PETALING JAYA: The elevated price of crude oil will bode well for the recovery of the local oil and gas (O&G) sector.
This will also be supported by the anticipation of higher capital expenditure (capex) and operating expenditure (opex) by O&G companies, say analysts.
According to RHB Research, maintenance-related players would likely recover faster than fabricators, as Petroliam Nasional Bhd (PETRONAS) is not aggressively expanding greenfield projects.
Instead, the national oil company is focusing on low-hanging fruits to boost production, the research house said in a note to clients.
RHB Research, however, remained bullish on floating, production, storage,and offloading players due to robust demand and their resilient earnings.
Its top “buy” picks include Bumi Armada Bhd
with a target price (TP) of 59 sen, Coastal Contracts Bhd (TP RM2.35) and Yinson Holdings Bhd (TP RM2.91).
RHB Research expects “the upstream services to slow down in the fourth quarter of 2022 (4Q22) when entering the monsoon season.”
“Therefore, we expect lower vessel utilisation rates for offshore support vessel players, such as Perdana Petroleum Bhd, and weaker quarter-on-quarter earnings for maintenance-related players like Dayang Enterprise Bhd (TP RM1.53).”
Looking past the seasonally weaker 4Q22, RHB Research also expects upstream activities to remain robust in 2023 on the back of sustainable capex and opex spending.
“There is a possibility of PETRONAS underspending its capex, below the guided RM60bil, at around RM50bil to RM55bil, similar to the past few years.
“The 2023 total capex is likely to be lower year-on-year (y-o-y) in the absence of lumpy acquisitions, but we estimate it will remain in the range of RM45bil to RM50bil, with O&G spending staying robust,” it noted.
As such, upstream activities are projected to remain elevated for the upstream division to capitalise on high oil prices, said RHB Research.
Meanwhile, TA Research, which has an “overweight” call on the sector, believes that recent oil market developments continue to support the sector’s elevated oil prices.
“The supply and demand dynamics will likely remain robust to provide a firm footing and limit price downside risks.
“This is underpinned by our expectations of tight supply amid stable demand,” said the research house in its latest report.
On the supply side, we believe the magnitude of the Organisiation of Oil Exporting Countries and its allies (Opec+) cuts will turn out to be less than expected.
“However, global supply will remain subdued given the lethargic US production and the rollback of releases from the US’ strategic petroleum reserves.
“We also expect resilient demand on the back of higher demand from Chinese refiners to supply Europe and inventory restocking.
“Moreover, we believe that the oil price sentiment is anchored by Opec+’s proactive policies in response to demand fluctuations and Russia’s need to support prices given the conflict in Ukraine.”
On the back of this, TA Research believes that upstream service providers are leveraged towards steady O&G capex momentum.
“For the latter, we expect a recovery in daily charter rates, fleet utilisation and new contract awards,” it added.
The catalyst is higher capex spend from PETRONAS and other oil companies for expansion projects, well drilling, production enhancement, and platform and facility maintenance, said TA Research.
“Our TP on Velesto has been raised to 14 sen from 10 sen previously and we maintain our ‘buy’ recommendation on the stock.”
