PETALING JAYA: Activity levels in the oil and gas (O&G) sector are expected to remain strong with the guided capital expenditure (capex) of RM300bil by Petroliam Nasional Bhd (PETRONAS) for the next five years.
Kenanga Research said it expects the upcoming quarters to see continued recovery trajectory in local activity levels.
“Earlier in our read through of PETRONAS’ latest activity outlook, we have highlighted Dayang Enterprise Holdings Bhd
to be one of the key beneficiaries, given the planned increase in offshore maintenance, construction and modification (MCM), and hook-up and commissioning (HUC) works.
“Meanwhile, we believe Uzma Bhd could also benefit from the increased level of brownfield activities – especially in an environment of higher oil prices as producers would be more incentivised to enhance well productions.
“Additionally, demand for jack-up rigs is also expected to improve in the second half of 2022 and going into 2023 – benefitting rig provider Velesto Energy Bhd,” the research firm said in an oil and gas sector report following PETRONAS’ financial year 2022 (FY22) financial results.
The national oil company posted a record FY22 core profit after tax and minority interests of RM94bil, which is more than doubled year-on-year (y-o-y) on the back of higher product prices and favourable forex impact.
Its capex investments jumped 65% y-o-y to RM50.1bil, with upstream remaining the key focus, noted Kenanga Research.
Going forward, PETRONAS has guided for an average cap of RM60bil per year from 2023 to 2027 to further spur hydrocarbon activity levels as well as investments in green energy.
The dividend to the government in 2023 is projected at RM40bil versus RM50bil in 2022. With cash coffers of RM108bil (the highest since FY18) it will have little difficulty meeting both its dividend and capex commitments.
Meanwhile, the research firm said oil and gas stocks under its coverage reported satisfactory 4Q22 results, backed by elevated activity levels, which was partially dented by cost inflation.
However, it has downgraded the sector to “neutral” from “overweight” as it sees limited upside catalysts for big-cap names, though there are opportunities in smaller equipment and service contractors.
Additionally, it is expecting oil prices to gradually trend lower over the long-term from its 2022 high and for 2023 to 2024, has a Brent crude oil price assumption of US$80 (RM358.64) per barrel.
RHB Research is also positive over PETRONAS’ RM300bil capex guidance for 2023 to 2027, which is 43% higher than the previous five-year period.
“There is more room for services players to demand higher rates amidst tight supply.
“Our 2023 and 2024 forecast crude oil prices are still at US$80 to US$88 (RM358.64 to RM394.50) per barrel,” said RHB Research, which maintained an “overweight” rating on the sector.
On the global front, it noted that Rystad Energy indicated that the annual greenfield capex has surpassed the US$100bil (RM448bil) level in 2022, and continues to grow in 2023 and 2024.
Meanwhile, Hong Leong Investment Bank (HLIB) Research is forecasting Brent crude oil price to be at US$85 to US$90 (RM381 to RM403.47) per barrel for 2023.
Post the 4Q22 earnings season, it has downgraded the oil and gas sector to “neutral” from “overweight” previously.
It said PETRONAS’ FY22 capex stood at RM49.7bil, in line with its better operating cash flows of RM135.3bil, albeit falling short of its 2022 target of RM60bil as per guided previously.
“We are projecting a capex of RM40bil for 2023. We believe that this would augur well for the local oil and gas sector as most of the listed service providers are heavily reliant on PETRONAS as a major client and would serve to be direct beneficiaries of this development,” said HLIB Research.
