MIDF Amanah Investment Bank Bhd (MIDF Research) has reiterated a BUY call on Dialog Group Bhd with a target price of RM2.72 following the group's signing of a Production Sharing Contract (PSC) for the Raja Cluster Small Field Asset (RAJA SFA) with Petroliam Nasional Bhd (Petronas). The research house viewed the 14-year contract as a strategic move to strengthen Dialog's upstream capabilities and expand its oil and gas (O&G) portfolio.

Dialog Resources Sdn Bhd, a wholly owned subsidiary of Dialog, has assumed full participating interest and operator status for RAJA SFA. The contract encompasses a two-year pre-development phase aimed at finalising the field development plan, followed by a two-year development phase with commercial production expected by its conclusion. The minimum work commitments under the PSC include technical feasibility studies, 3D seismic data reprocessing and specialised evaluations to determine the asset's commercial viability.

The RAJA Cluster, located off the East Coast of Peninsular Malaysia, includes the Rhu, Ara and Janglau O&G fields. These fields are strategically situated near existing O&G infrastructure, such as refineries and storage units, which is expected to facilitate cost-efficient and timely development.

The research house noted that the cluster contains recoverable reserves estimated at 290 million barrels of oil equivalent, with the RAJA SFA potentially holding 1%-5% of this volume. However, the smaller fields present operational challenges due to complex fault systems and potential cost escalations for anti-leakage measures.

Despite the risks, MIDF Research highlighted that Dialog's expertise in technical services and its integrated approach could mitigate these challenges. The analysts viewed the PSC as aligning with Dialog's long-term strategy to develop its upstream segment, which includes new field development, rejuvenation and redevelopment of mature oil and gas fields. This diversification is anticipated to provide a sustainable revenue stream while strengthening Dialog's position as a comprehensive technical service provider in the oil and gas sector both locally and regionally.

While the immediate financial impact of the PSC remains uncertain, as it depends on the finalisation of the development phase, the house maintained its optimism about the long-term prospects of this initiative. They pointed out that the robustness of upstream activities and Dialog's technical capabilities are key factors supporting this positive outlook.