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O&G Faces Strong Headwinds! Brace Yourselves! Or Not…
Tradeable, Tradeable Ideas | 11 September 2014
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By: Raymond Leung
Articles (142) Profile
  1. Recently, companies in the oil and gas sector have been taking a beating in markets due to the appearance of strong headwinds.
  2. In particular, counters involved in OSVs have been particularly affected after Petronas warned that there could be an oversupply in Malaysia.
  3. However, other emerging countries like Mexico and Brazil are still buoyant markets for O&G counters.

Analysts' updates on various oil and gas counters

Recently, companies in the Oil and Gas (O&G) sector took a beating as the industry as an overall starts to encounter strong headwinds.

Effects of the tougher operating environment are particularly strong in companies that are involved with Offshore Support Vessels (OSV).

Earlier this year, the CEO of Petronas warned of declining charter rates in Malaysia due to an oversupply of OSVs in the country. Companies were advised to venture into other markets by expanding regionally to avoid the crowded Malaysian market.

Chartering rates for deepwater and ultra deep-water rigs are softening while jack-up rigs are seemingly holding up. However, rates for these assets are expected to go down further as there will be substantial new deliveries ahead.

Companies that have established presence in growth areas with national oil companies that are committed to sustain spending should be preferred by investors.

Mexico, Brazil and Indonesia are examples of buoyant markets that are supported by strong spending from national oil companies.

Chartering rates for OSVs in Indonesia remains strong as cabotage laws are protecting local companies such as Pacific Radiance.

Keppel Corp, SembCorp Marine and Vard should be preferred for their involvements in Brazil and Mexico (local shipyards). Demand for their products remains strong in these companies as local regulations require companies to source most of its equipments locally.

Alternatively, investors may look at companies involved in constructing scarce assets such as large size accommodation vessels and subsea construction vessels.

Demand for liftboats in Asia Pacific is growing as there is an increasing acceptance of these vessels by oil companies. Ezra owns a substantial number of these scarce assets which may provide an alternative for investors in the O&G sector.

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Trained in fund management, Raymond is familiar with shares and various investment vehicles.

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Pacific Radiance  -- -- --   
Business: Co is a provider of offshore support solutions with a fleet of more than 130 vessels. [FY17 Turnover] Offshore support services business (62.4%), subsea business (27.8%), complementary business (9.8%).

Insight: Nov-18, 9M18 revenue fell 5.7% to US$45.9m mainly ... Read More
Keppel Corp  6.250 +0.03 +0.48%   
Business: [FY18 Turnover] Infrastructure (44.1%), offshore & marine (O&M) (31.4%), property (22.5%), investments (2%).

Insight: Apr-19, 1Q19 revenue rose 4.1% underpinned by high... Read More
Sembcorp Marine  1.300 +0.030 +2.36%   
Business: Co is a leading global marine & offshore engineering group. [FY18 Turnover] rigs & floaters, repairs & upgrades, offshore platforms (98.8%), ship chartering (1%), others activities (0.2%).

Insight: May-19, 1Q19 revenue fell 31.3% to $810.6m due to ... Read More

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