Optimistic outlook for oil and gas sector

PETALING JAYA: Analysts are largely keeping to their positive outlook on the oil and gas (O&G) industry, underpinned by the expected increase in demand for exploration and fuel transportation, while also being likely to benefit from carbon capture, utilisation and storage (CCUS) ventures.

While informing clients in its latest note that president Donald Trump’s energy-driven policies could have an impact on oil prices, MIDF Research said it is still too early to assume that the president’s framework for the US Energy Policy would have a large, lasting impact on the sector, other than the executive orders to revise and reverse climate policies, increase US oil production and add trade tariffs that may extend to heavy crude oil.

For Malaysian players, it said the key drivers would be the oil price movement, reiterating its positive view on the upstream segment, in light of 20 hydrocarbon discoveries by Petroliam Nasional Bhd since 2023, which it believes could secure Malaysia’s energy security in the long run.

“No local O&G players are involved directly with US oil production and considering that Malaysia boasted over 1,800 O&G services and equipment companies, we expect that Malaysia’s upstream division would be more focused on South-East Asia and the Middle East,” said the research house.

MIDF Research projected that Malaysia will remain attentive towards artificial intelligence (AI) technology and energy transition, as part of the shared economy and trade investments within the South-East Asian region.

It said: “Despite Trump’s drastic changes to the US’ energy environment, ultimately, we believe that the impact of the changes would be minimal to our local O&G, as well as renewable energy players.”

Furthermore, it said the deregulation by Trump of the US energy policy could also open new investment opportunities for Malaysia to penetrate the North American energy sector, consequently increasing the potential for collaboration and trade.

Meanwhile, BIMB Securities Research pointed out that most upstream services companies under its coverage such as Dayang Enterprise Holdings Bhd, Velesto Energy Bhd, Malaysia Marine And Heavy Engineering Holdings Bhd (MMHE) and T7 Global Bhd are still trading at single-digit price-earnings ratios, believing that the implementation of CCUS initiatives will provide a re-rating catalyst to these stocks.

It said CCUS projects are expected to boost offshore activities, as it will likely involve the installation of new platforms and pipelines.

“Offshore support vessel (OSV) players such as Keyfield International Bhd, Perdana Petroleum Bhd, Dayang and Icon Offshore Bhd will benefit from necessary support services during installation of such infrastructures.

“Besides that, offshore fabricators such as MMHE, Sapura Energy Bhd and KKB Engineering Bhd will also benefit from fabrication work orders to fabricate the carbon capture and storage platform.

“Drilling players such as Velesto Energy and Sapura Energy may also benefit from the drilling of new injection wells to inject carbon dioxide into the storage,” said the research unit.

Notably, it said MISC Bhd will be among the biggest beneficiaries as it is likely to get involved in the transport of the carbon, especially since it has completed the conceptual design for two liquefied carbon dioxide carriers.

Upon delivery of these vessels, BIMB Securities Research said MISC is likely to improve its earnings quality by reducing reliance on the oil tanker business.

Not surprisingly, both MIDF Research and BIMB Securities Research are maintaining “overweight” calls on the O&G sector and both notably outlining MISC to be among their top picks, with respective target prices of RM8.95 and RM10.30 for the counter.

Other selected O&G stocks include MMHE, Hibiscus Petroleum Bhd and Bumi Armada Bhd.