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More Capital Spending Announced By Large Oil Companies: Is This Good News For The Oil And Gas Sector In Singapore?

After oil prices started falling in late 2014, many oil and gas explorers responded by cutting their capital expenditure programmes.

But now that oil prices have doubled from a low of less than US$30 per barrel seen in early 2015, there have been instances of large integrated oil and gas companies ramping up their capital expenditure again.

According to a recent study by BMI Research, it is expecting a 2.5% increase in capital expenditure in 2017 from oil & gas companies. If true, it will be the first time capital spending has seen growth since 2014.

More notably, companies such as Brazil-based Petrobas and China-based Cnooc have recently announced plans to raise their capital spending in 2017. Petrobas has plans to spend up to US$19 billion this year while Cnooc could spend up to US$10.2 billion – both sums are significantly higher than what the two companies had spent in 2016.

This may be good news to some of the oil services companies listed here in Singapore. Companies such as the oil rig builders, Sembcorp Marine Limited (SGX: S51) and Keppel Corporation Limited (SGX: BN4), could benefit from any higher capital expenditure seen.

Both Sembcorp Marine and Keppel Corp have seen a massive decline in their market value after oil prices declined; since the start of 2014, the two have collectively lost around S$15 billion in market value.

The duo have also been affected by the corruption scandal surrounding Petrobas, which has led to the bankruptcy of a Petrobras-related entity, Sete Brasil. Sete Brasil happens to be a major customer of both Sembcorp Marine and Keppel Corp; the latter duo have made provisions for their contracts with Sete Brasil.

Sembcorp Marine is now trading at 1.3 times its tangible book value and offers a 2.0% dividend yield. Meanwhile, Keppel Corp has a price-to-book ratio and dividend yield of 1.0 and 3.2%.

It is still too early now to know for sure how or if any increase in capital expenditure from integrated oil & companies around the world would flow to oil services companies in Singapore. But, it is a strong sign that the global oil and gas industry may indeed be turning around.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim owns shares in Keppel Corporation.