Maybank IB Research said it believes that the midstream segment could be more resilient and may not be affected should there be lower capex spending by PETRONAS.
PETALING JAYA: The outlook will be challenging for selected domestic oil and gas companies, due to implications from a possible cut in capital expenditure (capex) by national oil firm Petroliam Nasional Bhd (PETRONAS) and lower oil prices.
According to Maybank Investment Bank Research (Maybank IB Research), Brent crude oil prices are likely to be lower at an average of US$70 per barrel this year versus last year’s US$80 per barrel while the possibility of lower Petronas capex may impact domestic-centric upstream oil and gas services and equipment providers.
This is following the official appointment of Petroleum Sarawak Bhd as the sole gas aggregator for Sarawak with effect from Feb 1, 2024, marking a significant shift in the control of Sarawak’s natural gas resources away from PETRONAS.
Maybank IB Research said the transition of gas trading responsibilities could impact PETRONAS’ revenue stream and free cash flows.
However, the research house was unable to quantify the impact.
“We believe that a PETRONAS capex deferral is a possibility as a significant portion of its trading revenues have likely been lost. Consequently, further exploration, production work and development of projects may be deferred until both parties mutually achieve a resolution,” it added.
The research house said it believes, under a PETRONAS-capex deferral scenario, companies likely to be impacted included Velesto Energy Bhd
, Dayang Enterprise Holdings Bhd, Perdana Petroleum Bhd and Icon Offshore Bhd.
Other companies that will possibly experience lower revenues include Sealink International Bhd, Marine & General Bhd, Carimin Petroleum Bhd, Malaysia Marine and Heavy Engineering Holdings Bhd and Petra Energy Bhd.
“While most of these names are showing strong earnings momentum now, potentially lower PETRONAS spending could lead to reduced activity, demand and service-provision rates, resulting in slower growth for the year,” the research house said.
However, it added that it believes that the midstream segment could be more resilient and may not be affected should there be lower capex spending by PETRONAS.
“About 60% of Dialog Group Bhd’s earnings come from its long-term independent and dedicated “take-or-pay” tank terminal assets, which are in the midstream segment in the oil and gas value chain.
“We still like Dialog as the group may benefit from ChemOne’s development of the Pengerang Energy Complex in Johor; and PETRONAS’ RM6bil development of a biorefinery with Eni SpA of Italy and Euglena Co Ltd of Japan with the need for tank terminals for long term storage of refined and crude products,” it said.
Given the high possibility of a dip in PETRONAS capex this year, the research house said there would be a de-rating for the oil and gas sector and lowered the target price-earnings ratio multiple to 10 times.
“For Malaysia’s oil and gas sector, we remain positive but prefer defensive midstream space and floating production system names, with Dialog and Bumi Armada Bhd as top picks,” it added.
However, it maintained a negative outlook for the petrochemicals segment on expectations of polymer average selling prices remaining weak in 2025, as the start of new regional capacities looks set to flood supply.
The research house has “sell” calls on Petronas Chemicals Group Bhd and Lotte Chemical Titan Holding Bhd.
