PUBLIC INVESTMENT BANK

PUBLIC INVESTMENT BANK PublicInvest Research Sector Update Wednesday, April 29, 2015 KDN PP17686/03/2013(032117) OIL & GAS Neutral BRENT CRUDE OIL (USD/bbl) 90.00 80.00 70.00 60.00 50.00 40.00 Oct-14 Nov-14Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 WTI CRUDE OIL (USD/bbl) 90.00 80.00 70.00 60.00 50.00 40.00 Oct-14 Nov-14Dec-14 Jan-15 Feb-15Mar-15 Apr-15 NYMEX NATURAL GAS (USD/MMBtu) 5.00 4.50 4.00 3.50 3.00 2.50 2.00 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 RECOMMENDATION TABLE Current (RM) Target (RM) Upside (%) Call BUMI 1.22 1.48 21.3 O DAYA 0.135 0.15 11.0 N DEHB 2.63 3.17 20.5 N PETR 1.33 1.82 36.8 O PENB 1.46 1.88 28.8 O UZMA 2.30 2.72 18.3 O WSC 1.30 2.02 55.4 O Research Team T 603 2268 3000 F 603 2268 3014 E research@publicinvestbank.com.my Higher But Not Really Are we finding a balanced oil price level? WTI has been trading up to USD57/bbl, with Brent up to USD65/bbl. If oil price remain at these levels, we could see drillers begin to complete some of their wells which they have halted. If so, an estimated 4,731 wells sitting on the sidelines could continue to place a ceiling on prices thus pushing it back down at a certain level. Looking at the Middle East. Saudi Arabia remains a key catalyst in pressuring oil prices with its move to keep the heat on high cost producers by stepping up on its production levels. The additional spare capacity flows to the OPEC production should keep prices from rising beyond the USD55-USD70 range. Ali al-naimi, Saudi Arabia s oil minister in his Beijing speech yesterday emphasised on their growing relationship with China (oil demand c.+6.5% YoY in March), expressing to the audience their support for China as its energy consumption continues on an uptake. To highlight, geopolitical issues in the Middle East have been adding a few extra dollars to the price of oil per barrel. Currently with the ongoing war in Yemen even though it is not a significant oil player and thus not affecting oil supplies however the Gulf of Aden sees an estimated 4.7mbbls/day. Supply updates. Following the week ending April 17 EIA report, oil production in the US saw the third decline in 4 weeks. US production has shaved off about 22,000bbls/day to 9.4mbbls/day. This has been the crux of uplifting the price of oil in April. Crude inventories remain on the rise, signaling the surplus of production, more than refineries can handle. Gasoline inventory drew some respite, recording a fall of 2.1mbbls showing demand is gaining some momentum. According to Baker Hughes, rotary rig counts, as of 24 April 2015 have continued to fall (-929 YoY) in the US, and (-94 YoY) internationally supporting the view that the world s supply could begin to curb? Results season which is around the corner should see close attention to the 1Q results of many oil companies. We can look to assess the impact of spending cuts, restructuring of cost and growth strategies, and for companies that are not distressed would see the opportunity to fine-tune their costs and right-size their spending going forward. Events to watch. i) The beginning of consolidations? Early this month we saw Royal Dutch Shell PLC s USD70bn acquisition of BG Group PLC. Two of the world s largest producers of liquefied natural gas, are ironically joining forces as conditions for the resource in Asia is at its worst. Nevertheless, the mega-merger will give Shell double the liquefaction capacity by 2018. ii) All eyes remain on the framework agreement of Iran s nuclear programme. The formalized framework of the Iran nuclear deal could potentially unleash its economy, from an O&G standpoint, tapping into the vast O&G reserves that remain massively underdeveloped. iii) All eyes are on the newly-appointed President and CEO of PETRONAS Datuk Wan Zulkiflee Wan Ariffin for future directives. iv) GST implementation in Malaysia could potentially change some of the dynamics of the sector, impacting operating cashflows where GST is paid upfront on full contract values and reimbursed at a later date. v) Next OPEC meeting is scheduled for 5 June 2015 will shape the future direction of oil price trends. Remain Neutral. We anticipate the continuous flow of contracts, however at a sluggish pace and with re-negotiated pricing as well as contract term changes. Contracts are expected to be shorter term due to fluctuations in rates from pending oil price trends. Our top picks for the sector are Uzma (Outperform, TP:RM2.72) and Petra Energy (Outperform, TP: RM1.88). 1 Important disclaimer is provided at the end of this report. PUBLIC INVESTMENT BANK Page 1 of 8

