KUALA LUMPUR (July 2): The booming upstream topside maintenance and hook-up and commissioning (HUC) services is expected to continue throughout the rest of 2024 as Petroliam Nasional Bhd (Petronas) ramps up its brownfield activities to boost production on its existing fields.

Kenanga Investment Bank Bhd said the upstream services market, particularly HUC services, had experienced a significant increase in activities in the first half of this year.

It noted that players such as Dayang Enterprise Holdings Bhd and Carimin Petroleum Bhd had posted strong revenue growth and earnings before interest and taxes (EBIT) margin expansion in the first quarter of  financial year 2024.

“We expect this momentum to be sustained in the coming quarters.

“Consequently, this will drive the demand for accommodation workboats (AWB) as they are typically utilised for offshore maintenance works,” the investment bank said in a note on Tuesday.

Kenanga Investment Bank said the domestic upstream service players are observing a strong pick-up in demand from Petronas and other oil producers.

It said the short-term daily charter rate (DCR) for AWB was quoted at RM150,000 for shorter-duration charters - three months or less - exceeding the levels seen during the previous bull market in 2013 to 2014.

The mid-sized anchor handling tug supply (AHTS) vessels, with approximately 5,000 brake horsepower (bhp), are seeing recent transacted DCRs of RM40,000 per day or below, lower than their previous peak of RM47,000, it said.

"This implies that the majority of demand is still directed towards brownfield maintenance jobs rather than greenfield projects.

"Therefore, if the ramp-up in activity continues in the coming months, we believe there will be more upside to AHTS DCRs," it added.

On prices, Kenanga Investment Bank expects the brent crude oil to weaken slightly in the third quarter of 2024 and strengthen in the fourth quarter this year as winter impacts the Western economies.

It kept the overweight recommendation on oil and gas sector, while maintaining its Brent crude price forecasts at US$84 per barrel (bbl) and US$79 per bbl for 2024 and 2025 respectively.

"An interesting observation is that the forward Brent price implied is at US$80 per bbl, which is a discount to the median forecast by analysts, reflecting weaker crude market sentiment among oil traders for 2024," it said.

Kenanga Investment Bank also expects the voluntary Organisation of the Petroluem Exporting Countries’ allies (OPEC+) production cuts would continue throughout 2024 before increasing production in 2025, leading to a better supplied oil market next year.

It said OPEC+ will gradually unwind its production cuts in late 2024, increasing production by one million barrels per day, thereby reducing the production cut from 2.2 million barrels per day to 1.2 million barrels per day.

“We also note that OPEC's spare production capacity is above the 2014-2023 average, giving it the ability to ramp up production quickly if needed.

"We expect demand growth for crude oil to increase by 0.8 million barrels per day in 2024, slightly lower than the US Energy Information Administration's expectations, bringing the global crude market to a balanced state overall for 2024," it said.

Meanwhile, Hong Leong Investment Bank Bhd (HLIB) said the local offshore activities would run at full throttle following a seasonally slower first quarter of 2024 due to the monsoon weather in Malaysia.

It said topside maintenance and HUC contractors as well as offshore support vessel (OSV) fleet owners are slated to clinch superior profits with a robust year-on-year growth in the second quarter of 2024 and the third quarter of 2024.

The official award of the Pan Malaysia HUC and maintenance, construction and modification (MCM) packages, production operations vessels (POV) tender and Project Safina are key re-rerating catalysts for the sector.

HLIB has maintained its overweight call on the O&G sector, while keeping the average Brent crude oil price forecast unchanged at US$85 per bbl for 2024/2025.

https://www.theedgemarkets.com/node/717582