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O&G sector to recover in 2022

O&G sector to recover in 2022

30 Dec 2021

This is mainly attributable to the reopening of economies, increase in oil production and stable crude oil prices

The local oil and gas (O&G) sector is expected to improve next year, with the reopening of economies, increase in oil production and stable crude oil prices. 

Hong Leong Investment Bank (HLIB) analyst Jeremie Yap believes the price of Brent crude oil will remain strong in 2022 at between US$70 to US$75 (this year is US$75 [RM313]). 

He is confident that the OPEC would provide good equilibrium for oil prices. 

“We view the oversupply in the first half of 2022 will be mitigated (though not fully) by the increasing demand of O&G products from the reopening of economies globally, coupled with OPEC’s programme to gradually increase oil production by 400,000 barrel per day monthly and to fully phase-out cuts by September 2022, would bolster a stable oil price in the range of US$70 to US$75 per barrel,” he wrote in a report yesterday. 

Yap’s forecast of the O&G sector was based on the Petroliam Nasional Bhd (Petronas) Activity Outlook 2022-2024 report. 

He expects the national oil company’s capital expenditure (capex) spending to remain between RM40 billion to RM45 billion annually over the next five years. 

At the same time, 9% of its annual capex would be channelled into new energy initiatives. 

Petronas has pledged to a netzero carbon emission goal by 2050, but still believes O&G would still form 50% of the world’s energy mix for the next 20 to 30 years. 

“Petronas aims to increase domestic spending to 55% of capex and the remaining would be for international programmes,” he added. 

These capex levels would also boost O&G’s recovery next year although it would still remain lower compared to the pre-pandemic. 

Petronas expects to charter 22 rigs in 2022 compared to 16 rigs this year. 

“Petronas has indicated the subsurface activity outlook is expected to be positive for the next three years (2022-2024) given the oil price recovery with the relaxation of pandemic restrictions and the increase of plug and abandonment,” said Yap. 

Offshore Support Vessels would improve next year as 336 of them are expected to be chartered throughout the year compared to 289 this year. 

The demand for vessels supporting production operation would be higher over the next three years.

“Requirements for vessels supporting drilling are expected to decline in 2023 to 2024 in view of potential vessel optimisation across drilling projects,” he stated.

In 2022, hook up and commissioning, and maintenance, construction and modification man hours are also expected to increase compared to in 2021.

On the other hand, fixed structures fabrication and offshore installation application works are expected to drop next year. 

Yap selected companies like Perdana Petroleum Bhd, Dayang Enterprise Holdings Bhd and Carimin Petroleum Bhd to be the winners of the O&G sector while Sapura Energy Bhd and Malaysia Marine and Heavy Engineering Holdings as the losers based on Petronas’s report. 

Given its strength in the floating production storage and offloading business, Yap has chosen Bumi Armada Bhd for its steady recurring income, coupled with speedy enhancement. HLIB maintained a ‘Buy’ call on Bumi Armada with a target price (TP) of 84 sen. 

Dialog Group Bhd is also selected due its recurring income type of business model and the only listed secular growth stock in the local O&G sector. Dialog is a ‘Buy’ with a TP of RM3.38. 

Source: The Malaysian Reserve