2015 Catalysts Higher stockpiles from China and India. China has plans to build up a strategic petroleum reserve of 90-day supply of oil, with its higher purchasing efforts over the last year. As of November, 91.0m barrels was recorded in storage, with new storage capacity expected soon. Depending on how fast China can consume the commodity, this could see some support to oil prices. India, for the first time, is also looking to store some oil at these low prices, with stockpiles estimated to reach 6.5m to 7.0m bbls this year. By end-2015, India will see construction of new capacity to store up to 28.0m bbls. Libya, an OPEC-member that has been in strife and civil war, is pumping c.500,000bbl/day, down from 1.6mbbl/day during the pre-gadaffi era. The country s fight against IS militants could further worsen the current scenario. To target Libya s oil industry for destruction does not bode well for the country s longrun ability to rebuild which could see the state closer to its demise. OPEC, as the world s largest crude oil supplier - Its Secretary-General Abdallah Salem el-badri cautioned that while OPEC did not pull-back on supply, projects are being cancelled from ample cost cutting initatives which would in turn lead to a price spike in the future. Many extremist groups have also been dependent on oil money as revenue-generating assets for their activities and hence have been destroying oil pipelines and refineries to starve their enemies from the resource. Top Picks Uzma will be buoyed by i) full year contribution from MMSVS (Hydraulic Workover Units), ii) full year contribution from Premier Enterprise Corporation (PEC) for trading of chemical and other commodities in oil refinery, iii) increase in strategic stake in Setegap Ventures from 30% to 49%, and iv) remuneration fee when RSC production begins 2HFY15. Petra Energy will see the i) early activation of the Topside Major Maintenance Services (TMM) contract by PETRONAS Carigali Sdn. Bhd. (PCSB) for SBO effective since 4 July 2014, and will last until 20 May 2018. ii) Higher work orders for the PANM contract. iii) The KBM cluster RSC whereby Kapal and Banang Fields have produced c.4.0mbbl of oil to-date, with an average of c.700,000bbl/quarter. The Group has taken key measures to manage costs and operation expenditures while exploring new opportunities to attain new revenue streams. 2 Important disclaimer is provided at the end of this report. PUBLIC INVESTMENT BANK Page 2 of 8

Figure 1: Weekly Petroleum Statistics Report in US by EIA 4 Weeks Ending 17/4/2015 10/4/2015 18/4/2015 Crude Oil Input To Refineries 15963 15850 15561 Refinery Capacity Utilisation (%) 90.7 90.2 88.8 Motor Gasoline Production 9471 9286 9061 Distillate Fuel Oil Production 4906 4896 4861 Stock (mbbls) Crude Oil (excl. SPR) 489.0 483.7 397.7 Motor Gasoline 225.7 227.9 210.0 Distillate Fuel Oil 129.3 128.9 112.5 All Other Oils 391.7 386.1 348.8 Crude Oil in SPR 691.0 691.0 694.6 Total 1926.7 1917.6 1763.6 Net Imports (000s bbls per day) Crude Oil 7117 7023 7486 Petroleum Products -1711-1799 -1701 Total 5406 5224 5785 * SPR - Strategic Petroleum Reserves Source: EIA Figure 2: OPEC Pricing and Production Data Jan-15 Feb-15 Mar-15 OPEC Basket Average Price 44.38 54.06 52.46 OPEC Crude Production 30.16 29.97 30.79 Figure 3: Supply and Demand of Crude Oil Supply and Demand mbbls/day 2014 2015 YoY chg World Demand 91.3 92.5 1.2 Non-OPEC Supply 56.5 57.2 0.7 OPEC NGLs 5.8 6.0 0.2 3 Important disclaimer is provided at the end of this report. PUBLIC INVESTMENT BANK Page 3 of 8

Feb-07 May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 Figure 4: Oil Price Trends Brent WTI Linear (Brent) Linear (WTI) USD/bbl 160 140 120 100 80 60 40 20 0 Source: Bloomberg World oil demand in 2014 was c.91.2mbbl/day, according to OPEC with total demand estimated to rise by 1.17mbbl/day to 92.4mbbl/day. Oil demand for 2015 is expected to be boosted by China, other parts of Asia and the Middle East this year predicted by OPEC to contribute 2/3 of total demand growth. Figure 5: Quarterly World Oil Demand Growth 4 Important disclaimer is provided at the end of this report. PUBLIC INVESTMENT BANK Page 4 of 8

Figure 6: OPEC Crude Oil Production From Direct Sources Figure 7: World Oil Demand and Supply Balance, mbbls/day 5 Important disclaimer is provided at the end of this report. PUBLIC INVESTMENT BANK Page 5 of 8

20.0 26.2 26.8 23.4 24.3 30.7 17.6 32.3 17.8 10.3 11.5 16.9 14.3 24.3 Figure 8: US Weekly Rig Count vs. Crude Oil Production Source: Baker Hughes and US EIA Figure 9: PIVB Portfolio Analysis Order Book (RMbn) Tender Book (RMbn) Earnings Visibility FPSO/Rig Owner Bumi Armada 24.5 25.0 2028 OSV Daya Materials 2.2-2020 Dayang Enterprise 4.0 0.8 2018 Perdana 1.1 ** 2019 Petroleum Petra Energy 2.5 1.0 2018 Various Uzma 1.8 3.1 2018 Wah Seong 1.2 5.0 2015 Source: Company, PublicInvest Research **Perdana s tender values vary hence cannot be determined. Figure 10: PETRONAS Annual CAPEX with International and Domestic Breakdown RM bn 60 Domestic International 50 40 30 20 10 0 2008 2009 2010 2011 2011 2012 2013 FYE Mar FYE Dec *PETRONAS Group changed its financial year end from March to Dec in 2011 Source: PETRONAS 6 Important disclaimer is provided at the end of this report. PUBLIC INVESTMENT BANK Page 6 of 8

