PETALING JAYA: The potential for a renewed upcycle in upstream capital expenditure (capex) spending could be a key growth driver for the oil and gas (O&G) sector.

CIMB Securities said investment spending by Petroliam Nasional Bhd’s (PETRONAS) and other global O&G companies could be driven by improved project economics, the risk of missing the current upcycle and facing longer lead times if investments are deferred, and the completion of PETRONAS’ workforce restructuring exercise.

According to the research house, there are a few reasons that PETRONAS is delaying investments.

These include cash commitments arising from the acquisition of Saudi Aramco’s 50% stake in Pengerang Refining Company and Pengerang Petrochemical Company (PRefChem), and potentially higher dividend requirements from the government.

To recap, PETRONAS had previously planned for a five-year RM300bil capital investment over 2023 to 2027, but the programme was cut short in 2025.

“However, we view both as temporary headwinds that should be partially offset by stronger cash flows from elevated oil prices and supported by PETRONAS’ substantial cash reserves,” CIMB Securities said in a report.

Furthermore, pricing for Brent crude oil seems to be in a relatively smooth normalisation process at US$75 to US$80 per barrel. CIMB Securities noted key risks to the oil price estimates of US$80 to US$85 per barrel can be divided into demand and supply factors.

However, the research house said even with the reopening of the strait, loss estimates exceed one billion barrels.

Meanwhile, the research house has some preferred picks – Dayang Enterprise Holdings Bhd

as the company’s risk-reward profile remained attractive, with the stock trading at 10 times price-to-earnings (P/E), below its five-year average P/E of 12 times.

It added other beneficiaries of recovery in upstream capex spending include Velesto Energy Bhd

, Keyfield International Bhd

and Perdana Petroleum Bhd

.

“We also maintain a ‘buy’ rating on Dialog Group Bhd

and MISC Bhd

; both companies have a strong pipeline of projects to drive future earnings growth.

“Key catalysts for Dialog include the financial close of the Pengerang Energy Complex’s aromatics plant, while MISC is well positioned to benefit from a renewed investment cycle in upstream production assets,” CIMB Securities said.