KUALA LUMPUR (July 2): Hong Leong Investment Bank (HLIB) Research has maintained its “overweight” rating on the oil and gas sector with unchanged average Brent oil price forecasts at US$85 (RM400.96) per barrel (bbl) for 2024/2025.

In a sector update on Tuesday, the research house said post monsoon, local offshore activities will run at full throttle and lift topside maintenance contractors and offshore support vessel fleet owners in the coming quarters.

HLIB said the award of Pan Malaysia MCM-HUC packages, production operations vessel tender and Project Safina 2 are key rerating catalysts.

“With oil price staying above US$80/bbl, we expect drilling and FPSO (floating production storage and offloading) markets to remain tight in view of rising E&P (exploration and production) activities around the globe.

“Our top picks for the sector are Dialog Group Bhd (KL:DIALOG) ('buy'; TP [target price]: RM3.00), Bumi Armada Bhd (KL:ARMADA) ('buy'; TP: 78 sen) and Velesto Energy Bhd (KL:VELESTO) ('buy'; TP: 35 sen),” it said.

HLIB said Velesto’s earnings impact is relatively sheltered, at least in the near term, due to robust upstream capex pipeline by oil majors in the Southeast Asian region to support demand for drilling rigs, and four out of six jack-up rigs are under long-term charters with secured rates until end-2025, while charters for Naga 3 and 5 in FY2025 are currently under bidding and negotiation.

“Full-year utilisation rate for FY2024 should stand at 85% (vs FY2023: 83%) as it stays above 90% in 2Q2024, but a relatively lower fleet utilisation in 2H2024 due to SPS (special periodic survey) scheduled for Naga 2 and 5 in 3Q2024 and Naga 3 and 6 in 4Q2024,” it said.

HLIB said there are many FPSO projects expected from 2024-2028 in South America and Africa, adding that it sees MISC Bhd (KL:MISC) and Yinson Holdings Bhd (KL:YINSON) eyeing some of these projects.

The research house said MISC’s flagship FPSO Mero-3 has been largely de-risked after it sailed away to offshore Brazil while pending the conclusion of majority stake disposal to recycle its capital. Meanwhile, Yinson had recently completed the construction of FPSO Atlanta and Maria Quitéria — sparing up both of their capacities to bid for major jobs in addition to some smaller opportunities in Southeast Asia (i.e. Kelidang Cluster and Salam-Patawali Sarawak, HLIB added.