Sector Update
31 January 2025
Oil & Gas OVERWEIGHT
Dissecting Petronas and Trump’s Impact on the
Sector ↔
By Lim Sin Kiat, CFA /
[email protected]We conducted an in-depth study on two key topics dominating discussions in the investme nt
community: the freshly released Petronas Activity Outlook (2025–2027) and President
Trump’s US energy policy, both of which will significantly impact the local oil and gas sector
over the next two years. The Petronas Activity Outlook reinforces our bullish stance on
upstream maintenance services, as activity levels are expected to remain elevated in 2025
following a record year in 2024 but drilling and EPCC activites are expected to ease. While
OSV demand is projected to ease slightly in 2025, we believe vessel supply constraints will
persist due to Malaysia’s ageing fleet. Meanwhile, President Trump’s deregulation of federal
land oil production is set to drive higher US crude output, albeit gradually, as producers
remain market-driven. Additionally, Trump’s policies could push OPEC+ to accelerate
production increases, though this could be counterbalanced by a tighter stance on Iran,
which may curb its oil exports and keep global supply in check. Our top picks remain PCHEM
(OP; TP: RM5.47), DAYANG (OP; TP: RM3.80) with outlook for MCM and HUC appearing more
bullish, and KEYFIELD (OP; TP: RM3.18).
There are many macro factors affecting investors’ sentiment on the local oil & gas companies under our coverage and in
this report, we decide to do a deep dive into the two main anchors of the macro outlook for the sector, namely the newly
released Petronas Activity Outlook and President Trump’s potential impact on the oil market after he issued executive
orders to deregulate the US oil market.
Petronas Activity Outlook (2025-2027)
After a long wait, Petronas released its activity outlook for 2025-2027 which will possibly clear the majority of market’s
concern on Petronas’ plans especially after the recent saga with PETROS and below are the key takeaways: -
(i) Number of wells to be serviced higher with higher focus on developmental activities – Petronas plans to
service 139 wells in 2025 (vs. 141 in 2024), with a higher emphasis on developmental wells (73 vs. 56).
Exploration wells and plug & abandonment activities are expected to decline YoY.
(ii) Rig requirement to be lower in 2025 – Petronas plans to service 139 wells in 2025 (vs. 141 in 2024), with a
higher emphasis on developmental wells (73 vs. 56). Exploration wells and plug & abandonment activities are
expected to decline YoY.
(iii) Pipelines length installed to surge – A total of 346.6km of pipelines is expected to be installed in 2025, mostly
in Sarawak, compared to none in 2024. This benefits players like WASCO, involved in pipe coating and related
services.
(iv) Fabrication and construction to increase but focus mainly on light platforms – While no platforms were
installed in 2024, three lightweight platforms (under 1,000 MT) are planned for 2025, with two in Peninsular
Malaysia and one in Sarawak, indicating that fabricators will see a slightly slower 2025 compared to 2024.
Activity is expected to accelerate in 2026 with 13 structures planned.
(v) Hook-up and commissioning (HUC) man hours to still see an increase – HUC activities are set to rise to
6.48m man hours in 2025 (vs. 6.31m in 2024), with Sarawak taking a larger share of activities. This could benefit
players like DAYANG (OP; TP: RM3.80).
(vi) Offshore maintenance, construction, and modification (MCM) is expected to be c. 30% higher YoY in
2025. MCM man-hours are projected to rise 30% YoY to 13.6m in 2025, with Sarawak and Sabah driving the
increase.
(vii) Offshore support vessel (OSV) demand appears to be flattish but highlighted lack of newbuilds – OSV
demand for production operations is expected to remain steady at 118 vessels in 2025, but demand for drilling -
related OSVs will decline (220 vessels vs. 250 in 2024). However, Petronas also highlighted concerns over the
ageing fleet, emphasizing the need for newbuilds in the next three years , indicating that ageing fleet could
potentially lead to lower supply of vessels in 2025 despite slightly lower demand from Petronas.
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Oil & Gas Sector Update
31 January 2025
(viii) Downstream plant turnarounds to see a surge in 2025 – Thirteen plants are expected to undergo turnarounds
in 2025 (vs. four in 2024), providing opportunities for downstream maintenance players like HAWK (Not Rated).
