Oil & Gas cycle

We are in the high oil price era. Due to increasing world demand on oil and emerging economies like China and India, the oil price has risen from $30 to $80 now. The significant increase of oil price prompt the oil companies to speed up their oil exploration activities. Exploration is only the initial phase. Once the field is being confirmed and contract signed with the government, oil company would have to prepare to extract the oil.

In South East Asia, majority of the oil site is situated in the middle of sea. We need to build many drilling rig to drill and pump out the oil. Keppel Corp and Semcorp Marine have been building so many rigs for the driller. Progressively, these rigs would be delivered and the oil production starts.

Beside rig building, there are many offshore related activities involve. Swiber is a niche service provider tot he oil and gas sector. The services provided include setting up production platform, pipelines, mooring of FSO/FPSO on sea bed etc. As the SEA or middle east region exploration activities grow, it provide ample opportunity for them to expand the business.

Once the rig is installed and production starts, the oil has to be transported to the shore. This job is being carried out by FPSO. A Floating Production, Storage and Offloading vessel (FPSO; also called a "unit" and a "system") is a type of floating tank system used by the offshore oil and gas industry and designed to take all of the oil or gas produced from a nearby platform (s), process it, and store it until the oil or gas can be offloaded onto waiting tankers, or sent through a pipeline.

Links below show the demand for rig and FPSO remain robust in the next few years.
http://uk.reuters.com/article/oilRpt/idUKSIN17435320070109
http://www.energyme.com/energy/2006/200600759.htm

They are many FPSO builder. Keppel Corp is one of them which is capable of building a FPSO. Since the FPSO process and store the oil on the vessel before the tanker comes, it would need facilities to perform these activities. Technics Oil & Gas designs and develops process modules and equipment that are integrated to form the operating systems and storage facilities for oil and gas exploration and production. Their key expansion plan is to explore more opportunities in the FPSO space.

Technics is not the only one to be involved in this space. Hiap Seng start up as a engineering sub contractor, now they are moving into the compression and offshore fabrication business. It is involved in gas compressors and FPSO topside fabrication. At the same time, it still provide the mechanical construction work in Jurong Island. Both would serve as diverse revenue stream. Technics seems to be involved in the production system design and construction, while Hiap Seng only produce the gas compressor sub module.

With favourable industry environment, these 3 companies should do well in the coming years.

* Part of material were extracted from company website, broker report and internet.