Figure 11: Share of Future Oil Development in Malaysia Existing Production Greenfield Development Brownfield Development 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Source: PETRONAS *The chart only displays estimated numbers. Figure 12: Opportunities Available In More Challenging Resource Types Enhanced Recovery >70 >1.3bn boe EOR/IOR/IGR projects sanctioned (5years) Additional reserves contribution Deepwater 25% Of oil resources found in deepwater areas High CO2 Gas Marginal Field New Plays and Deep Exploration Source: PETRONAS >35% >35 Tcf 25% 15% >15% Of gas resources contains high CO2 levels Net hydrocarbon gas potentials Of all discovered fields Of total discovered resources Play-types identified in Malaysia with more areas being mapped a studied 7 Important disclaimer is provided at the end of this report. PUBLIC INVESTMENT BANK Page 7 of 8

RATING CLASSIFICATION STOCKS OUTPERFORM NEUTRAL UNDERPERFORM TRADING BUY TRADING SELL NOT RATED The stock return is expected to exceed a relevant benchmark s total of 10% or higher over the next 12months. The stock return is expected to be within +/- 10% of a relevant benchmark s return over the next 12 months. The stock return is expected to be below a relevant benchmark s return by -10% over the next 12 months. The stock return is expected to exceed a relevant benchmark s return by 5% or higher over the next 3 months but the underlying fundamentals are not strong enough to warrant an Outperform call. The stock return is expected to be below a relevant benchmark s return by -5% or more over the next 3 months. The stock is not within regular research coverage. SECTOR OVERWEIGHT NEUTRAL UNDERWEIGHT The sector is expected to outperform a relevant benchmark over the next 12 months. The sector is expected to perform in line with a relevant benchmark over the next 12 months. The sector is expected to underperform a relevant benchmark over the next 12 months. DISCLAIMER This document has been prepared solely for information and private circulation only. It is for distribution under such circumstances as may be permitted by applicable law. The information contained herein is prepared from data and sources believed to be reliable at the time of issue of this document. The views/opinions expressed herein are subject to change without notice and solely reflects the personal views of the analyst(s) acting in his/her capacity as employee of Public Investment Bank Berhad ( PIVB ). PIVB does not make any guarantee, representations or warranty neither expressed or implied nor accepts any responsibility or liability as to its fairness liability adequacy, completeness or correctness of any such information and opinion contained herein. No reliance upon such statement or usage by the addressee/anyone shall give rise to any claim/liability for loss of damage against PIVB, Public Bank Berhad, its affiliates and related companies, directors, officers, connected persons/employees, associates or agents. This document is not and should not be construed or considered as an offer, recommendation, invitation or a solicitation of an offer to purchase or subscribe or sell any securities, related investments or financial instruments. Any recommendation in this document does not have regards to the specific investment objectives, financial situation, risk profile and particular needs of any specific persons who receive it. We encourage the addressee of this document to independently evaluate the merits of the information contained herein, consider their own investment objectives, financial situation, particular needs, risks and legal profiles, seek the advice of their, amongst others, tax, accounting, legal, business professionals and financial advisers before participating in any transaction in respect of any of the securities of the company(ies) covered in this document. PIVB, Public Bank Berhad, our affiliates and related companies, directors, officers, connected persons/employees, associates or agents may own or have positions in the securities of the company(ies) covered in this document or any securities related thereto and may from time to time add or dispose of, or may be materially interested in, any such securities. Further PIVB, Public Bank Berhad, our affiliates and related companies, associates or agents do and/or seek to do business with the company(ies) covered in this document and may from time to time act as market maker or have assumed an underwriting commitment in the securities of such company(ies), may sell them or buy them from customers on a principal basis, may have or intend to accommodate credit facilities or other banking services and may also perform or seek to perform investment banking, advisory or underwriting services for or relating to such company(ies) as well as solicit such investment advisory or other services from any entity mentioned in this document. The analyst(s) and associate analyst(s) principally responsible for the preparation of this document may participate in the solicitation of businesses described aforesaid and would receive compensation based upon various factors, including the quality of research, investor client feedback, stock pickings and performance of his/her recommendation and competitive factors. Hence, the addressee or any persons reviewing this document should be aware of the foregoing, amongst others, may give rise to real or potential conflicts of interest. Published and printed by: PUBLIC INVESTMENT BANKBERHAD (20027-W) 9 th Floor, Bangunan Public Bank 6, Jalan Sultan Sulaiman 50000 Kuala Lumpur T 603 2268 3000 F 603 2268 3014 Dealing Line 603 2268 3129 8 Important disclaimer is provided at the end of this report. PUBLIC INVESTMENT BANK Page 8 of 8