Petronas spending to lean heavily towards maintenance. Upstream activities remain largely intact, with selective YoY
growth in HUC and MCM driving another strong year for maintenance players like DAYANG. OSV demand may moderate
downwards slightly but remains supported by a declining fleet supply. KEYFIELD (OP; TP: RM3.18) stands out due to its
younger fleet and superior AWB specifications. Drilling and EPCC players may see reduced activity in 2025, but a
stronger 2026 is possible if Petronas’ plans remain on track. Given their stronger and more resilient earnings outlook, we
adopt a more selective stance on the oil and gas upstream sector, recommending that investors prioritise upstream
maintenance-related counters such as OSV players (particularly AWBs) and service providers focused on HUC and
MCM.
Exhibit 1: Wells to be serviced Exhibit 2: Rig requirements
Source: Petronas Source: Petronas
Exhibit 3: Line pipe length to be installed Exhibit 4: Fabrication of fixed structures.
Source: Petronas Source: Petronas
Exhibit 5: HUC man hours Exhibit 6: MCM man hours
Source: Petronas Source: Petronas
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Oil & Gas Sector Update
31 January 2025
Exhibit 7: Vessels supporting production operations Exhibit 8: Vessels supporting drilling and projects
Source: Petronas Source: Petronas
Exhibit 9: Number of plant turnarounds Exhibit 10: Number of facilities to be decommissioned
Source: Petronas Source: Petronas
Trump Impact
Trump’s energy executive order was issued. As of January 2025, US President Donald Trump has issued the
‘Unleashing American Energy’ executive order, aimed at enhancing domestic energy production and reducing regulatory
constraints. The key provisions of the order include: (1) a policy declaration reaffirming the United States’ commitment to
encouraging energy production and exploration on federal lands and waters, and (2) a regulatory review mandating
federal agencies to reassess existing regulations that may hinder domestic energy production, with directives to rescind
or revise such regulations. While specific details are yet to be disclosed, the executive order underscores the
administration’s focus on prioritising traditional energy development, potentially leading to a relaxation of environmental
standards to stimulate oil production.
Potential impact on US crude oil production. The implementation of policies aimed at deregulating oil and gas
production could increase output (particularly on Federal lands as privately-owned lands are easier to secure drilling
permits), though the extent and timing remain uncertain. The Trump administration is expected to accelerate leasing
approvals and streamline environmental review processes under the National Environmental Policy Act (NEPA),
potentially reducing project development timelines. This could incentivise further investment, leading to a moderate
increase in production from existing federal land assets such as those in New Mexico and the Gulf of Mexico within the
next 6–18 months. Additionally, potential new lease sales and expanded access to previously restricted areas, including
parts of Alaska (ANWR, NPR-A) and offshore regions in the Atlantic and Pacific, could present long -term growth
opportunities.
What are the areas US can ramp up its oil production if Trump deregulates? We believe that several key areas
within US federal lands have the potential for production ramp-up over the next 2–3 years, should drilling permits
become more accessible under regulatory easing. The primary regions poised for growth include the Gulf of Mexico, New
Mexico (Permian Basin), and Alaska (North Slope, NPR-A).
(i) In the Gulf of Mexico, current oil production stands at approximately 1.8m bbls per day. As a mature basin with
significant production potential, the region could see further expansion if deepwater projects receive regulatory
approvals. However, given the offshore nature of the region, the incremental production impact within the next
2–3 years is expected to be limited due to longer lead times and higher capital intensity.
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Oil & Gas Sector Update
31 January 2025
(ii) New Mexico’s Permian Basin, producing around 1.5m bbls per day, presents a more immediate opportunity for
increased production. The region's lower operational costs and shorter project lead times make it a likely
beneficiary of deregulation, with a surge in drilling activity potentially leading to a significant output increase.
(iii) Meanwhile, Alaska’s North Slope and NPR-A offer untapped potential but pose considerable challenges due to
harsh environmental conditions and higher development costs. We remain cautious on the likelihood of
aggressive investment in the region unless oil prices experience a substantial and sustained uptick, as current
levels may not justify large-scale exploration and development initiatives.
