems to have set up ties with Brunei enabling both countries to leverage on each other’s assets. In return for
investments from Malaysia to Brunei in the O&G sector, Najib has also discussed investment opportunities for Brunei in the Sabah tourism sector and hydro power generation in Sarawak.

Impact
Once again this is another bit of positive news for the sector as a whole. For the petrochemical plant, companies like KNM (Buy, TP: RM1.90) will certainly benefit from process equipment fabrication. The  development of the yard in Brunei by MHB seems to suggest the long term viability of Petronas’ exploration and production activity. Deepwater activities are set for growth in Brunei as exploration & production
activities in shallower fields have almost dried out.

Maintain Overweight
We reiterate our Overweight call on the sector as positive news flow continues to be a catalyst. We have mostly Buys in the sector except for MHB and Kencana.

Source: TA