PETALING JAYA: Oil and gas (O&G) companies across the globe have been under increasing pressure from governments, regulatory authorities, activist shareholders and the general public to shift towards a decarbonised future.
The sharp plunge in crude oil prices in April last year due to the price war between Saudi Arabia and Russia as well as the subsequent Covid-19-induced demand collapse has accelerated the upstream industry’s transition towards lower-carbon business strategies.
These developments have only cast the spotlights on renewable energy (RE) and the adoption of environmental, social and governance (ESG) practices.
AmInvestment Bank Research said it expects a rising interest in RE projects by local O&G providers, given that gearing concerns are being alleviated in an improving oil price environment currently.
Among local service providers, the research house noted that only Yinson Holdings Bhd has an operational RE plant from its US$30mil (RM123.3mil) investment for a 95% equity stake in Rising Sun Energy, which has a 140MW solar farm in Bhadla Solar Park Phase II, Rajasthan, India.
“Yinson also recently signed an agreement with listed firm NTPC Ltd to develop a 190MW plant in nearby Nokh Solar Park.
“While Uzma Bhd has secured 50MW from the large scale solar (LSS4) projects, the plant will only be operational by the end of 2023. This will add to Uzma’s existing 420kw peak rooftop solar farm in Sungai Buloh, ” it said.
In Malaysia, Petroliam Nasional Bhd (Petronas) was the first Asian O&G operator to commit to a net-zero emission target by 2050, following the footsteps of major multinational operators such as Shell, BP, Total, Repsol and Equinor.
AmInvestment Bank said Malaysia’s shift towards RE has been in store for the past three years with Petronas’ investment in Singapore-based Amplus, which operates over 600MW of solar capacity in India and South-East Asia.
The national oil company is operating and developing a 50MW solar capacity in Malaysia, part of that to supply to 15 Tesco stores.
It is also looking into the possibility of deploying more low-carbon solutions in the long term, with a carbon capture and storage (CCS) project on the horizon.
Other types of low-carbon solutions include carbon utilisation technologies, bio-based products and hydrogen.
Meanwhile, with ESG becoming an increasingly critical factor for investors, AmInvestment Bank evaluated O&G companies under its coverage based on a range of one to five stars and noted that all of them scored at least three.
“The strong ESG scores stem from the industry already imposing stringent health and safety regulations, which could mean disqualification for project bids for any serious breach.
AmInvestment Bank maintained its “overweight” recommendation on the sector with eight “buy” calls and a “hold” call.
“We continue to like Dialog and Serba Dinamik due to their resilient non-cyclical tank terminal and maintenance-based operations.
“We recommend Yinson for its strong earnings growth momentum from the full-year contributions of floating production, storage and offloading vessels Helang, off Sarawak, Abigail-Joseph in Nigeria and Anna Nery in Brazil together with multiple charter opportunities in Brazil and Africa.
“We also like Sapura Energy, which will complete its RM10bil debt restructuring package soon and position the formidable engineering, procurement, construction, installation and commissioning group to secure fresh global orders, ” the research house said.
It added that PetGas offers highly compelling dividend yields from its optimal capital structure strategy and resilient earnings base.