Regional Industry Focus

DBS Driller Extracting value from oil & gas news flow

Refer to important disclosures at the end of this report

DBS Group Research. Equity 31 January 2017

PetroChina to boost output STI : 3,064.85 KLCI : 1,686.36 New target of 10bcm by 2020 mirrors ’s goal. PetroChina JCI : 5,302.63 announced last week that it plans to ramp up development activity at its shale gas fields in China’s Sichuan province this year, and aims to achieve

10bcm (billion cubic metres) of yearly shale gas output capacity by 2020 Analyst – in line with fellow oil major Sinopec’s ambitions. PetroChina reportedly Pei Hwa HO +65 6682 3714 produced 2.5bcm of shale gas in 2016. PetroChina plans to utilise 19 rigs [email protected]

to drill 110 wells in the area in 2017, part of a broader plan for 600 wells to be drilled over the next four years. DBS’s View: As a whole, China has Singapore Research Team [email protected] a target to increase shale gas annual output to 30bcm by 2020. Based on 2016’s apparent consumption of of c.205bcm, this would

represent some 15% of total natural gas demand. However, given 4-week price trend for Brent and WTI crude strong demand growth in natural gas expected and stable production from conventional sources, China looks set to continue being a net importer of natural gas, at least in the medium term.

Top stories Malaysia’s RAPID project on track for 2019 start-up. Malaysia’s national oil company announced last Thursday that its US$27bn Refinery and Petrochemical Integrated Development (RAPID) project in Johor is on track for completion in 2019. This is despite rumours that had pulled out as partner for the project. The complex is designed to have a 300,000bpd and a petrochemical facility capable of producing 7.7 million tonnes of various output per day. DBS’s View: Malaysian listed companies such as Muhibbah, Pantech, and Source: Bloomberg Finance L.P., DBS Bank

Petronas Gas, with involvement in the RAPID project, should benefit from more clarity on its completion timeline and/or additional contract Oil Prices 20-Jan W-o- M-o-M Y-o-Y W chg chg Chg flows as the project enters its second half of completion. Brent 55.52 0.1% -1.1% +60%

WTI 53.17 1.4% -1.1% +58% Libya to reopen oil sector to foreign investors. Libyan National Oil Co. Chairman Mustafa Sanallah said last week that the country intends Source: Bloomberg Finance L.P., DBS Bank to allow foreign investment in its oil sector for the first time since 2011, when dictator Moammar Gadhafi was overthrown. He said the oil sector had been waiting for a legitimate government to ascend to power before Weekly U.S. rig count

re-opening the sector, but that has not materialised. “We cannot stand Area Last Count W-o-W Y-o-Y back and do nothing while the state disintegrates”, he added. Mr. Count chg chg Sanallah also said that he is aiming for Libya to increase output to 1.25 U.S. 27-Jan 712 +18 +93 million barrels a day by end-2017. DBS’s View: With substantial militant Canada 27-Jan 345 +3 +114 in-fighting still plaguing the country, it is unclear if foreign oil companies Internation Dec 929 +4 -166 will express interest in investing in operations in Libya. But if they do, we al could see some downside for oil prices. Source: , DBS Bank

Oil prices closed the week flat. Oil prices remained flat through mid- week but edged upwards on Thursday as markets focused on signals of seemingly sound adherence to output cuts, and shrugged off another week of increase in US crude oil inventories. Brent prices closed the week flat at US$55.52/bbl. DBS’s View: The OPEC and non-OPEC members' promise to curb oil production levels remain the focus of the oil markets, though data confirming adherence is scarce as yet. Near-term oil prices should react to production data over the next few months.

ed: TH / sa: YM, PY

Industry Focus

DBS Driller

Fig 1: Major developments for DBS coverage companies (23 Jan – 29 Jan) Company Impact

Singapore Keppel Corp Keppel’s net earnings fell 76% y-o-y to S$143m in 4Q16, hit Maintain our HOLD call with revised SOTP-based TP of S$6.00, by the impairment for O&M assets, partially offset by fair translating to 0.9x FY17 P/BV. value gains on investment property. Stripping these out, PATMI would have been S$300m. A 12-Sct final dividend has been declared, bringing full-year DPS to 20 Scts, in line with expectations.

