KUALA LUMPUR: Petroliam Nasional Bhd's (Petronas) cautionary note on its prospects has done little to dampen sentiment on the local oil and gas sector, as analysts bet on upstream oil and gas and floating production storage and offloading (FPSO) players' outshining.

RHB Research analyst Sean Lim said the firm is lukewarm on Petronas' annual domestic spending guidance for 2023-2027 - since the yearly amount of RM 22.6 billion is 9-11 per cent lower than what was spent in 2018-2019 (pre-pandemic).

However, Lim said the firm is still positive on upstream services players, given the elevated activity levels and drilling activities are guided to remain robust, similar to maintenance activities.

"Having said that, the clients - including Petronas - have now revised their vessel chartering contracts. Instead of embedding vessel chartering into the maintenance contracts as marine spread, it is now centralising vessel chartering at its end," he said in a note.

Lim said the firm believes this may affect players with their own fleet (ie Dayang Enterprise Holdings Bhd), as project execution timelines are affected subject to vessel availability, and project management could be harder for the time being.

He said the firm understands that Dayang is currently in discussions with clients to streamline the process, and have been guided that three projects have been delayed to the second quarter (Q2) 2023 to Q3 2023.

"We understand that, until now, the project schedules of other maintenance players without their own fleets ( Carimin Petroleum Bhd and Deleum Bhd )are largely unaffected," he said.

Lim also remains bullish on FPSO players due to the robust demand for their services, as well as their resilient earnings. He said FPSO demand remains solid amidst tight supply, which provides more bargaining power for contractors. "Meanwhile, the overall petrochemical market and specialty chemicals outlook remain unexciting, amidst a weak recovery in demand. "For the near term, we think that catalysts are lacking, while start-up costs for petrochemical plants at Pengerang Integrated Complex could dampen margins," he said.

Hong Leong Investment Bank Research (HLIB Research) analyst Jeremie Yap instead opined that Petronas's Q1 2023 capex of RM10.5 billion would augur well for the local oil & gas sector.Yap said this is because most of the listed service providers in the local oil and gas services and equipment (OGSE) space are heavily reliant on Petronas as a major client and would serve to be direct beneficiaries of this development.

"We still think that 2023 will be a golden year for the OGSE players - a laggard to the elevated oil price environment for the past year." "However, we are also wary of cost hikes that are currently demonising the OGSE space due to cost inflation woes amidst the heightened oil and gas demand with global supply chain disruptions - impacting the availability of oilfield equipment and spares."

HLIB maintains its Neutral stance on the oil & gas (O&G) sector with DNeX Holdings Bhd and Wah Seong Bhd as its revised top picks," he said. While capital expenditure (capex) for upstream activities in the local oil and gas (O&G) sector is expected to grow, this outlook could potentially be dampened by Petronas cautious spending approach and shift towards renewable energy. 

Putra Business School economic analyst Associate Professor Dr Ahmed Razman Abdul Latiff said despite the current high oil price (above US$75 per barrel) the industry prospect will remain challenging for this year and foreseeable years.

He said this is due to uncertainties caused by the growing commitments by many nations towards renewable energy (RE), transition towards electric vehicles and adoption of Sustainable Development Goals (SDGs) and environmental, social and corporate governance (ESG) in general. "Petronas recognised this and hence started towards increasing the percentage of revenue from non O&G to 30 per cent. "Thus local oil and gas players should take heed and must start to diversify their products and services to start catering the green and renewable energy as well," he told the New Straits Times.

Bank Muamalat Malaysia Bhd chief economist and social finance head Dr Mohd Afzanizam Abdul Rashid said concerns over global economic slowdown owing to highly restrictive monetary policy have risen along with tentative China's economic rebound would result in limited upside risks for crude oil prices.

Apart from that, Afzanizam said a move towards promoting Energy Vehicle (EV) could also mean changing dynamics in crude oil demand. "Following this, oil majors would need to be mindful in rolling out their capex.

Subsequently, this may affect the supply chain within the Oil and Gas ecosystem.

"In that sense, the players may really have to strategically decide on how they would evolve within the RE space by leveraging on their engineering capability," he said. 

https://www.nst.com.my/business/2023/06/918113/analysts-still-upbeat-about-og-players