PetersonBrown Group - Singapore oil gas sector not burning too bright

Singapore oil gas sector not burning too bright

Kane Davis Cooper  ̶  Whilst the city-state looks forward to an overall positive economic forecast for 2017, one area that could bog down the export-dependent country somewhat is the oil and gas sector.

The world’s foremost offshore rig builders, Singapore-based Keppel Corporation and Sembcorp Marine have been scaling back operations, cutting jobs and shutting down yards in an effort to reduce overheads and survive the current slump.

In a recent note issued by Citi, there does not appear to be a light at the end of the tunnel anytime soon as new ventures are being put off and new orders difficult to find. Even the recent recovery in oil prices following production cuts by OPEC and other countries has done little to change the situation.

Keppel Corporation has orders valued at $3.5 billion (SGD) in the first quarter this year compared to a record high of over $13 billion (SGD) four years ago.

The Citi note is expected to echo the sentiment of many leading investment houses who anticipate there will be no near-term rebound for the sector – certainly for the remainder of this year at least.

The note also remarked on ongoing worries over possible loan non-payments by companies in the Singapore oil and gas business which could have a knock-on effect into other areas such as real estate where leveraging is also above average.

“Our own estimates suggest $5.8 billion of bonds of real estate, oil and gas, and homebuilding companies maturing from Dec 2016 till end 2018,” said Citi’s note.

Debt misery by oil and gas companies led to the increase in defaulted borrowing at Singapore’s three major banks over the past twelve months.

Market commentators believe that the creation of non-performing loans is predicted to reduce, and Moody’s Investors Service has also elevated Singapore banks’ outlook to “stable” from “negative”.