UOB Kay Hian Research said the short-term strategy (2024 to 2025) of PETRONAS’ upstream unit remained the same.
PETALING JAYA: The oil and gas (O&G) industry is expected to continue reporting contract renewals in the second-half of 2024 (2H24) in the integrated well continuity services (IWCS) as well as the maintenance, construction and modification (MCM) services following the recent IWCS contracts awarded by Petroliam Nasional Bhd (PETRONAS).
UOB Kay Hian Research said, in a report, that the catalysts have mostly been priced in, while execution risks alongside transition risks prevail.
“The next industry developments will reset the stage for long-term stock valuations and their position in the energy transition environment,” it added.
Favouring domestic O&G companies that have a more international footprint, it has maintained “market weight” on stocks covered, with the top pick being MISC Bhd
at a target price of RM10.10.
“We still like MISC as it is an underappreciated stock relative to the theme of global vessel shortage, and is trading at a price-to-book discount to other crude tanker peers when long-term crude tanker demand is resilient.
“MISC is also a beneficiary of more liquefied natural gas newbuild demand (especially by Qatar),” it said.
The research house also picked Yinson Holdings Bhd and Uzma Bhd for being the nimblest companies, in non-O&G diversification and environmental, social and governance developments while preserving high O&G growth.
“Another stock that continues to benefit from energy security and geopolitical risks is Dialog Group Bhd,” it said.
The IWCS contracts awarded recently were based on enhanced terms from the previous integrated well services (IWS) model, with four packages awarded to 34 panel contractors. Those awarded contracts included Deleum Bhd, Uzma, Velesto Energy Bhd and Sapura Energy Bhd under its coverage while non-rated stocks like Reservoir Link Energy Bhd and T7 Global Bhd also gained.
“Based on our channel checks, the IWCS panel contractors are almost the same pool of contractors as the IWS, although we are unsure if the work values per sub package are different sizes versus the earlier contracts,” it said.
It pointed out that the IWCS model, the third edition of a true industry collaboration, was first known as the integrated idle wells restoration model in 2015 before being reconfigured to the IWS model in 2021.
UOB Kay Hian Research said despite risks from upstream project award delays stemming from the ongoing PETRONAS-Petroleum Sarawak Bhd discussions, the short-term strategy (2024 to 2025) of PETRONAS’ upstream unit remained the same.The focus would continue to be on meeting production targets at lower costs and emissions, prioritising optimum recovery process from producing assets and timely maturation of resources, while positioning carbon capture, utilisation, and storage (CCUS) as a pivotal business.
It pointed out that Malaysia remained uniquely positioned as an O&G and CCUS hub, with three offshore O&G and CCUS platforms that were officiated last year, including distribution network which may involve liquid carbon carriers.
It noted that the government would be tabling a National CCUS policy by Nov 24.
CCUS was identified as one of the National Energy Transition Roadmap energy transition levers, with PETRONAS as the designated champion.
