KUALA LUMPUR: Petroliam Nasional Bhd’s recent production sharing-contracts (PSCs) are not expected to have a material impact yet on on both Dagang Nexchange Bhd
(Dnex) and Hibiscus Petroleum Bhd in the near term, until there are further developments.
Both Dnex and Hibiscus were among the winners of PSCs for three clusters of discovered resource opportunities (DROs) under the first round of Malaysia Bid Round Plus (MBR+) .
The awarded PSCs comprise 12 oil and gas fields located in waters off Peninsular Malaysia.
MBR+ is an extension of the annual MBR licensing exercise to encourage participation in DROs and late-life assets in Malaysia.
Hong Leong Investment Bank Research (HLIB Research) does not expect any material impact for the companies and is neutral on the development until there are further announcements on final investment decisions (FIDs) to develop the fields.
“For Dnex, we understand that its subsidiary Ping Petroleum is currently occupied with the reactivation of the Abu Cluster with anticipated first-oil in the first half of next year and its subsequent focus on the Meranti Cluster, both of which are off Peninsular Malaysia,” the research house said.
It noted that Hibiscus is also financially occupied with the development of Teal West field in the North Sea off Britain and the second phase of the South Furious field off Sabah, in addition to its ongoing acquisition of the MLJ Field in Brunei.
“Hence, we believe Dnex and Hibiscus will likely not reach FIDs to develop these oil fields in the near term.
“Factoring in the process of resource assessments and development work for these oil fields, we believe it will take at least three years before the first oil comes online,” HLIB Research said.
Based on this, the research house maintained its “buy” call on Hibiscus with a target price of RM3.36 and a “hold” call on Dnex with a target price of 43 sen.
Meanwhile, the research house said oil prices may continue to stay elevated should more production cuts by the Organisation of the Petroleum Exporting Countries Plus yield its desired effect.
This, coupled with heightened geopolitical tensions and the slowing oil production growth, may mean prices will stay elevated for the time being.
“We are staying ‘overweight’ on the oil and gas sector. With oil prices hovering above US$80 per barrel, we believe it bodes well for local oil and gas services and equipment players in view of buoyant upstream activity around the globe,” said HLIB Research.
Its top picks include Dialog Group Bhd, Velesto Energy Bhd and Bumi Armada Bhd, with target prices of RM3, 35 sen and 78 sen, respectively.
Dialog may gain from expected sequential earnings growth in the coming quarters, driven by a lapse of legacy engineering, procurement, construction and commissioning contracts and imminent expansion on its midstream tank terminals, the research house said.
The research house said Velesto was set to deliver sustained earnings growth in the coming quarters until end-2025, given its secure long-term charters with oil majors.
Meanwhile, Bumi Armada has an undemanding valuation based on forecast 2024 earnings even as it expects bumper earnings contributions from the Armada Sterling V floating production, storage and offloading vessel to set in, the research house said.
