Petronas Gas Bhd
(July 12, RM10.16)
Maintain BUY with unchanged target price of RM11.30: In our view, the emergency shutdown of one of Petroliam Nasional Bhd’s (Petronas) oil production platform off eastern peninsular Malaysia is unlikely to have a significant impact on Petronas Gas Bhd’s (PGas) valuations.
News reports over the weekend said that Petronas has shut down oil platforms and production pipelines offshore of eastern peninsular Malaysia in an emergency procedure after a thin layer of oil was sighted in nearby waters. Petronas did not specify which oilfields were affected. Several oil and gas fields including Tapis, Seligi, Guntong, Semangkok, Irong Barat, Tabu and Palas are located off Malaysia’s east coast.
Petronas indicated that the facilities, located 240km offshore Malaysia, were operated by Petronas’ production sharing contractors — upstream unit Petronas Carigali, ExxonMobil Exploration and Production Malaysia and Newfield Peninsular Malaysia. As per standard procedure, emergency response and oil spill teams, including those from the Petroleum Industry of Malaysia Mutual Aid Group and East Asia Response Ltd, were mobilised.
Our channel checks indicated that the affected oil field also produces some 100 to 150 million standard cubic metres per day (mmscfd) in gas. This represents up to 7% of PGas financial year ending March 31, 2010 (FY2010) output of 2,088mmscfd. For now, we understand that Petronas is replacing the lost gas production by increasing output of other fields off peninsular Malaysia.
Under the fourth Gas Processing & Transmission Agreement (GPTA), effective since April 1 this year, we estimate that the new transportation remuneration payment amounts to 48% of PGas’ throughput revenue. The variable flow rate incentive of 22 sen per gigajoule is unlikely to have any significant impact — as gas production is assumed to be below 2,100mmscfd threshold.
Assuming that the gas production drops by 150mmscfd, we estimate that the lower transportation remuneration will shave the group’s net profit by RM5 million per month or 0.4% of FY2011 earnings. Pending further developments on the shutdown, we maintain our forecast for FY2011 to FY2013.
The stock’s calendar year 2010 price-to-earnings-ratio of 15 times is below its past three-year average of 18 times but still at a premium to oil and gas sector’s 10 times due to its defensive earnings profile. Gross dividend yield is attractive at 6%. — AmResearch, July 12
This article appeared in The Edge Financial Daily, July 13, 2010.
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