KUALA LUMPUR, Oct 12 — Maybank Investment Bank (Maybank IB) expects the elevated oil price environment to remain in the medium term as the oil and gas industry (O&G) is now in a severely underinvested phase, coupled with a record-high demand for oil in 2023 and 2024.
Maybank IB said the O&G sector is cyclical with recurring periods of boom and bust; oil demand is relatively inelastic while oil supply is elastic.
“We maintain positive on the sector with in-house Brent average selling price (ASP) assumptions of US$85 per barrel in 2023 and US$80 per barrel in 2024,” the investment bank said in a note today.
Maybank IB saw a robust and appealing outlook for oil and gas services and equipment (OGSE) players involved in global floating production storage and offloading (FPSO), regional Asean drilling rigs, and local offshore support vessels.
The research house sees a severely tight supply in these sub-segments with zero to minimal newbuilds due to the high entry barriers and high capital expenditure (capex), should one decide to purchase/invest in newbuilds currently.
According to the International Energy Forum and S&P Global Commodity Insights, annual upstream investment will need to increase to US$640 billion in 2030 from US$499 billion in 2022 to stave off a global supply shortfall this decade.
Maybank IB said this translates to a whopping cumulative value of US$4.9 trillion between 2023 and 2030 to meet future demand and offset declining production.
“Increased capex spending here reflects two notions, namely increased costs in the sector due to inflationary pressures by about 15-20 per cent versus the world economy’s weighted inflation of about 10 per cent, and increased activity in the oil and gas industry,” it added.
On Petronas, Maybank IB said the national oil company has to decide on how it would balance between three major decisions — capex spending, dividend commitment to the Malaysian government and balance sheet preservation.
The national oil firm has decided on a RM40 billion dividend commitment for 2023.
As at end-June 2023, it has net cash of RM106.8 billion, the highest level in over a decade. Outlook-wise, Petronas has a capex plan of RM300 billion between 2023 and 2027, which averages out to about RM60 billion annually, a level not seen since 2015.
“We highlight that the domestic portion of the group’s capex rose by a whopping 48 per cent year-on-year in the 1H 2023 but it was partially to account for an 11 per cent rise in costs, predominantly due to higher production expenses, purchased services and exploration costs, resulting from inflationary pressures,” said Maybank IB. — Bernama
