PETRONAS group have just released Petronas Activity Outlook (2026-2028) and on a macro level, the group emphasizes that supporting and partnering with oil and gas service companies in Malaysia remains a key focus, and Petronas still maintains that it is seeking to build Malaysian capabilities in emerging areas, i.e. carbon capture, renewable energy development and hydrogen infrastructure.
That aside, Petronas aims to sustain a production close to 2.2m bbls of oil equivalent through continued exploration, deepwater development, enhanced oil recovery and new production sharing contracts (PSCs) awarded under Malaysia Bid Round 2024.
All in all, it also targets to work with service providers to improve project delivery times and quality including local fabrication yards. In addition the group has also made a landmark discovery with Lebah Emas-1 well, located offshore Peninsular Malaysia in Block PM6/12.
Petronas appears to be ramping up its seismic data acquisition and reprocessing activity in 2026 and this sets a strong base for future drilling and development activities which could benefit upstream service providers beyond 2026 (after exploration is completed, the upstream service providers could only benefit when the field is proved to be viable for development).
In this activity outlook, the 2026 seismic data acquisition and processing are revised up by 60% and 36%, respectively, compared to Petronas Activity Outlook 2024-2027 released last year.
From 2026 onwards, more wells will be drilled compared to 2025, signalling that 2025 could be the cycle-trough for drilling activities in Malaysia. However, rig count needed in Malaysia are still expected to remain modest with 22 rigs needed for 2026 (including 9 jack ups), a decline when compared to Petronas Activity Outlook 2024-2027 (25 rigs with 11 jack ups required).
This is slightly negative for drilling players locally but we believe the impact will be largely marginal as they only has a fleet of 5 rigs, which are not sufficient to even meet the reduced demand. Therefore, we believe that rig utilisation would not be a concern for VELESTO.
However, that gap in rig supply could be filled up by LFG (OP; TP: RM2.40) through chartered rigs.
Overall, we believe that the Petronas Activity Outlook (2026-2028) will have a largely neutral impact on the change of industry fundamentals at least in 2026 as the majority of upstream activities will be flattish YoY or slightly down.
On the flipside we believe that the undersupplied dynamics on OSVs and rigs will help to partially negate the overall weakening of activity outlook by Petronas group compared to the outlook released a year ago.
We maintain our NEUTRAL call on the sector despite the weaker forward guidance by Petronas as we believe that the valuations for upstream service providers have largely priced in the weaker demand while also the overall subsector’s balance sheet is in a much better shape compared to the previous cycles and risks of asset impairments are low. —Jan 30, 2025
Main image: The Star
