Are O&G stocks getting interesting again for investors?

Oil prices have increased to $50s currently.

Since OPEC announced that it will cut production for the first time in eight years, oil prices have increased from mid $40s to the mid $50s, OCBC Investment Research said.

The firm said investors are keen to gain exposure to oil plays, especially focussed on the large caps like that of Keppel, Sembcorp, and mid-sized Ezion. This is possibly due to concerns that some smaller companies would face greater financial difficulties under the tough environment.

"We note that there are still a number of smaller companies that are prudently managed and stand a good chance of surviving this market and reaping the benefits subsequently. Meanwhile, our local rig builders Keppel and SembMarine still have to contend with issues in Brazil relating to Petrobras," the brokerage firm said.

OCBC said despite the returning interest in the sector, there is a sense that investors, in general, are still cautious about entering the sector in a big way, given that companies still use the words “challenging”, “difficult”, and “hunker down” to describe their operating outlook and plans.

"We also expect a fair number of them to report impairments in the upcoming full year results. Other than some downstream players that are still operating fairly well, we find that the more optimistic companies are overseas oilfield services players servicing US shale, as rig count is inching up again with a recovery in oil price," OCBC said.