Oil producers to proceed with planned production cuts this year, says AmInvestment Bank

KUALA LUMPUR, Sept 4  -- AmInvestment Bank expects oil producers to proceed with their planned production cuts for this year as demand globally remains depressed amid the prolonged COVID-19 movement restrictions and physical distancing that has become the new normal.

The investment bank, in a research note today, said the movement restrictions and physical distancing measures could mean potentially long-term changes in energy usage, while the move to proceed with planned production cut would go on despite some measure of optimism has returned for crude oil prices.

Petroliam Nasional Bhd (Petronas) has already announced cuts of 21 per cent for capital and 12 per cent operating expenditure this year due to the current COVID-19-impacted cyclical downturn which was exacerbated by the Saudi-Russian price war earlier this year. 

The national oil firm will be releasing its second-quarter financial performance results later today.

“So far, 20 per cent to 30 per cent capital expenditure reductions for 2020 have been announced by Exxon Mobil, Royal Dutch Shell, Saudi Aramco, and Petrobras.

“In the first half of 2020, new contract awards to Malaysian operators dropped 62 per cent year-on-year to RM2.2 billion, with the worst fallout yet to come in the second half of the year onwards,” said AmInvestment Bank.  

Against the backdrop of a sharp demand drop in upstream oil services, the investment bank remains cautious on companies with high gearing levels such as Sapura Energy, which needs to restructure its RM10 billion debt by year-end, it added.

As there is a risk that Velesto Energy Bhd could reverse to a loss in the second half of the current financial year due to lower rig utilisation, balance sheet risks may re-emerge next year.

“However, the rest of the players are relatively comfortable at this juncture with  Serba Dinamik  recently raising a 10 per cent equity placement, while Bumi Armada has reclassified a RM1.3 billion short-term debt to long-term due to higher asset utilisation,” said AmInvestment Bank.   




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