Petronas Capex Recovery Expected To Boost OGSE Growth

KUALA LUMPUR, Nov 12 — Malaysia’s oil and gas services and equipment (OGSE) sector could be poised for a renewed growth cycle in 2027 as Petroliam Nasional Bhd (Petronas) is expected to ramp up capital expenditure (capex) following two years of subdued spending, according to MBSB Investment Bank.

The research house maintained a Positive outlook on the sector, citing elevated crude oil prices, improving upstream activity and the potential resolution of the long-running Petronas-Petros dispute as key catalysts for a recovery in investment spending.

MBSB noted that Petronas’ “real” capex, which excludes investments in associates and joint ventures, fell 5 per cent year-on-year to RM16.8 billion in the first half of 2026 from RM17.6 billion a year earlier, marking a multi-year low. The decline came despite headline capex reaching RM41.4 billion, largely due to RM24.6 billion in investments linked to associates and joint ventures, believed to be mainly related to the acquisition of full ownership of Petrochemical Refinery Co Sdn Bhd (PRefChem).

The lower level of core spending coincided with weaker earnings across Malaysia’s OGSE players during the first half of the year.

Petronas Capex Recovery

Petronas Capex Recovery Expected To Boost OGSE Growth

Looking ahead, the bank expects Petronas’ capex to recover in 2027 as one-off commitments tied to the PRefChem acquisition ease. It also expects sustained strength in crude oil prices to support higher reinvestment levels, while increased upstream development will be required to maintain production capacity.

According to MBSB, Petronas approved 18 final investment decisions (FIDs) in the first half of 2026, providing a foundation for future project activities and capital deployment.

Historical trends suggest Petronas’ spending patterns closely follow movements in Brent crude prices with a lag of about 12 to 18 months. Since 2015, the direction of Petronas’ capex has mirrored the previous year’s Brent price trend in nine out of 10 years.

The research house believes Brent crude prices of between US$90 and US$100 per barrel in 2026, followed by US$80 to US$90 per barrel in 2027, should create favourable conditions for a rebound in spending.

A recovery in capex is expected to translate into stronger earnings for local OGSE companies. Aggregate revenue and earnings across industry players have historically tracked Petronas’ domestic spending cycle, with higher capex leading to increased contract awards and project execution.

While order flows are expected to begin improving from 2027, analysts noted that earnings growth could materialise later as newly awarded contracts move through implementation stages.

Petros

Another potential catalyst is the anticipated resolution of the dispute between Petronas and Sarawak-owned Petros. According to reports, Sarawak Premier Tan Sri Abang Johari Tun Openg expects the matter to be settled out of court before the end of 2026.

Industry observers believe uncertainty surrounding licensing arrangements, gas offtake rights and commercial terms has delayed investment decisions in Sarawak, one of Malaysia’s key gas-producing regions. A formal settlement could unlock delayed upstream projects and provide a further boost to domestic capex.

Despite a decline in Petronas’ net cash position to RM66.9 billion at the end of the first half of 2026 from RM82.8 billion at end-2025, MBSB said the national oil company remains financially strong. It expects stronger operating cash flows and higher oil prices to rebuild cash reserves from the second half of 2026.

Given the improving outlook, MBSB recommends investors gradually position themselves within the OGSE sector ahead of an expected capex upcycle, naming Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE) and Deleum Bhd as its preferred stocks. MMHE remains its top sector pick with a target price of RM0.59, while Deleum carries a target price of RM1.22.

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