Brokers' take: RH Petrogas, Rex immediate beneficiaries of rising oil prices

UOB Kay Hian (UOBKH) on Tuesday named upstream oil producers RH Petrogas and Rex International as immediate beneficiaries of the renewed interest in the oil and gas sector.

This comes amid rising crude oil prices due to declining global oil inventories and better-than-expected global oil demand with the reopening of economies after pandemic-related lockdowns.

Sembcorp Marine, Keppel Corp, CSE Global and other offshore and marine players could also benefit from positive market sentiment, provided oil prices are on a structural upcycle and not based on spot oil prices, which fluctuate. An upcycle is a period or cycle where business activity is at a high point.

The worst could also be over for the offshore marine industry, supported by improving trends in rig utilisation and day rates, UOBKH said.

The research team said that the earnings trajectory of RH Petrogas appears sustainable, as its strong Q1 results were driven by a robust recovery in oil prices, reduced production costs and the renewal of a 20-year production-sharing contract for one of its Indonesia oil fields.

RH Petrogas currently trades at seven times UOBKH's 2021 earnings forecast. Its counter closed 4 per cent or 0.8 Singapore cents lower at 19.2 cents on Tuesday, hitting a five-year high. It was also about seven times that of the share price recorded a month ago, before its rally started.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

In response to a Singapore Exchange query on unusual trading activity on May 31, RH Petrogas said it is in discussions with one of its controlling shareholders with regard to the capitalisation of certain loans.

On the other hand, while Rex recorded record revenue in FY2020 mainly from production in the Oman concession, it was still loss-making, largely due to high startup costs for initial production.

However, the company expects to produce more oil from the Oman field in 2021. Management has also stated that production facilities have been upgraded to support increased volume, with the high initial startup costs behind them.

Rex currently trades at 1.4 times its 2020 book value. The company called for a trading halt on Tuesday morning, pending an announcement. Its shares last closed at 19 Singapore cents on Monday, up 0.8 cent or 4.4 per cent.