AmResearch foresees another O&G supercycle in the making, raises crude oil forecast to US$70 for 2021-2022

AmResearch foresees another O&G supercycle in the making, raises crude oil forecast to US$70 for 2021-2022
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KUALA LUMPUR (June 24): AmInvestment Bank Research has maintained its "overweight" rating on the oil and gas (O&G) sector for the next 12 months as crude oil prices have risen by 74% to US$75 per barrel currently from an average of US$43 per barrel in 2020, supporting a global resurgence in capex roll-outs and structural rerating prospects of independent exploration and production (E&P) producers and service providers.

Its analyst Alex Goh in a note today raised his 2021 to 2022 crude oil price projection by US$5 per barrel to US$65 to US$70 per barrel versus the 2021 year-to-date average of US$65 per barrel.

Goh also noted that based on a base case demand scenario premised on projects deemed likely to be sanctioned, Rystad Energy expects global liquids supply shortfalls of 22 million barrels per day (bpd) (22%) by 2030 and 28 million bpd (35%) by 2040.

"Hence, substantive global investments are still required over the next 10 to 20 years to stave off the projected supply deficit. In the absence of such investments, we expect another super bullish cycle, similar to the 2004–2007 run-up, which will drive crude oil prices to levels well above US$100/barrel," he said.

According to Goh, the value of final investment decisions (FID) in Southeast Asia for O&G projects is expected to surge by 3.5 times year-on-year this year to 700 million barrels of oil equivalent, and more than double to 1.7 billion in 2022.

"Malaysia will account for over 80% of Southeast Asia's FID in 2021 and 50% in 2022," he said.

Over the longer term, he said, deepwater investments are expected to be more prominent, peaking at US$6 billlion in 2027 from just US$2 billion in 2020.

He also noted, by 2024, deepwater projects will make up over 60% of the region's sanctioned resources.

Additionally, subsea tiebacks and floater solutions will gain traction as national oil companies optimise their capex under net-zero emission agenda, he added.

Goh's current "overweight" rating on the sector is further underpinned by his eight "buy" calls versus only one "sell" call.

For direct exposure to higher crude oil prices, he recommended Hibiscus Petroleum Bhd (target price [TP]: 98 sen), which is a pure E&P operator with concessions in Malaysia, Vietnam and the United Kingdom.

He continues to like Dialog Group Bhd (TP: RM4.15) for its "resilient non-cyclical" tank terminal and maintenance-based operations. He also likes Yinson Holdings Bhd's (TP: RM7.20) strong earnings growth momentum from the full-year contributions of floating production storage and offloading vessels Helang, off Sarawak, Abigail-Joseph in Nigeria and Anna Nery in Brazil together with multiple charter opportunities in Brazil and Africa.

He also likes Sapura Energy Bhd (TP: RM0.29) as its completed RM10 billion debt restructuring package positions the formidable engineering, procurement, construction, installation and commission (EPCIC) group to secure fresh global orders.

Meanwhile, he said Petronas Gas Bhd (TP: RM21.30) offers highly compelling dividend yields from its optimal capital structure strategy and resilient earnings base.

"Our 'sell' call is maintained on Serba Dinamik Holdings Bhd (TP: 53 sen), which has triggered an investigation by the Securities Commission Malaysia following plans, now withdrawn, to replace its auditor KPMG, who raised concerns over multiple transactions and balances, and the appointment of an independent special reviewer on those issues," he added.

Joyce Goh