PETALING JAYA: Despite Petroliam Nasional Bhd’s (PETRONAS) anticipation of lower oil prices this year, the outlook for the oil and gas sector remains positive with activities likely to remain robust.
With the national oil company’s capital expenditure (capex) remaining stable at around RM50bil to RM60bil, local oil and gas services and equipment (OGSE), especially those in the upstream segment, are expected to continue to see a healthy flow of jobs this year.
Last year, the national oil company spent a total of RM52.8bil on capex.
RHB Research in its report said despite a seasonally weak first quarter of the year due to the monsoon season, activities in the oil and gas sector, particularly in the upstream services segment, would likely pick up through the year, sustained by PETRONAS’ capex.
“Overall, we remain positive on the upstream service providers in 2024. Drilling activities should remain solid, similar to maintenance activities.
“Meanwhile, the outlook for the offshore service vessels market is rosy, as there are still potential improvements in daily charter rates due to tight vessel supply,” the brokerage said.
It noted PETRONAS’ capex allocation for 2024 was roughly in line with the five-year average annual capex guidance of RM60bil.
RHB Research projected that Brent crude oil prices would average at US$80 per barrel in 2024, noting its projection was more optimistic than that of PETRONAS, whose president and group CEO Tan Sri Tengku Muhammad Taufik said last week he expected a correction in oil prices this year amid the prolonged uncertainty in the market as the Middle East conflict continued, forecasting US$73 per barrel in the near term and US$63 per barrel in the long term.
“Oil prices may rise in the near term if geopolitical tensions continue to escalate.
“The extension of a voluntary production cut of 2.2 million barrels a day (mbpd) by Organisation of the Petroleum Exporting Countries and its allies (Opec+) until the second quarter of 2024 will continue to stabilise the oil market, while investors seem to price in the potential rollover of such a voluntary cut,” RHB Research said.
The brokerage maintained its “overweight” call on the oil and gas sector.
Similarly, Maybank Investment Bank (Maybank IB) Research kept its “positive” rating on the sector.
It added that PETRONAS’ capex would likely increase in 2024.
The brokerage noted that the seventh edition of PETRONAS Activity Outlook (PAO) for 2024 to 2026 pointed to a more confident outlook as most OGSE sub-segments are expected to see step-ups in investments and activities.
“Given lower dividend commitment of RM32bil for 2024 notwithstanding our expectations of a stable average Brent crude oil price expectation of US$80 per barrel for the year, we see a possibility that PETRONAS’ capex will be higher in 2024,” it said.
As at end-December 2023, PETRONAS had a net cash position of RM96.9bil.
It registered an 8% year-on-year (y-o-y) drop in revenue for the financial year ended Dec 31, 2023 to RM343.6bil, while profit after tax saw a decline of 21% y-o-y to RM80.7bil.
PETRONAS recorded lower average Brent prices at US$82.6 per barrel in 2023, as compared to US$101.3 per barrel in the previous year.
Hong Leong Investment Bank Research maintained its Brent crude oil forecast to at US$85 per barrel for 2024 and 2025.
“We stay ‘overweight’ on the oil and gas sector, premised on elevated oil price supported by continued production cuts from Opec+ and heightened geopolitical tensions, as well as slowing output growth from Brazil and the United States,” it said.
