SINGAPORE -- Standard & Poor's Equity Research upgraded its recommendation on Asia's Energy sector to "Overweight" from "Marketweight", citing strong crude prices and demand for upstream sevices.
"We believe downside risk is relatively low at present with most stocks facing potential earnings upgrades. The valuations of companies with upstream assets, namely PetroChina, Sinopec and CNOOC appear to factor in a long-term average crude price of around US$40/bbl," says Standard & Poor's Vice President of Equity Research Lorraine Tan.
"We believe that the industry realizes the potential scarcity is possibly not reflected in current valuations, and this is likely to lead to more mergers and acquisitions."
Touching on the upstream service companies, namely China Oilfield Services Ltd and Malaysia's SapuraCrest Petroleum, she says the increasing day rates for rigs, and the continued shortage of vessels should work in their favor.
She adds that China Oilfield also renewed some of its offshore rig contracts in Southeast Asia and Africa, which, eventually, would affect rates in the South China Sea.
Tan also highlights the continue assets building by SapuraCrest of Malaysia. The company is adding new vessels to cope with demand from upstream projects, she says.