KUALA LUMPUR: There may be some concerns over the slowdown in drilling and offshore support vessel demand, but analysts see opportunities in specific sub-sectors of the oil and gas (O&G) industry.
This includes floating production storage and offloading and maintenance-related services.
They remain bullish on upstream maintenance services particularly, despite the reduction in Petroliam Nasional Bhd's activity guidance for 2025.
The reduced activities are in line with expectations given the ongoing spending cuts by Petronas, according to RHB Investment Bank Bhd, which maintained its "Overweight" stance on the industry.
RHB said the FPSO and maintenance players were seen as strong candidates, citing attractive valuations and a resilient pipeline of facility improvement projects (FIPs).
The firm's top picks in the sector include Bumi Armada Bhd, Dayang Enterprise Holdings Bhd and Yinson Holdings Bhd, with a focus on companies likely to benefit from hook-up and commissioning (HUC) and maintenance, construction and modification (MCM) work.
RHB said 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 added.
RHB, however, said Petronas' activity 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," it said, maintaining its oil price estimates for 2025-2027 at US$75/bb.
Kenanga Investment Bank Bhd (Kenanga IB) is still bullish on upstream maintenance services, with a slightly more cautious outlook for drilling and engineering, procurement, construction and commissioning activities.
Despite a projected dip in offshore support vesssel (OSV) demand, the firm highlighted vessel supply constraints as a potential opportunity for companies like Dayang Enterprise and Petra Energy Bhd.
Kenanga IB noted that broader geopolitical factors, including US President Donald Trump's deregulation of federal land oil production, are set to drive higher US crude output, albeit gradually, as producers remain market-driven.
"Additionally, Trump's policies could push Organisation of the Petroleum Exporting Countries Plus (Opec+) to accelerate production increases, though this could be counterbalanced by a tighter stance on Iran, which may curb its oil exports and keep global supply in check."
Maybank Investment Bank Bhd (Maybank IB) has a more positive outlook for the sector than initially anticipated, as the activity outlook suggests a less significant capital expenditure reduction in 2025.
Maybank IB emphasised selective stock picking, focusing on midstream and FPSO players, with its top picks including Dialog Group Bhd and Bumi Armada, while a long-term oil price assumption remains unchanged at US$70 per barrel for 2025.
Hong Leong Investment Bank Bhd (HLIB), meanwhile, maintained a more neutral stance, seeing the outlook as a mixed bag for the O&G services and equipment (OGSE) sector.
While MCM and HUC players are expected to benefit from a stronger activity pipeline, HLIB warned that some sub-segments, particularly OSV and drilling rig ownership, may see slightly weaker activity levels in 2025.
The firm said 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.
The expected fall in rig demand is in tandem with the lower anticipated exploration/appraisal activities this year as 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 in anticipation of lower utilisation rate and charter rates for new contracts secured this year."
HLIB said based on the Petronas Activity Outlook 2025-2027, offshore MCM and HUC players as well as plant maintenance contractors are clear winners as activity pipelines beat market expectations.
Operational contractors are the least prone to spending and job cuts due to its critical nature of maintaining Petronas' hydrocarbon production, it added.
"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, T7 Global Bhd, Carimin Petroleum Bhd and Petra Energy are 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 sees the release of the activity outlook as a step toward providing clarity for the sector outlook and eased the overhang concern on Petronas' capital expenditure/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 Enterprise," it said.
HLIB's recommended stocks include Dialog and Wasco Bhd for investors seeking more resilient earnings.
