* UMW Oil to benefit from Petronas move to favour local
* UMW Oil has ordered one more rig, has plans for two more
* Petronas has formidable capital spending budget
By Yantoultra Ngui
KUALA LUMPUR, Nov 1 Malaysia's UMW Oil & Gas
Corp climbed as much as 11 percent in its market
debut, as investors bank on the company's close ties with state
oil firm Petroliam Nasional Bhd (Petronas) to provide it with a
steady stream of revenue for years to come.
The unit of the government-owned UMW Holdings
conglomerate is currently a small player in the oil drilling
industry, owning just four of the 48 jack-up rigs deployed in
Southeast Asia where heavyweights like Noble Corp and
Ensco Plc dominate.
But this is set to change, albeit gradually, as Petronas
pursues a policy of replacing foreign-owned rigs with
locally owned ones when contracts expire, determined to spread
more of its largesse to domestic firms.
Nor is there much doubt over Petronas' ability to deliver on
that promise - a formidable capital spending budget calls for it
to spend some $19 billion annually in the five years to 2015.
Much of the proceeds raised in UMW Oil & Gas $750 million
offering are expected to be ploughed into new rig purchases. It
announced in May it was buying a fifth rig, due to be delivered
next year, and plans to pick up at least two more.
"Dependence on Petronas as their major customer is a good
thing given that (Petronas) are still the leading player in the
Southeast Asia's market," said Chris Eng, head of research at
Etiqa Insurance & Takaful, which manages some $7.3 billion worth
Southeast Asia's crude oil demand is expected to rise by
over 50 percent in the next 20 years, hitting 6.8 million
barrels per day by 2035 according to the International Energy
Agency's energy outlook report released in mid-October.
NOT JUST PETRONAS
UMW Oil & Gas shares shot up as high as 3.10 ringgit before
giving up some gains to trade at 3.04 ringgit. That gives the
company a market cap of 6.5 billion ringgit, dwarfing local
rivals Perisai Petroleum Teknologi Bhd and Coastal
Contracts Bhd which are each valued at around 1.6
The robust debut comes after its IPO priced the top of a
tight indicative range of 2.70-2.80 ringgit in mid-October on
strong demand from institutional investors.
Twelve-month target prices set by six brokerages ranged from
3.00 to 3.36 ringgit, according to a Reuters survey.
UMW Oil & Gas is seen as better placed than Perisai and
Coastal Contracts to benefit from Petronas' goodwill due to long
business ties with the company.
But heavy dependence on Petronas may not always be a good
In July, news that Petronas was delaying the startup of its
$19 billion petrochemicals complex to 2018 dragged down the
shares of several closely linked Malaysian oil and gas services
Petronas has also started to feel the pain of weaker crude
oil prices and rising upstream costs. Malaysia's only Fortune
500 firm saw second-quarter net profit drop and CEO Shamsul
Azhar Abbas warned that higher costs may trigger a review of
major offshore projects.
To mitigate those risks, UMW Oil & Gas has sought to
diversify its customer base. This year it secured more than $50
million worth of work from Petrovietnam Drilling Group, a
Vietnamese oilfield services provider.
"We hope that this will strengthen our revenue streams and
provide sustainability and value for the future," UMW Oil & Gas'
president Rohaizad Darus said in emailed comments to Reuters.