Banks stay positive on O&G
Published on: Saturday, September 07, 2024
By: Bernama
Despite lingering uncertainties within the domestic oil and gas scene and a downward revision in crude oil projections, RHB Investment Bank Bhd (RHB IB) has maintained its “overweight” rating on the sector, premised on the recovery in oil prices.
Kuala Lumpur: Despite lingering uncertainties within the domestic oil and gas scene and a downward revision in crude oil projections, RHB Investment Bank Bhd (RHB IB) has maintained its “overweight” rating on the sector, premised on the recovery in oil prices.
The investment bank prefers upstream service players with greater exposure to maintenance-related activities as they provide greater earnings resilience as well as corporations with international diversification.
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RHB IB also noted growing speculation around a potential capital expenditure (capex) cut by Petroliam Nasional Bhd (Petronas) following the news that Petroleum Sarawak Bhd (Petros) will take over the buying and selling of natural gas produced in Sarawak from Petronas, starting in the second half of 2024.
News reports indicate that Petronas and Petros remain strategic partners in Sarawak’s hydrocarbon development and are still in discussion to reach a mutually beneficial agreement. The impact will depend on the outcome of these discussions.
“Based on our conversations with various upstream players, most service providers, especially those in the maintenance sector, remain optimistic about their near- to medium-term outlook, buoyed by a strong order book and the importance of maintenance work for exploration and production players,” RHB IB said in a research note.
The bank revised its Brent crude oil price forecasts for 2024-2025, lowering them to US$82 and US$80 per barrel from US$88 and US$83 respectively, following weaker-than-expected prices in the third quarter of 2024.
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RHB IB explained that Brent crude oil prices have been trending weaker than the bank’s expectations, largely due to rising concerns over potential demand weakness, particularly in China, Europe and the United States.
“We take this opportunity to trim our projections to reflect the current weak sentiment. We expect oil prices to recover from current levels but do not discount the possibility of a further downside adjustment risk should the global economic outlook remain below our expectations,” it said.
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Meanwhile, Maybank Investment Bank (Maybank IB) flagged the possibility of slower growth or a reset in growth expectations for domestic-centric upstream oil and gas services and equipment (OGSE) companies driven by a possible capex deferral by Petronas in 2024 and 2025.
“For now, we favour defensive midstream space; and OGSE companies with regional exposure and capabilities,” it said.
Maybank IB also highlighted potential capex spending by Petronas as its revenue comes off, with Petros having assumed the role of sole gas aggregator in Sarawak, in addition to the current crude oil price environment that justified an upcycle in global capex.
“Given this ongoing development, we recommend investors to choose defensive names in the midstream space like Dialog and regionally exposed and capable names like Wasco and Velesto,” it added.
Petronas’ total capex rose to RM25.7 billion in the first half of 2024, up by 20 per cent year-on-year (y-o-y), with 16 per cent allocated to cleaner energy solutions and decarbonisation projects.
Domestic capex also grew by 18 per cent y-o-y to RM12.4 billion during the period from an already high base in the first half of 2023, reflected in the performance of the local OGSE corporate earnings.
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