OIL & GAS

20 September 2010

September rig rates mostly up

Company report OVERWEIGHT
Alex Goh
alexgoh@ambankgroup.com
+603 2036 2291 Rationale for report: Sector Update

• Rate for offshore rigs per day have increased for a second month in a row in three of four rig
market segments tracked by ODS-Petrodata's monthly Offshore Rig Day Rate Index. But
deepwater rig day rate index slid for the second consecutive month, and now stands slightly
Quick Take
lower at 661.

• Deepwater fleet utilization fell to 95%, partially as a result of the ongoing moratorium in the
US Gulf in the wake of the Deepwater Horizon disaster. However, the softness seen in rates
in this rig market sector in recent months may only partly stem from the US Gulf deepwater
ban - as standby rates of some rigs are not factored into the index, as they do not represent
market rates.

• The ODS-Petrodata Mid-Water Depth Semisubmersible Day Rate Index increased the most of
the index group, rising to 725, its highest level over a year. Fleet utilization remained stable
at just over 80%.

• The ODS-Petrodata US Gulf of Mexico (250 to 300 feet) Jackup Day Rate Index increased
3ppts for the second consecutive month to 233, its highest level since May 2009. Fleet
utilization remains at a dismal 40% as the industry and Government continue to hash out
issues brought about by the Macondo blowout. ODS-Petrodata indicate that several jackups
are likely to leave the area in the near future.

• The movement in rig rates hinges largely on the stance of the US government - with the
resolution of the Gulf oil spill being almost completed by BP. We note that the US
government and regulators have adopted a more accommodative stance recently towards
the industry. Recall that the US House of Representatives voted to end a six-month ban on
deepwater drilling last month, challenging Obama’s administration of a moratorium on
deepwater drilling in the US Gulf of Mexico.

• But we expect US companies to wait for the issuance of new safety regulations before
continuing with their investments in GOM. We remain positive on the sector with emerging
signs of new domestic-centric jobs such as: (a) RM4bil fabrication contracts for Malaysian
shallow fields to be awarded in 2H 2010, (b) RM3bil Petronas LNG re-gasification plant in
Melaka; (c) New maintenance and hook-up commissioning services for existing offshore
platforms, potentially worth RM3bil; and (d) Exxon-Mobil’s enhanced oil recovery
investments worth over RM7bil for existing fields.

• Given the re-acceleration in the country’s oil & gas capex up-cycle coupled with the
proposed listing of MISC’s Malaysia Marine Heavy Engineering by end 2010, we maintain our
OVERWEIGHT view on the sector with BUY calls on SapuraCrest, Alam Maritim Resources,
Kencana Petroleum, Tanjung Offshore, Dialog Group and Petronas Gas. Our top pick
continues to be SapuraCrest given its huge lock-in order book of almost RM10bil, which
should sustain earnings for the next three years. We maintain our SELL call in KNM Group
given its poor earnings deliverance.

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report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a
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Oil & Gas 20 September 2010

TABLE 1 : STOCK VALUATION & RECOMMENDATIONS

Market Fair PE Div yield ROE

Stocks Call capitalisation value CY10F CY11F CY10F CY11F FY09 P/BV
RMmil RM/share x x % % % x
Alam Maritim Resources BUY 537.2 2.58 5.0 4.3 0.8 1.4 19.9 1.1
Boustead Heavy Industries HOLD 1,078.5 4.40 11.6 7.7 1.4 1.8 22.2 3.0
Coastal Contracts HOLD 818.5 2.50 4.6 4.1 2.2 2.5 35.7 2.0
Dialog Group BUY 1,568.7 1.24 15.4 11.7 2.7 3.4 21.0 3.6
Kencana Petroleum BUY 2,634.6 2.00 17.2 13.6 0.3 0.3 27.6 3.6
KNM Group SELL 1,622.1 0.42 11.8 10.2 - 1.8 13.0 0.9
Petronas Gas BUY 21,211.7 11.30 16.5 14.9 4.7 5.6 11.5 2.7
SapuraCrest Petroleum BUY 2,895.1 3.12 15.9 13.5 2.9 3.3 12.5 2.9
Sealink International BUY 297.5 0.84 4.9 4.3 6.7 6.7 12.2 0.7
Scomi Group BUY 408.8 0.76 6.3 5.3 1.3 1.3 0.9 0.4
Tanjung Offshore BUY 458.9 2.60 15.0 11.6 1.3 1.6 1.5 1.5
Wah Seong Corporation HOLD 1,346.9 2.45 20.6 13.5 2.4 2.7 13.7 1.6

Source: AmResearch

CHART 1 : DEEP-WATER RIG RATES

Source: ODS Petrodata

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