PETALING JAYA: Improving fundamentals appear to be driving the increased optimism in the oil and gas (O&G) sector recently.
Fundamentals for the sector appear to be improving from rising asset utilisation globally that is supporting the service providers’ improving results, said AmInvestment Bank Research (AM Research) in a report.
“This is despite the continued volatility in the oil price direction exacerbated by the unresolved US-China trade tension, deteriorating global economic growth outlook and easing of US pipeline constraints,” the research house said.
AM Research has upgraded the O&G sector to overweight from neutral in its latest report on Friday.
It noted that contract awards in the O&G sector during the second quarter had rebounded 2.1 times from the previous quarter and 59% year-on-year (y-o-y) to RM4bil following a lull in the first quarter.
AM Research said that these awards were driven by multiple awards to SAPURA ENERGY BHD, while BUMI ARMADA BHD had secured a 30% stake in ONGC’s KG-DWN 98/2 floating production, storage and offloading unit charter.
It said contract flows to the O&G services sector are now on the verge of regaining a stronger forward momentum.
It expects that in the longer term, offshore projects in Brazil, Mexico, the Middle East and West Africa are poised to gain traction with Sapura Energy and Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE) being selected for Saudi Aramco’s long-term agreement programme.
This programme allows Sapura and MMHE to bid for Saudi Arabia’s massive offshore projects that could reach US$150bil over the next ten years.
AM Research said its top picks in the sector were companies with stable and recurring earnings such as Serba Dinamik Holdings Bhd and Dialog Group Bhd.