(EnergyAsia, February 16 2012, Thursday) — Norway’s DNB Bank said Asia’s offshore oil and gas stocks are at the start of a sector up-cycle, naming Singapore-listed Keppel E&P, Sembcorp Marine, STX OSV, Ezion and Jaya as its top picks.
In a report last week, authors Kay Lim and Simon Jong also recommended buying Swiber, Ezra, ASL Marine, CH Offshore, KS Energy and Kreuz.
“We believe we are in the initial phase of what could be the next sector bull cycle. In our view, current market dynamics favour vessel owners, with a tighter market and lower pace of newbuild orders,” said the report.
“We are forecasting 6% incremental demand growth in 2012, versus 5% global fleet growth. Despite a strong share price performance this year, we argue that the sector risk/reward remains attractive, at a 25% discount to net asset value (NAV) and 8.7x 2012 estimated price/earnings ratio.”
Otto Marine was the only stock to be given a sell rating while EOC of Norway was rated ‘hold’, and Malaysia’s Kencana and SapuraCrest are both under review.
The report said there will be demand for another 202 offshore support vessels (OSVs) for a 6% rise in the global fleet in 2012 to follow on 2011’s growth of 5%.
“We view this as a contributing factor to a tighter demand/supply balance,” it said.
Reviewing last year’s performance, the authors said there were 561 long-term OSV fixtures, which made up 19% of the world’s OSV fleet. Term fixtures rose 38% over 2010.
“In 2011, the market continued to absorb the excess tonnage, with improving demand dynamics.
Utilisation levels stabilised at an average 76–79%, and started to tick up in Q4 2011 and early-2012, supporting our thesis that 2012 could be the turning point for the OSV market.”
The authors observed that the global financial crisis has not slowed down the pace of newbuild OSV ordering “for now”, with a “prolific” 21 orders placed in Q4, of which six were in December.
Compared with rigs, OSV ordering pace has slowed down.
“Newbuild orders placed in 2010 and 2011 represented just 1.6% and 2.3% growth respectively in the global OSV fleet. Compared to ‘demand’, i.e. the total number of rig orders in 2011 of 60 jack-ups and 36 UDW floaters, the ratio of OSVs to one demand unit was 0.74, well below the three-year average of 2.55.
“Therefore, we believe there is pent-up demand for OSVs.”