What Drives the Sustained Growth in Malaysia's Stock Market O&G Industry?
The energy index on the Malaysia Stock Exchange has surged by 20% year-to-date. Meanwhile, the country's benchmark index, the FBM KLCI, has risen by about 10% this year.
Among the top 20 listed oil and gas companies observed, $PENERGY(5133.MY$ has soared over 78% year-to-date, followed by $DAYANG(5141.MY$ at 69% and $PERDANA(7108.MY$ at 65%.
Potential Upsurge in Oil Prices
Exploration and production entities stand to gain from upticks in crude oil prices. Geopolitical risks for oil prices are dissipating as concerns over further escalations in conflicts subside. Nonetheless, cautious anticipation of output curtailments by OPEC+ ahead of the policy meeting on June 1st is exerting downward pressure on the oil price. Meanwhile, according to U.S. EIA, crude inventories in the US, the world's largest oil consumer, fell by 1.4 million barrels last week to 459.5 million barrels, exceeding analysts' expectations of a 1.1 million barrels decrease. As per the latest customs data from China, released on Thursday, the crude inflow to China—the globe's preeminent oil importer—stood at 44.72 million tonnes in April, translating to roughly 10.88 million barrels per day. This figure marks a 5.45% increment from the April 2023 daily import rate of 10.40 million barrels. Increased demand and potential production cut pressures could lead to higher oil prices. RHB suggests that companies such as $DIALOG(7277.MY$ and $HIBISCS(5199.MY$ will benefit from the rise in oil prices.
Demand for Upstream Service Providers Surges
Petronas's ongoing development of multiple upstream projects signifies an escalating demand for local upstream service providers, highlighting a peak period of industry activity and opportunities. Key projects include the Kasawari, Jerun, Rosmari-Marjoram, and Lang Lebah in Sarawak; Gemusut Kakap and Belud clusters in Sabah; and Bekok and Seligi redevelopments in Peninsular Malaysia. Petronas plans to drill over 25 wells each year for the next three years in shallow and deepwater regions of Malaysia and advance over 45 upstream projects, which involve constructing four central processing platforms (CPP).
In addition to Petronas $PETGAS(6033.MY$ intensifying services for its existing oil fields, $WASCO(5142.MY$ has already benefited from the uptick in activity, and their prospects for supplementing the order book in 2024 appear robust.
OSV Sub-Sector Poised to Benefit from Soaring DCR
Rising demand for Offshore Support Vessels (OSVs) serving offshore oil and gas operations has led to a significant uptick in Daily Charter Rates (DCR). The local OSV market is on the brink of an upswing in DCR as Petronas ramps up its OSV requirements for its 2024 production and drilling operations. OSV operators are reporting charter agreements at very favorable DCRs. Rates for key vessels like Accommodation Work Barges (AWB) and Platform Supply Vessels (PSV), vital for brownfield maintenance, are nearing RM100,000/day, close to the record highs of 2013-14. Also, spot rates for mid-sized Anchor Handling Tug Supply (AHTS) vessels have climbed to RM33,000/day, up from around RM20,000/day between 2020 and 2022. Moreover, banks are considering financing new OSV vessels, which is good news for local OSV operators. This will help them refresh and potentially expand their fleets during the current up-cycle.
Kenanga is bullish on the OSV sub-sector within the oil and gas industry, favoring stocks such as DIALOG and $YINSON(7293.MY$, anticipating substantial benefits from the upward adjustment in charter rates.
FPSO Outlook Remains Strong
Top FPSO operators, managing vessels for offshore oil and gas production, storage, and offloading, are poised to benefit from strong demand in the face of high entry barriers. According to Energy Maritime Associates, global FPSO capital expenditure is expected to reach $123 billion between 2024-2028, compared to $100 billion from 2020-2023. Due to high barriers to entry for new players, the world's top five FPSO operators are set to continue their dominance in the industry, benefiting from their strong track record in project execution and the ability to secure diverse financing channels for FPSO projects in a high-interest-rate environment. As one of the top five global operators, YINSON is poised to maintain a competitive edge in bidding for new FPSO projects in the coming years, as the demand for reliable FPSO operators is expected to continue outstripping supply.
Source: The Star, The Edge, Kenanga
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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