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Swiber Holdings: More Indonesian work in the pipeline?
 
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Swiber Holdings: More Indonesian work in the pipeline?

By Low Pei Han
Wed, 17 Oct 2012, 08:52:42 SGT

Indonesia’s state-owned Pertamina Hulu Energi has invited contractors to register their interest in the bid round for the GG oilfield development. According to Upstream, the consortium of Meindo Elang Indah and Swiber Offshore has registered for pre-qualification. With a declining rate of oil production in Indonesia, we expect the country to increase oil field development and production activities, benefiting EPCIC contractors such as Swiber Holdings. The industry outlook is buoyant but in order for the stock to re-rate, we think the group has to demonstrate that it is able to grow its operations by the generation of sustainable operating cash flows besides the support of leverage. Given the limited upside potential to our fair value estimate of S$0.66, we maintain our HOLD rating.

Likely to be in the run for Indonesian EPCI contract
Indonesia’s state-owned Pertamina Hulu Energi, the operator of the offshore northwest Java production sharing contract, has invited contractors to register their interest in the bid round for the GG oilfield development. This is an engineering, procurement, construction and installation (EPCI) contract, and will involve the fabrication and installation of a four-legged platform and a pipeline. According to Upstream , as many as seven individual and group contenders have registered to pre-qualify for the GG tender, including the consortium of Meindo Elang Indah and Swiber Offshore. Contract award is expected to be in 1Q13 with production startup in 1Q14.

Expecting more field development and production activities in Indonesia
With a declining rate of oil production in Indonesia, we expect the country to increase oil field development and production activities, along with corresponding increases in capital expenditure (Exhibit 1). This would benefit EPCIC contractors such as Swiber Holdings. Indonesia’s oil lifting has decreased in the past few years, and its government has predicted that 2013 will be the year of lowest oil lifting (890,000-930,000bbl/day), but this is expected to increase from 2014 onwards .

Maintain HOLD
As of Aug 2012, Swiber’s order book stood at about US$1.6b and is expected to contribute to earnings over the next two years. The group is also bidding for more projects in the pipeline given the positive industry outlook. However, in order for the stock to re-rate, we think the group has to demonstrate that it is able to grow its operations by the generation of sustainable operating cash flows besides the support of leverage. Given limited upside potential to our fair value estimate of S$0.66, we maintain our HOLD rating.

 
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