Thailand PTTEP PTTEP reported a net loss of Bt872m for 4Q16 but this was We believe that higher oil prices and the generous dividend mainly due to non-recurring items totalling >Bt5bn. A final have already been priced into PTTEP’s share price. Maintain dividend of Bt2.50/share has been announced, bringing HOLD with DCF-based TP of Bt105. 2016’s full-year dividend to a generous Bt3.25/share, implying a payout ratio of 100%.

Fig 2: Other noteworthy news snippets

Asia / Oceania . PTTEP International has put on hold a tender for the charter of a semi-submersible tender assist rig off Myanmar after receiving only one bid

. Phu Quoc Operating Company is seeking a contractor to supply a newbuild FSO to process condensate for the Kim Long, Ca Voi and Ac Qui gas fields, which form the Block B project off Vietnam

. Maersk Drilling, COSL, and Noble are reportedly competing for a contract to provide a semi-submersible rig for mid-depth water drilling off Malaysia, to be operated by Shell and Mubadala Petroleum

. At least three offshore transportation & installation (T&I) contractors have submitted bids to India’s ONGC for work at the C-26 cluster subsea pipeline that was initially awarded to Swiber

. has selected Floatec as contractor for its tension-leg wellhead platform for its Ca Rong Do development, and has reportedly chosen Yinson as contractor to supply its FPSO

. The Chinese government is offering up to 30 onshore blocks in three basins of Tarim, Jungar and Turpan-Hami in Xinjiang for public tendering; these were acreage relinquished by CNPC, Sinopec, and CNOOC

. UMW Oil & Gas to acquire controlling interests in Icon Offshore and Orkim as a means of boosting its oil and gas services capabilities . More than 20 farmers in the Rakhine state of northern Myanmar are threatening to sue CNPC over alleged harm to their livelihoods due to a pipeline project that has affected arable land

Middle East / Africa

. Saudi Aramco has issued two tenders in January 2017 seeking as many as 19 platform jackets for its offshore oil and gas fields . McDermott has won an offshore pipelay contract involving installation of two pipelines reportedly for Total’s Al-Khalij field . Egyptian Natural Gas Holding Company (Egas) says it will not launch a new licensing round in the Mediterranean Sea until 2018 at earliest . Australia’s OMV and ’s Dana Energy signed an MoU last week to carry out upstream oil and gas works in Iran . Over ten contractors including the Korean heavyweights and China Petroleum Enegineering & Construction Corporation (CPECC) to submit bids on 14 February for the US$2bn+ Bab integrated facilities project, recently revived by Adco

. Iraq Oil Minister Jabar Ali al-Luaibi said that the country is on track to hit its crude output reduction targets, with cuts of 180,000bpd already made, and a further 30,000 to come by month-end

South America . Peru has scrapped a 30%-finished, US$5bn natural gas pipeline after an Odebrech-led consortium of investors missed a financing payment; new investors are expected to be able to buy up the existing assets

. Trinidad & Tobago’s acting Energy Minister Colm Imbert has expressed confidence that the country will begin receiving natural gas from Venezuela by 2019

. Pemex’s upcoming tender for construction and installation of a gas compression unit for use at its Ku-Maloob-Zaap platform unit in the Bay of Campeche draws strong interest, with a pre-qualification meeting seeing over two dozen international names in attendance

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Industry Focus DBS Driller

US / North America . US Supermajor Chevron to decide on its pre-FEED design contractors for the Anchor and Tigris standalone developments in the US GoM . BPTT and EOG Resources hope to see government approval for a joint venture on acreage at the Banyan field off Trinidad & Tobago within the month

. Brazil’s Queiroz Galvao E&P preparing to receive commercials bids for a 3D seismic survey covering 2,000 square kilometres . Statoil has acquired operating stakes in blocks BM-ES-40 and BM-ES-41 in the deep-water section of the Espirito Santo basin . Woodside Energy has quit four BP-operated deep-water exploration licences off Nova Scotia before drilling has even commenced

Europe/North Sea . EnQuest to take over operatorship of the and the Terminal on the Islands from BP . Gas export pipelines top the company’s spending list for 2017. Notably, the company intends to spend c.US$2.65bn on the Sila Sibiri gas pipeline that will link the Chayanda and Kovykta gas fields in East Siberia with western China

