The Russo-Ukraine War should have provided the trigger for a pivot to renewables. Instead, RH Petrogas’ share price has surged. Sembcorp Industries (SCI) is also at a post-Covid high. However, Keppel Corp’s chart pattern indicates some consolidation while Sembcorp Marine breaks out.
Bloomberg reports that commodity markets have been in turmoil since the invasion on Feb 24. While sanctions have not directly targeted Russian energy exports, trade has seized up amid a reluctance to buy the country’s raw materials, the report adds. Oil majors, international banks and shipowners are pulling investment and financing, making it tough for refiners and traders to secure credit lines and the vessels needed to continue with their usual purchases of oil grades like Urals, ESPO and Sokol, according to Bloomberg.
Last year, Russia accounted for 12% of the world’s total crude exports and almost 10% of oil-product shipments. Bloomberg points out that oil trading giant Trafigura Group tried to sell a cargo of Russia’s flagship Urals grade this week at a record discount to benchmark prices for northwest Europe but found no bidders, highlighting how toxic trade with the country has become.
In fuel markets, the invasion of Ukraine has caused steep backwardations, a market structure where prompt supplies are more expensive than later-dated cargoes. Buyers are struggling to find replacements for Russian diesel as well as heavy naphtha, mainly used by the petrochemicals industry, and vacuum gasoil, a feedstock for gasoline production. Russian exports of these products typically flow to buyers across Asia, Europe and the US.
Where does RH Petrogas come in? It partly owns and operates three upstream assets located in Indonesia and Malaysia. These assets are awarded to the company and its partners under production sharing contracts (PSCs) entered into with government agencies or national oil companies of the respective host countries where the assets are located, the company says on its website. Under the PSCs, the company and its partners are contractors to the host governments and bear the risk and cost for the exploration and production of oil and gas resources in exchange for a share of the production. RH Petrogas is the operator for two of its assets on behalf of its other partners. Currently, two of the assets are in the production phase and one in the exploration phase.
In FY2021 ended Dec 31, RH Petrogas reported free cash flow for the second consective year while patmi swung into the black with earnings of US$27.3. In 4QFY2021, revenue rose 37.5% y-o-y to US$20.8 million. The increase was mainly due to a 90.5% increase in the average realised oil price of US$80 per barrel in 4Q2021 comparred to US$42 per barrel in 4Q2020. With crude oil at above US$100 per barrel, RH Petrogas — currently at 33 cents — may continue to outperform the market.
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Its chart shows that prices broke out of 21 cents on March 2 with a surge in volume. While it appears as though prices have run ahead of themselves, the breakout indicates a target of around 40 cents. With the current fierce upmove, prices could go beyond this level.
Long-suffering SembMarine has been in a base formation since the announcement last year that it planned to place its rigs in a joint-venture with Keppel Corp. The breakout level is at 8.8 cents, resistance is at 10.9 cents and the upside is 16 cents. With the surge in oil prices, SembMarine’s rigs maybe in demand again and perhaps they could divest them first rather than place them in the joint venture.
