Strong oil prices to buoy upstream O&G companies


PETALING JAYA: Companies involved in the oil and gas (O&G) upstream production and services as well as equipment sub-sector will be the main beneficiaries of strong oil prices, which are expected at US$80 to US$82 per barrel.

Rakuten Trade Sdn Bhd head of equity sales Vincent Lau is positive about the outlook for the O&G sector with the current Brent crude oil price remaining supportive of Petroliam Nasional Bhd’s (PETRONAS) domestic capital expenditure (capex) activity for 2024-2026.

“Recent earnings of O&G companies have continued to improve compared with 2023 due to more work activities.

“Our forecast for Brent crude oil price is that it will average US$80 per barrel for 2024 due to geopolitical tensions in the Middle East and elevated global demand for the commodity.

“The direct beneficiaries of higher Brent crude oil price are Dagang Nexchange Bhd and Hibiscus Petroleum Bhd, as both are involved in upstream production activities at O&G oilfields locally and internationally.

“PETRONAS, which has increased its capex, will also benefit the lesser-known O&G service providers such as GFM Services Bhd, which recently ventured into O&G via the acquisition of Highbase Strategic Sdn Bhd and LEAP Market-listed Steel Hawk Bhd, a provider of onshore and offshore support services,” Lau told StarBiz.

GFM Services has secured three-year operations and maintenance contracts for three facilities within the Pengerang Integrated Complex in Johor.

Steel Hawk Bhd has filed its draft prospectus with Bursa Malaysia as part of its proposed listing transfer from the LEAP Market to ACE Market.

Meanwhile, Maybank Investment Bank Bhd equity research analyst Jeremie Yap said for the O&G services and equipment sub-sector, many listed companies are expected to register year-on-year revenue and profit growth in 2024, as they would be able to ride on higher oil major capex for the year.

He said the growth drivers that would spur the O&G sector this year would be the increase in oil majors’ capex.

This is evidenced from an elevated oil price environment for an extended period of time, enticing more capex spending in the upstream exploration and production space.

However, he said the challenges that would impact the sector would be cost overruns, price inflation of raw materials, lack of talent and crimps in profit margins.

Also, lower-than-expected capex spending among oil majors is a key risk, he pointed out.

On the oil price outlook for the year, Yap expects a flattish crude oil price, compared with 2023, which is US$82 per barrel.

He said the potential beneficiaries for the O&G sector include players in the offshore service vessels, hook-up commissioning and maintenance, construction and modification, plant turnaround space namely Perdana Petroleum Bhd, Keyfield International Bhd, Dayang Enterprise Holdings Bhd, Petra Energy Bhd and Dialog Group Bhd.

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oil and gas , upstream , Dnex , Hibiscus

   

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