. Lukoil has apparently ironed out differences with over their joint upstream projects in the Nenets autonomous region of Russia Company Specific . US independent Hess reports a net loss of US$6.13bn for full-year 2016 on impairment charges totalling US$4.6bn. . Statoil’s internal investigation on a well-control incident at the Troll field last year reveals a “high degree of seriousness… that could have led to loss of life”; Petroleum Safety Authority (PSA) review expected to be equally scathing

. Hercules Offshore has sold 13 jack-up rigs to Enterprise Offshore Drilling for US$24m in a bankruptcy auction; Enterprise Offshore made the highest offer among three bidders

Source: Upstream

Fig 3: oil at US$55.52/bbl as of 27 Jan 2017

Source: Bloomberg Finance L.P., DBS Bank

Fig 4: US crude inventory increased by 2.8mmbbl w-o-w to 488mmbbl as of 20 Jan 2017

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Source: EIA, DBS Bank

Fig 5: US rig count increased by 18 units w-o-w to 712 as at 27 Jan 2017

Source: Baker Hughes, DBS Bank

Fig 6: US (shale) rig count vs. production vs. productivity in bpd per well – as of December 2016

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Industry Focus DBS Driller

Source: Bloomberg Finance L.P., DBS Bank

Fig 7: OPEC crude oil production was 33.10mmbpd as of December 2016

Source: Bloomberg Finance L.P., DBS Bank

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Industry Focus

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Fig 8: Peer comparisons Name 12- Mkt Net Pft Price mth Cap PE Div Yield EV/EBITDA P/B ROE CAGR 27 Jan TP Rec (US$m) FY16F FY17F FY16F FY17F FY16F FY17F FY16 FY16 15-17 Singapore Keppel Corp 6.27 6.0 HOLD 7949 14.5 12.7 3.2 3.2 13.5 11.8 1.0 6.9 -21.9 SMM 1.51 1.55 HOLD 2,203 42.9 25.7 1.3 1.3 17.8 13.7 1.3 3.0 NM SCI 3.19 3.10 BUY 3,977 14.3 14.8 2.1 2.2 11.0 11.0 0.9 5.5 76.8 Yangzijiang 0.81 0.95 BUY 2,168 8.3 8.8 4.9 4.9 2.5 2.6 0.7 7.7 -5.7 COSCO Corp 0.28 0.27 HOLD 438 -3.1 -12.9 0.0 0.0 -69.8 18.4 1.0 -27.8 -70.8 Ezion Holdings 0.415 0.6 BUY 601 26.8 16.4 0.0 0.0 9.3 8.3 0.5 3.2 -38.0 Ezra Holdings 0.049 0.04 FV 101 -1.0 -0.6 0.0 0.0 -140.7 -40.6 0.4 -132.8 61.2 Mermaid 0.190 0.24 BUY 188 12.5 107.9 0.0 0.0 4.1 4.1 0.6 4.5 -41.0 Nam Cheong 0.056 0.04 FV 82 -6.1 -10.6 0.0 0.0 -72.9 296.5 0.3 -4.4 NM Pacific Radiance 0.160 0.16 HOLD 80 -1.4 -1.5 0.0 0.0 -52.1 -64.7 0.3 -27.2 NM POSH 0.370 0.41 BUY 469 -13.6 -38.0 0.0 0.0 22.0 14.6 0.5 -3.3 NM Accept Vard Holdings 0.250 0.18 Offer 206 -14.2 -84.7 0.0 0.0 79.1 47.6 0.5 -3.2 -81.7 Average 5.9 2.3 0.8 0.8 -17.2 28.3 0.6 -15.9 Malaysia Bumi Armada 0.63 0.85 BUY 827 22.0 10.0 1.1 2.5 10.4 7.1 0.5 2.3 6.0 Coastal Contracts 1.44 1.40 HOLD 171 7.2 7.5 2.2 2.1 3.7 3.0 0.4 6.2 -21.7 Dayang 1.03 0.88 FV 204 39.4 11.7 0.0 0.0 8.8 6.5 0.8 2.2 -22.3 Dialog Group 1.54 1.70 HOLD 1,875 30.3 25.6 1.5 1.6 19.4 16.0 3.7 14.3 15.2 MMHE 1.02 0.98 FV 368 23.6 21.1 0.0 0.0 4.9 4.3 0.6 2.5 -5.5 SapuraKencana 1.75 1.16 FV 2,366 72.9 72.9 0.1 0.1 13.1 13.1 0.9 1.2 -55.2 UMW OG 0.70 0.80 FV 339 -5.4 -8.2 0.0 0.0 44.1 21.6 0.5 -9.0 95.3 Deleum 1.02 1.02 HOLD 92 15.3 10.0 3.3 5.0 4.7 3.7 1.3 8.9 -4.1 Pantech 0.46 0.64 BUY 76 8.2 7.1 6.0 6.3 5.1 4.6 0.5 7.8 1.0 Average 21.5 15.8 1.4 1.8 12.1 8.0 0.9 4.3 Thailand Bangchak Petrlm. 35.25 39.00 BUY 1,374 9.1 7.9 4.5 5.1 4.8 4.1 1.3 14.5 15.9 IRPC PCL 5.30 5.30 HOLD 3,067 9.5 11.2 3.6 3.6 8.3 8.1 1.3 12.46 NM PTT PCL 418.00 370.00 BUY 33,810 13.8 12.9 3.1 3.1 6.1 6.0 1.6 12.5 -3.9 PTTEP 97.75 105.00 HOLD 10,989 21.7 18.9 3.3 3.5 3.2 3.1 1.0 3.1 14.8 PTT Global Chem 68.00 70.00 BUY 8,590 13.7 11.5 4.1 4.1 7.9 6.8 1.3 9.46 8.20 Thai Oil PCL 72.50 65.00 HOLD 4,188 9.5 10.1 5.2 4.6 5.6 5.2 1.4 17.2 NM Average 12.9 12.1 4.0 4.0 6.0 5.6 1.3 11.5 Indonesia Logindo 113 110 FV 22 -1.9 -1.5 0.0 0.0 19.9 26.2 0.2 -19.0 NM Wintermar 248 231 HOLD 75 15.2 -19.7 0.0 0.0 6.1 5.7 0.4 -4.0 -18.3 Elnusa 442 420 HOLD 241 7.3 8.2 3.9 3.5 3.0 3.2 1.1 16.0 2.0 Medco Energi 1,375 2,000 BUY 343 16.2 6.3 1.2 1.6 5.1 3.9 0.4 2.9 NM Average 9.2 -1.7 1.3 1.3 8.6 9.8 0.5 -1.0 US Tidewater 2.46 NA NR 106 NA NA 0.0 0.0 NM 48.5 0.1 -11.9 16.59 Hornbeck 7.51 NA NR 261 NA NA 0.0 NM 13.9 42.6 0.2 -4.5 NM SEACOR 74.19 NA NR 1,254 NA NA NM NM 37.0 12.0 1.1 NA -44.2 Gulfmark 1.80 NA NR 45 NA NA 0.0 0.0 NM NM 0.1 -13.1 -43.2 Average N/A N/A 0.0 0.0 25.4 34.4 N/A N/A Source: Companies, Bloomberg Finance L.P., DBS Bank

