PETRONAS spending to buoy oil and gas prospect

PETALING JAYA: Despite the energy market’s bearish fundamentals, Malaysia’s upstream oil and gas (O&G) industry activity outlook remains supported by Petroliam Nasional Bhd’s (PETRONAS) investment programme.

MIDF Research expects the national oil company to operate towards sustaining production at two million barrels of oil equivalent per day over the next three years as highlighted in its Activity Outlook 2025-2027 report.

“A total of 69 development wells are scheduled for calendar year 2025 (CY25), while offshore gas projects such as Kasawari, Jerun and B14 are anticipated to account for nearly 50% of the country’s natural gas production in CY25.

“This signals a stable upstream division in the near term, barring any immediate downside risks from oil price crash and increased trade tensions,” the research house stated in a sector report.

At the midstream level, MIDF Research expects the sustained demand and improved price of liquefied natural gas (LNG) to keep the local gas transportation and refinery subsectors to remain robust in the near to mid term.

Higher LNG prices in the world market and sustainable demand for the cleaner energy sources continue to attract investment into LNG and natural gas processing capacity worldwide, it noted.

The shipping element of the midstream segment, however, could face some headwinds from the tariff war as it could influence a slowdown in domestic consumption, which would impact demand for crude and LNG tankers.

That said, the declining crude oil price could encourage producers to store crude petroleum and petroleum products in onshore terminals, which would support O&G players with storage capabilities and capacities, the research house added.

The downstream segment of the O&G industry continues to face challenges particularly for the petrochemicals segment from overcapacity, weak demand and polymer prices. MIDF Research, however, noted Malaysia is set to commence 31 petrochemical projects by year-end, given the still strong domestic demand.

“With advanced technology and sustainable petrochemicals, we opine the subsector will reach a rationalisation with supply-demand balance, amid the headwinds in the global O&G market,” it noted.

It expects crude oil price to range between US$60 and US$70 a barrel due to increased production from the United States and the Organization of the Petroleum Exporting Countries and its allies.

With the corporate earnings season underway, MIDF Research is cautious about the prospects of companies in the value chain. Hence, it has maintained its “neutral” stance on the O&G sector.

On the other hand, it expects companies with long-term contracts in floating production, storage and offloading and offshore support vessels to fare well, together with companies offering engineering, procurement, construction and commissioning and maintenance services in both upstream and midstream levels.

It also sees potential in companies with a strong footprint in LNG storage and exports and renewables and sustainable fuels.

“We are expecting drags from planned maintenance, weaker production volume, regulatory changes and cost challenges.

“At this juncture, we anticipate opportunities may shift to other related sectors, notably in renewables and clean energy, as part of ongoing energy transition initiatives and better alignment with the environmental, social and governance mandates,” it said.

MIDF Research’s top pick for the sector is PETRONAS Dagangan Bhd (PetDag), on which it has a “buy” call with a target price of RM22.25 a share.

It likes the counter as the latter’s retail fuel business offers stable margins as well as consistent demand, and could benefit from the fuel subsidy rationalisation through improved margins and volume sold, notably to commercial fuel customers.

The research unit added PetDag also consistently offers attractive dividend payouts, underpinned by positive cash flows and low capital expenditure intensity.