The near-term earnings prospects of oil and gas sector companies remain muted, analysts say. In the longer term, however, some say the sector still looks positive.
The fragility of the sector was underscored this week by a profit warning by rig-building giant Sembcorp Marine, and related news.
SembMarine warned on Tuesday that it may post its first quarterly net loss since 2003 this quarter, along with a "significant decline" in net profit for the full year. This was owing to the challenging operating environment as well as to customers deferring or looking to defer rig orders, it said.
The company also announced on Thursday that its unit, Jurong Shipping, had reached a so-called "standstill" agreement with a rig customer.
SembMarine shares fell 1.5 cents yesterday to $1.88 and have now slumped 8.7 per cent from their closing price on Tuesday.
ROOM FOR GROWTH
The lower oil price is already helping global economic growth, which would in turn drive demand for oil in the longer term.
OCBC INVESTMENT RESEARCH, on why the oil and gas sector's longer-term prospects are positive
Earnings across the sector for the three months to Dec 31 are likely to be weaker than last year, said Ms Lim Siew Khee, an analyst at CIMB. She cited lower utilisation and a slide in orders as key factors.
Maybank analyst Yeak Chee Keong said: "If you look at the shape of the market, it's not turning better."
OCBC Investment Research is also refraining from calling a recovery, barring a spike in oil prices.
With oil prices low, companies with higher-quality clients and those with significant outstanding order books would be more resilient, OCBC said in its report. Companies which successfully diversify into non-oil-and-gas-related sectors are also worthy of attention, it added.
The report identified two longer-term investment opportunities: Ezion Holdings and Triyards Holdings. Among oil service firms, OCBC considered Ezion as having most of the qualities that would enable such companies to withstand oil price volatility. OCBC said these qualities included having operations related to production rather than exploration, and operating in shallow waters with lower break-even costs.
They also include having longer-term charter contracts and exposure to national oil companies, whose spending is more resilient than international oil companies, it added.
Triyards specialises in liftboats, whose demand still seems healthy in the region, at least for now, OCBC said. Its order book is also more diversified now than it was a few years ago, the bank added.
But the oil and gas sector's longer-term prospects are positive, the bank said.
"The lower oil price is already helping global economic growth, which would, in turn, drive demand for oil in the longer term."
The energy consumption per capita of China and other emerging markets is still "very low" compared with the United States, and would only grow, it added.