Maybank IB Research said many local-centric upstream OGSE players could see slower growth and a reset in growth expectations in 2024 and 2025.
PETALING JAYA: Analysts are cautiously optimistic about the outlook of the local oil and gas (O&G) sector even as they expect slower growth for O&G services and equipment (OGSE) players amid looming uncertainties.
Maybank Investment Bank Research (Maybank IB Research) in a report said there is a possibility that many local-centric upstream OGSE players may see slower growth and a reset in growth expectations in 2024 and 2025.
“While we remain positive on the sector, we now favour defensive midstream companies which will be unaffected and OGSE names with regional exposure and capabilities.”
The research house noted that state-owned Petroleum Sarawak (Petros) has been officially appointed as the sole gas aggregator for the state of Sarawak, taking over from PETRONAS with effect from July 1, 2024.
“This marks a significant shift in the control of Sarawak’s natural gas resources away from PETRONAS.
“This also means that Petros will be responsible for buying gas from all upstream producers in Sarawak, selling gas to all downstream buyers (including liquefied natural gas processing plants) and managing the distribution and supply of natural gas within Sarawak.
“We believe this transition of gas trading responsibilities could impact PETRONAS’ revenue stream and free cash flows, although we are unable to quantify the impact just yet.”
Citing a local news portal, Maybank IB Research noted that PETRONAS and Petros are in discussions to achieve a “mutual resolution” from the developing issue.
“We believe that a PETRONAS capital expenditure (capex) deferral is a possibility, as a significant portion of its trading revenues have been lost.
“Consequently, further exploration and production work or developing projects may be deferred until a resolution is mutually achieved between both parties,” the research house said.
Under a capex deferral scenario, the research house expects this to first impact OGSE names with exposure in the exploration sub-segment – before flowing to the development, production and decommissioning sub-segments.
“Affected in the former category are offshore support vessels, hook-up and commissioning services and offshore fabrication, potentially impacting names like Dayang Enterprise Holdings Bhd
, Perdana Petroleum Bhd, Icon Offshore Bhd, Sealink International Bhd, Marine and General Bhd, Carimin Petroluem Bhd, Malaysia Marine and Heavy Engineering Holdings Bhd and Petra Energy Bhd.”
The research house said while most of these names are showing strong earnings momentum now, potentially lower PETRONAS capex spending could lead to reduced activity, demand and service rates.
“Given this on-going development, we advise investors to choose more defensive and stable names in the midstream space and OGSE names with regional exposure and capabilities like Dialog Group Bhd and Wasco Bhd,” said Maybank IB.