While Trump’s deregulation policy could lead to higher-than-expected US crude oil production - currently projected by the
EIA at 13.5m bbls per day for 2025 and 13.6m bbls per day for 2026 - the exact scale and timeline of potential output
increases remain uncertain. Certain federal land oil reserves, particularly offshore and frontier regions, require longer
project lead times and significant capital commitments, which could limit immediate production growth.
Deregulation doesn’t mean that output increases immediately as US oil market is driven by the private markets.
Moreover, deregulation alone does not guarantee a surge in output, as production levels will ultimately depend on the
investment decisions of independent oil producers operating in key areas such as the Gulf of Mexico, New Mexico, and
Alaska. These companies will carefully weigh expansion plans against prevailing oil prices, balance sheet constraints,
and shareholder expectations for capital discipline and returns, which could temper aggressive growth even in a more
favourable regulatory environment. Hence, we believe that the Trump’s deregulation of the sector would not bring about
an irrational increase in US production to the extent that it could depress the crude oil prices as the majority of US
producers are highly market-driven.
Trump could compel OPEC+ to change its production cut policy. We could not completely discount the possibility of
President Trump utilising his negotiation ingenuity to compel OPEC+ to unwind their production cuts more aggressively
to bring down crude oil prices although that is not in our base case scenario. Although unlikely, a full unwinding of
OPEC+ production cut could be detrimental to the Brent crude prices as this will bring about c. 5.86m bbls per day
supply (5.7% of 2024 world demand) into the global market (2m bbls per day baseline cuts, 1.66m additional voluntary
cuts by Saudi Arabia and Russia and additional voluntary cuts of 2.2m bbls per day from Saudi Arabia, Iraq, UAE in
2024).
Trump’s track record on past OPEC+ production policies. Looking at past history, President Trump did at least
managed to pressure OPEC to raise or cut their production at least partially to stabilise the oil market. In 2018, President
Trump stated publicly to pressure Saudi Arabia to increase production and Saudi Arabia responded with production ramp
up albeit less than requested. In 2019, President Trump tweeted that oil prices were too high and OPEC did gradually
increase its production. In 2020 when COVID-19 hit, President Trump and energy ministers negotiated for an
unprecedented 9.7m bbls per day cut in production to prevent further collapse in crude oil prices.
Expecting production cut unwind to be more gradual. We anticipate OPEC+ to adopt a measured approach in
unwinding its production cuts in 2025, as it seeks to avoid triggering a sharp decline in crude oil prices. Additionally,
there is a potential scenario where a more aggressive stance on Iran (which currently produces 3.2m bbls per day) by
the Trump administration could tighten global supply if stricter sanctions are enforced, impacting Iran’s oil exports.
Our view. We maintain our Brent crude forecast at USD77/bbl for 2025 and USD74/bbl for 2026, as we expect any
production increases under Trump’s policies to be gradual rather than abrupt. The recently released Petronas Activity
Outlook (2025–2027) reaffirms that upstream activities in Malaysia remain intact, though we have turned more cautious
on EPCC and drilling prospects for 2025. MHB (NOT RATED) and VELESTO (OP; TP: RM0.21). PCHEM (OP; TP:
RM5.47) remain our top large-cap picks, while we continue to favour DAYANG and KEYFIELD for upstream services
exposure. With Anwar’s clarification on Petronas’ role and the latest activity outlook from Petronas, we believe the
overhang on upstream maintenance players will dissipate, setting the stage for stronger earnings -driven share price
appreciation in 2025.
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Oil & Gas Sector Update
31 January 2025
Peer Table Comparison
PER (x) - Net.
PBV Net Div
Target Core EPS (sen) Core EPS Growth Core ROE Div.
Last Price Market Cap Shariah Current (x) Yld
Name Rating Price Upside Earnings (sen)
(RM) (RM m) Compliant FYE
(RM) 1-Yr. 2-Yr. 1-Yr. 2-Yr. 1-Yr. 2-Yr. 1-Yr. 1-Yr. 1-Yr. 1-Yr.
Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd.
Stocks Under Coverage
BUMI ARMADA BHD OP 0.660 0.600 -9.1% 3,912.4 Y 12/2024 15.1 11.9 167.5% -21.6% 4.4 5.6 0.6 14.5% 0.0 0.0%
DAYANG ENTERPRISE HLDGS BHD OP 2.14 3.80 77.6% 2,477.6 Y 12/2024 25.9 29.1 37.1% 12.7% 8.3 7.3 1.3 17.0% 6.0 2.8%
DIALOG GROUP BHD OP 1.89 3.37 78.3% 10,664.7 Y 06/2025 11.1 11.8 3.6% 5.6% 17.0 16.1 1.7 10.3% 5.0 2.6%
KEYFIELD INTERNATIONAL OP 2.37 3.18 34.2% 1,904.7 Y 12/2024 23.1 28.9 81.2% 25.0% 10.3 8.2 2.8 38.3% 5.0 2.1%
MISC BHD MP 7.20 7.78 8.1% 32,139.0 Y 12/2024 50.7 50.1 5.1% -1.1% 14.2 14.4 0.8 5.7% 30.0 4.2%
PETRONAS CHEMICALS GROUP MP 4.67 5.47 17.1% 37,360.0 Y 12/2024 25.1 36.5 23.4% 45.3% 18.6 12.8 0.9 4.9% 13.0 2.8%
PETRONAS DAGANGAN BHD OP 19.24 21.20 10.2% 19,114.1 Y 12/2024 99.7 109.8 1.4% 10.1% 19.3 17.5 3.2 16.9% 80.0 4.2%
PETRON MALAYSIA REFINING MP 4.11 4.15 1.0% 1,109.7 Y 12/2024 65.6 87.4 -34.9% 33.3% 6.3 4.7 0.4 7.0% 20.0 4.9%
VELESTO ENERGY BHD OP 0.185 0.210 13.5% 1,519.9 Y 12/2024 100.0 100.0 83.0% -22.9% 0.2 0.2 0.0 7.1% 0.0 0.0%
WASCO BHD OP 1.05 1.83 74.3% 813.0 Y 12/2024 16.1 17.6 61.5% 9.5% 6.5 6.0 1.0 16.2% 2.0 1.9%
YINSON HOLDINGS BHD OP 2.37 3.87 63.3% 6,867.8 N 01/2025 16.6 20.3 38.1% 22.1% 14.3 11.7 1.4 9.7% 5.0 2.1%
SECTOR AGGREGATE 118,825.5 21.2% 13.0% 14.2 12.6 1.2 12.4% 2.1%
Source: Kenanga Research
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Oil & Gas Sector Update
31 January 2025
Stock Ratings are defined as follows:
Stock Recommendations
OUTPERFORM : A particular stock’s Expected Total Return is MORE than 10%
MARKET PERFORM : A particular stock’s Expected Total Return is WITHIN the range of -5% to 10%
UNDERPERFORM : A particular stock’s Expected Total Return is LESS than -5%
Sector Recommendations***
OVERWEIGHT : A particular sector’s Expected Total Return is MORE than 10%
NEUTRAL : A particular sector’s Expected Total Return is WITHIN the range of -5% to 10%
UNDERWEIGHT : A particular sector’s Expected Total Return is LESS than -5%
***Sector recommendations are defined based on market capitalisation weighted average expected total
return for stocks under our coverage.
This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not
make any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to the
specific investment objectives, financial situation and the particular needs of any specific person who may read this document. This
document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees.
Kenanga Investment Bank Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this document
or any solicitations of an offer to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/or
employees may have positions in, and may affect transactions in securities mentioned herein from time to time in the open market or
otherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies. Kenanga Investment
Bank Berhad being a full-service investment bank offers investment banking products and services and acts as issuer and liquidity provider
with respect to a security that may also fall under its research coverage.
Published by:
KENANGA INVESTMENT BANK BERHAD (15678-H)
Level 17, Kenanga Tower, 237, Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia
Telephone: (603) 2172 0880 Website: www.kenanga.com.my E-mail:
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