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Industry Focus DBS Driller

DBS Bank Ltd recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends

CompleteDate: 31 Jan 2017 16:12:00 (SGT) Dissemination Date: 31 Jan 2017 16:13:44 (SGT)

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The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.

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Industry Focus

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ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in the report. The DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. As of 31 Jan 2017, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities). The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), their subsidiaries and/or other affiliates have proprietary positions in Keppel Corporation, Sembcorp Marine, Sembcorp Industries, Yangzijiang Shipbuilding, Cosco Corporation, Ezion Holdings, Ezra Holdings, The Bangchak Petroleum, IRPC Pcl, PTT, PTT Exploration & Production, PTT Global Chemical, Thai Oil PCL as of 30 Dec 2016.

2. DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

Compensation for investment banking services: 3. DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from Ezion Holdings, Ezra Holdings, Nam Cheong Ltd, Medco Energi International as of 30 Dec 2016.

4. DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for Ezion Holdings, Ezra Holdings, Nam Cheong Ltd, Medco Energi International in the past 12 months, as of 30 Dec 2016.

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Directorship/trustee interests 6. Danny Teoh Leong Kay, a member of DBS Group Holdings Board of Directors, is a Director of Keppel Corporation as of 1 Jan 2017.

Disclosure of previous investment recommendation produced 7. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

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Industry Focus DBS Driller

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