Gradual recovery in the O&G sector likely

“This somewhat downplays the possibility of a recovery to pre-pandemic activity levels during the year, amid Petroliam Nasional Bhd’s (Petronas) increased prudence in spending given its dwindling net-cash position, coupled with increased tax and dividend commitments, ” Kenanga Research said in a report yesterday.

PETALING JAYA: The recovery in the oil and gas (O&G) sector is likely to be slow as the demand and supply situation remains unstable.

O&G activity level in Malaysia is expected to stagnate this year as most of the value chains are expected to see flattish or lower activity levels in 2021 from last year, according to Kenanga Research.

“This somewhat downplays the possibility of a recovery to pre-pandemic activity levels during the year, amid Petroliam Nasional Bhd’s (Petronas) increased prudence in spending given its dwindling net-cash position, coupled with increased tax and dividend commitments, ” it said in a report yesterday.

Referring to the Petronas Activity Outlook 2021-2023 report, Kenanga said while there is no clear winner, it expected that the players in the brownfield sector would benefit from the increased activities across various value-chains.

It pointed out that companies in the brownfield space such as Uzma Bhd are likely to benefit this year.

Meanwhile, the losers will be contractors that are exposed to greenfield projects such as fabricators Sapura Energy Bhd and Malaysia Marine and Heavy Engineering Holdings Bhd, hook-up and commissioning players such as Dayang Enterprise Holdings Bhd and Carimin Petroleum Bhd, as well as and jack-up rig providers such as Velesto Energy Bhd, according to Kenanga.

“Overall, while a recovery is expected to be underway, we believe this recovery trajectory will slow and gradual, ” the research house added.

Crude oil prices soared after news that Saudi Arabia would make voluntary cuts to its oil output by one-million-barrel-per-day output at the Organisation of the Petroleum Exporting Countries (Opec), Russia and other allies (Opec+) meeting.

The international benchmark Brent jumped 4.9% to US$53.60 per barrel, while the US crude climbed 4.9% to US$49.93.

“Moving forward, we see oil prices to be in a delicate balancing act to sustain the current uptrend, ” Kenanga said.

It pointed out that demand is “almost certain” to recover going into 2021, but there are uncertainties surrounding the supply side such as the sustainability of Opec current production cut.