Tuesday, July 10, 2007
Coastal Is Clear
I have highlighted very few specific stocks of late because good ones are hard to locate. However, in light of my view that oil & gas is in for a spectacular 6-12 months ahead, its time to dig deeper. I think small-mid caps such as Coastal Contracts & Ramunia are worth buying for safekeeping.
In 2000-2004 there were 91 deepwater fields being developed. For 2005-2009, there are approximately 195 deepwater fields scheduled for development. Sustained high oil prices can only support the growth in this area. Aker Kvanaer has recently set up a US$100m subsea manufacturing center in Port Klang. The place can assemble a complete range of subsea systems equipment including Christmas Tree, a set of valve spools and fittings connected to the top of an oil well to direct and control the flow of formation fluids. Aker has completed the first Kikeh subsea tree and control module, their setting up in Port Klang is a vote of confidence on the excellent outlook for deepwater development. Currently there are 9 deepwater and 2 ultra deepwater blocks under production-sharing -contracts, while 10 exploration blocks will be available for data review. As mentioned, Kikeh will start the ball rolling followed by Gumusut and Kakap in 2010. Malaikai, Kebabangan and Jangas should start in 2011.
We can expect a deepwater hub being set up in Malaysia looking at the projects ahead. Contractors, fabricators and engineering firms will want to invest to tap into these deepwater developments. Ramunia will benefit big time based on its rig building capacity, Korean technology and expertise, and high-end offshore structures. Sime Darby will be very much aware of this, and so too is Petra Perdana / QLC - should be the next M&A play soon. Coastal Contracts will be favoured thanks to its highly scalable shipbuilding capacity and potential entry into fabrication of offshore structures. Coastal should be an M&A candidate as well. Other big players who want a foothold into oil & gas could not find a better vehicle than these two to gain entry into a lucrative and vibrant sub-sector of oil & gas. Bsically, these two ties in very well with my strongly promoted SapuraCrest (deepwater drilling rigs & fluids.)
p/s although Sime Darby has walked away from buying Ramunia months back, it was due to greedy pricing by Ramunia owners, as the oil & gas long term development plans gets revealed, there will be more companies willing to pay the high premium demanded by Ramunia's owners ... hence I feel strongly Sime will be back to talk as deepwater prospects look too big and too good to miss out for a company like Sime Darby