Poised for robust job flows
PETALING JAYA: The oil and gas (O&G) upstream services industry outlook looks bright, buoyed by an expected ramp-up of job flows this year and more favourable terms in new contracts to the service providers.

Service providers in this segment are in a good position to negotiate for better terms due to persistent supply shortages of providers and assets such as vessels and rigs.

Kenanga Research said: “The upstream services segment appears to be entering the initial stages of a potential upcycle which will usher in an influx of job opportunities in 2024 and potentially more favourable contract terms as the supply of both upstream services and vessels tightens.”

The brokerage firm, which upgraded its sector call to an “overweight” from “neutral”, pointed out that there was a significant improvement in the upstream services segment’s earnings delivery versus its expectations in the fourth quarter of 2023.

It said upstream services providers which stood out included Uzma Bhd , Velesto Energy Bhd and Wasco Bhd , benefitting from a significant uptick in local upstream investment by Petroliam Nasional Bhd (PETRONAS), which will pave the way for a potential upcycle in the upstream services sector in Malaysian waters.

“We anticipate an increase in PETRONAS’ upstream spending in 2024, aligning more closely with its RM60bil annual capital expenditure (capex) goal,” it said on the back of expectations that Brent crude prices remain stable at US$84 per barrel.

Kenanga Research said the stability in Brent crude prices is expected to create a favourable scenario for PETRONAS to escalate its upstream capex, buoyed by the advantageous economics of crude production within the current price range.

However, earnings performance from the petrochemical and shipping segments only matches Kenanga Research’s expectations.

As such, it believes the sector’s downstream segment outlook remains tepid due to overcapacity globally and slow recovery in global demand.

The research house noted that the larger-cap players in the petrochemical and shipping segments such as MISC Bhd and Petronas Chemicals Group Bhd , posted financial outcomes that only met expectations.

Kenanga Research’s sector top picks are Dialog Group Bhd , Yinson Holdings Bhd and Uzma.

It said Dialog is favoured given the recovery in the spot tank terminal markets and gradually improving prospects of further expansion in capacities under Pengerang Phase 3.

Meanwhile, Yinson is expected to see a growth trajectory to its earnings base due to its multiple floating production storage and offloading projects scheduled for delivery in the next two years.

As for Uzma, it said the company is likely to see an increased order book replenishment in the financial year ending June 30, 2025.
Commodities,OGMalaysia,UpstreamServices,JobFlowUptick,PETRONASCapex,ContractTerms,SupplyShortage
The oil and gas (O&G) upstream services industry outlook looks bright, buoyed by an expected ramp-up of job flows this year and more favourable terms in new contracts to the service providers.