KUALA LUMPUR (Dec 30): Stronger upstream project sanctioning over the next six to 12 months is expected to improve earnings visibility for selected Malaysian oil and gas players, as operators are now seen to prioritise high-grade developments amid relatively stable oil prices and easing cost pressures, according to BIMB Securities Research.

The recovery in project approvals is critical after several years of cautious capital spending, partly due to oversupply issues in the market, particularly for offshore fabricators, marine service providers and engineering players that are most exposed to greenfield and brownfield developments.

“We maintain our positive view on upstream project sanction momentum,” BIMB said in a report on Tuesday, noting that this is reflected in the robust RM11 billion tender book of Malaysia Marine and Heavy Engineering Holdings Bhd (KL:MHB) which "signals a robust pipeline of greenfield opportunities”.

The house expects the next wave of FPSO (floating, production, storage and offloading) and mid-sized production facility projects to materialise from 2026 onwards, citing recent contract awards to players such as MISC Bhd (KL:MISC) and Muhibbah Engineering (M) Bhd (KL:MUHIBAH), which indicate early validation of previous deferred developments progressing into execution. 

At the same time, national oil-and-gas company Petroliam Nasional Bhd’s (PETRONAS) leadership in carbon capture, utilisation and storage (CCUS) has also emerged as a structural driver for the sector next year. 

The impending carbon tax is “expected to accelerate CCS project roll-outs, including the Lang Lebah and BIGST fields, enabling monetisation of high-CO2 reservoirs”, with early-stage work already generating activity across the domestic supply chain.

Overall, rising regional demand for gas — driven by power generation, liquefied natural gas requirements and data centre expansion — will continue to support upstream investment appetite, reinforcing a more constructive medium-term outlook for offshore services demand, BIMB added.

On crude prices, the house maintained that downside risks remain limited despite persistent oversupply concerns. “We view downside risk as contained given slower-than-expected inventory accumulation,” the research house said, forecasting Brent crude to average US$66 (RM267.53) per barrel in 2026.

BIMB maintained its 'overweight' call on the oil and gas sector, citing “underpriced opportunities emerging”. Its preferred stocks are MISC for its growth potential and dividend yield, Hibiscus Petroleum Bhd (KL:HIBISCS) for volume-driven earnings growth, and MHB for rerating potential as its contract flow improves. 

Key risks flagged include political uncertainty and potential project delays.