PETALING JAYA: Dialog Group Bhd
’s upstream expansion in Thailand could provide a longer-term earnings boost, although the project is unlikely to have any meaningful impact on the oil and gas services provider’s near-term earnings, according to MBSB Research.
The research house maintained its “buy” call on Dialog with an unchanged target price of RM2.57 a share, following the award of an additional upstream block in Thailand to its indirectly 50.01%-owned joint venture, Pan Orient Energy (Siam) Ltd (POES).
MBSB Research said the acquisition of Block L8/66 onshore Thailand was strategically positive as the block shares the same geology as the L53/48 concession, which POES currently operates.
“The geological risk is lower due to known sub-surface characteristics and shared reservoir traits,” the research house said.
MBSB Research also highlighted the benefits of Dialog’s integrated operating model, noting that its role as operator would allow the group to channel engineering, procurement, construction and maintenance (EPCIC) work to its own service divisions.
“Being the project operator allows the group to route EPCIC work to its own service divisions, thus creating a dual revenue stream from both equity production and internal service contracts,” it said.
The research house expects this integration to provide additional value if the block progresses to commercial production, while the involvement of joint venture partners, including Sea Oil Energy for local Thai expertise and CanAsia as a non-operating partner, helps keep Dialog’s financial exposure manageable.
MBSB Research, however, does not expect the new block to contribute to Dialog’s earnings in financial year 2027, as there will be no direct crude oil sales revenue during the initial development phase.
Following a discovery, the research house estimates the addition of Block L8/66 could lift Dialog’s net profit margins by as much as 35%, aided by the ability to share central processing facilities, pipelines and logistics bases with the adjacent L53/48 concession.
MBSB Research estimates Dialog’s share of the minimum work commitment at about US$5mil (RM22mil), which it said could be funded through internal cash generation without additional debt.
However, the project faces risks from the size and quality of the remaining acreage, oil price volatility and foreign exchange movements.
The research house noted that surrendered acreage tends to comprise less commercially attractive or lower-yielding areas, raising the possibility of marginal discoveries requiring higher oil prices to remain profitable.
“As such, we make no change to our earnings estimates for Dialog at this juncture, until first hydrocarbon is established for this project,” MBSB Research said.
Similarly, an analyst views the L8/66 award positively, given its proximity to Dialog’s existing producing L53/48 fields.
“Dialog could leverage its existing infrastructure and operational expertise to optimise development costs.
“The minimum work commitment over six years offers measured exposure to potential growth in reserves and production, with management guiding for a low-to-mid-teens projected internal rate of return,” he told StarBiz.
Despite the positive development, he has left its earnings forecasts for Dialog unchanged, as the project remains in the early stages of development.
