Phillip 2018 Singapore Strategy: Offshore & Marine Sector December 19, 2017

This report is part of theĀ Phillip 2018 Singapore Strategy Report.

  • Oil price is on the course of a recovery, but the upstream sector experience only modest improvement.
  • Capex and Opex remain tight within the sector.
  • Gas sector sees momentum as the demand gradually grows.

2017 Review

Crude oil (Brent as a proxy) has been hovering between US$45/bbl and US$55/bbl for the past three quarters. It broke out from this range to trade above the US$60/bbl in Nov-17. This was based on the expectation of an extension in output cuts by OPEC. Upstream drilling and production activities recovered modestly. The global rig count has bottomed out since Jun-17 with an improving utilisation rate. However, day rates remain status quo at lower levels, and it only started to pick up slightly in Sep-17. The global offshore exploration and production spending is expected to be less than 10% YoY growth in 2017.

Outlook

Look ahead in 2018, with the improvement in the global economy and higher inflation expectations; we think oil prices will further creep up from the current base of US$60/bbl. Nonetheless, the recovery of the offshore and marine sector will be slower, especially the oilfield exploration and production related sector. Major oil players remain tight on their capex budgets for 2018. A bright spot is the demand for gas. It will continue to grow, consistent with the worldwide trend of switching to cleaner fuel. We could see more gas-related projects such as FPSO and FLNG to be awarded in the coming years. We have already factored in some contracts into our forecast.

Recommendation

Our only coverage in the offshore and marine sector is Sembcorp Marine. It managed to ride through the downturn the past two years. As of 3Q17, the total order book was S$7.97bn, out of which S$2.04bn worth of contracts were already booked in this year. Entering 4Q17, the group announced a new contract worth of US$490mn besides the reselling of nine jack-up rigs valued at US$1.3bn. We have modelled in the total contracts secured in 2018 to be S$2.5bn, comparable to the amount in 2017. The bulk of the orders will come from FPSO and FLNG.

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About the author

Profile photo of Chen Guangzhi

Chen Guangzhi
Investment Analyst
Phillip Securities Research Pte Ltd

Guangzhi graduated from Singapore Management University with a Master degree in Applied Finance and from South China University of Technology with a Bachelor degree in Electronic Commerce.

The current sector coverages include Energy, Utilities, and Mining sectors. He has 3 years experience in equity research in both Hong Kong and Singapore market. He is the mandarin spokesperson for Phillip Securities Research in relation to China-related projects and all mandarin seminars and client events.

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