2012 Outlook for downstream oil & gas cloudy

Competition is stiff within Singapore and project margins are low, says OCBC.

OCBC also adds that the other key market - the Middle East  region – is facing increasing political risks (Israel-Iran conflict, Arab Spring).

Here's more from OCBC:

Downstream oil & gas companies under  coverage reported a mixed set of 4QCY11results. Rotary Engineering (Rotary) met our 4QCY11 forecasts, but PEC disappointed due to higher-than-expected costs on its Rotterdam project.

Rotary proposed a 2 S cts final dividend, bringing its FY11 total dividend to 3 S cents. PEC’s year-end is in June, and we are expecting final dividend of 2 S cents.

Review of major projects
With most of the construction work completed, Rotary’s SATORP project (contract value: US$745m) remains on track for completion by Dec 12. We also expect its Fujairah project (contract value: US$250m) to commence soon. On the other hand, PEC had encountered several difficulties in its Rotterdam project, including execution delays and claims on variation orders, resulting in S$5.6m of provisions in 4QCY11.

That said, the Rotterdam project is substantially completed and we do not expect further provisions going forward.