Ease of need for drilling rigs as demand for jackup rigs slows: Analysts

KUALA LUMPUR: The need for drilling rigs is likely to ease in 2025 at 20 units mainly dragged by demand slowdown for jackup rigs to 10 fleets.

Hong Leong Investment Bank (HLIB) said the fall in rig demand is in tandem with the lower anticipated exploration/appraisal activities this year as Petroliam Nasional Bhd (Petronas) has put on hold several upstream exploration works in Sarawak.

"Furthermore, many oil majors including Petronas are diverting their resources to accelerate development works and choose to defer some of its exploration pipeline. 

"Hence, we expect Velesto Energy Bhd's earnings to decline in the financial year 2025 (FY25) in anticipation of lower utilisation rate and charter rates for new contracts secured this year," it said in a note.   

HLIB said the Petronas Activity Outlook 2025-2027 is a mixed bag for the local oil and gas services and equipment (OGSE) sector.

Based on the report, it noted that offshore maintenance, construction and modification (MCM) and hook-up and commissioning (HUC) players as well as plant maintenance contractors are clear winners as activity pipelines beat market expectations.  

Offshore service vessel (OSV) and drilling rig owners may see slightly softer activity in 2025. 

HLIB said operational contractors are the least prone to spending and job cuts due to its critical nature of maintaining Petronas' hydrocarbon production.

"In addition to the recently awarded multi-year Pan Malaysia MCM-HUC contract packages, we suspect the large increment was also partly attributed to some catch up work outstanding that needs to be performed on the asset integrity findings contract packages in 2025, as many contractors were grappling with OSV shortage last year," it said.

MCM-HUC contractors like Dayang Enterprise Holdings Bhd, T7 Global Bhd, Carimin Petroleum Bhd and Petra Energy Bhd as the clear beneficiaries in 2025.

The firm said Dialog stands to benefit from the larger plant turnaround pipeline by Petronas, especially after having raised its unit rates from the MSA extension.

Another potential beneficiary could be Steel Hawk Bhd as it recently in November 2024 secured five packages from Petronas for provision of construction and modification works for the latter's downstream operating units.

HLIB maintained a "Neutral" call on the oil and gas sector as it believes the Petronas Activity Outlook provided a much needed clarity for the OGSE sector outlook and eased the overhang concern on Petronas capex/spending cuts.

"In this respect, we reckon the blanket sell down on local OGSE players due to the Petronas-Petros saga might have been overdone, especially on counters with steady earnings outlook in 2025 such as Dayang," it said.

Meanwhile, RHB Investment Bank Bhd said the acvity outlook is largely within its expectations.

The general reduction in upstream activities is premised on the slowdown in spending by Petronas, it added.

Drilling activities will be scaled down significantly this year while overall offshore support demand is also likely to decline as a result of that.

"We anticipate project delays for offshore fabrication, pipeline installation and decommissioning, with a more prominent uptick in activities starting from 2026 onwards," it said. 

RHB said the outlook will provide more clarity for the market, on the domestic activities over the next three years.

It also anchors Prime Minister Datuk Seri Anwar Ibrahim's statement that the issue of the gas distribution rights in Sarawak between Petronas and Petros had been sorted out.

"We believe the lower oil price environment has been factored in, as Brent crude prices are now close to the five-year mean of US$75 per barrel (bbl)l, and above its 10-year mean of US$66/bbl. We maintain our oil price estimates for 2025-2027F at US$75/bb," it said.

RHB kept its "overweight" call on the sector.

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