Positive outlook for oil and gas industry

PETALING JAYA: Analysts are mildly positive about the oil and gas (O&G) industry following the release of Petroliam Nasional Bhd’s (PETRONAS) 2024 results, which showed lower profits. They also highlighted segments within the industry that could be worth looking into.

With the national O&G titan now electing to report its results every six months instead of the customary quarterly practice, Maybank Investment Bank Bhd (Maybank IB) commented that PETRONAS’ results for the second half of 2024 were “uninspiring”.

It then advocated the defensive midstream and floating production, storage and offloading (FPSO) spaces for consideration.

In a report to clients published yesterday, Maybank IB identified key sub-segments expected to see increased activity based on PETRONAS’ latest Activity Outlook (PAO) 2025 to 2027 document.

These include the fabrication of fixed structures like wellhead platforms and central processing platforms, FPSO and onshore downstream plant turnarounds, as well as hook-up and commissioning (HUC) and maintenance, construction and modification (MCM).

“Possible key beneficiaries include Bumi Armada Bhd, Yinson Holdings Bhd, MISC Bhd, Dialog Group Bhd, Malaysia Marine and Heavy Engineering Holdings Bhd, Steel Hawk Bhd, Dayang Enterprise Holdings Bhd and Petra Energy Bhd,” the research house pointed out, before identifying Dialog and Bumi Armada as its top picks.

It remained “positive” on the O&G sector.

Meanwhile, RHB Research opined that the switching of PETRONAS’ financial reporting to every half yearly, rightsizing initiatives and on-going discussions with Petroleum Sarawak Bhd (Petros) continue to cast uncertainties over the sector as PETRONAS’ capital expenditure (capex) spending targets remain unclear.

Predicting that the overall operating environment could be more challenging, it nevertheless mirrored Maybank IB’s idea in advocating selective stocks within the FPSO and maintenance-related segments as its preferred choices amidst attractive valuations.

“PETRONAS is still waiting for the details of discussions between the federal and Sarawak state governments on the scope of co-operation with Petros.

“It was further emphasised that all contracts leading up to the Distribution of Gas Ordinance 2016 will remain in full force.

“While there is still no guidance over the capex spending targets for this year, we do not discount the possibility of a 20% year-on-year decrease in capex to approximately RM43bil for 2025, especially when there are still uncertainties over some of the work arrangements between Petros and PETRONAS,” said RHB Research.

The securities firm saw a general reduction in activity guidance in the latest PAO for 2025 to 2027, which it said is not surprising given the scale-back in spending.

It continues to favour the maintenance space, expecting this segment to see the least impact from spending scale-backs given the importance in maintaining production levels for operating cash flow generation purposes. It lists Bumi Armada, Dayang Enterprise and Yinson as its choice counters for the sector, maintaining an “overweight” call on the industry.

Separately, Hong Leong Investment Bank (HLIB) Research reported that PETRONAS’ capex for financial year 2024 increased to RM54.2bil from RM52.8bil in 2023, with 52% allocated to key upstream projects such as the Kasawari Gas Field Development and Integrated Bekok Oil.

“Of the total capex, RM33bil or 61% was utilised for Malaysia, higher than RM26bil in the preceding year.

“We reckon the increase in domestic capex in 2024 partly contributed to the stellar earnings performance for many offshore service contractors during the year,” it said.

Maintaining a “neutral” call on the sector, the research house said it remains positive on MCM/HUC players and plant maintenance contractors, as they will likely outperform other sub-segments.

HLIB Research reckoned that continued sell-down in the local O&G, services and equipment players arising from concerns on the PETRONAS-Petros saga and geopolitical uncertainties might have been overdone, especially on counters with steady earnings outlook in 2025 such as Dayang Enterprise.

It listed Dialog and Wasco Bhd as its top picks.