Citi sees 30% BP upside on exploration, backs Santos Papua stake

Affin Hwang keeps neutral rating on Malaysia oil and gas sector

Citi analysts said BP shares could become 30% more valuable relative to the company’s performance if its current oil and gas exploration efforts succeed, identifying the Brazilian offshore discovery Bumerangue as the British energy company’s “hottest prospect.” Separately, Citi called Santos’s purchase of an additional 3.3% stake in Papua LNG from TotalEnergies favorable, while Affin Hwang Investment Bank analysts kept a neutral rating on Malaysia’s oil and gas sector.

In the BP note, Citi analysts said the British energy company’s oil supply lifespan could grow to 14 years from the seven years reported at the end of 2025 if exploration efforts across Brazil, the U.S., Venezuela and Iraq deliver. Citi noted that BP’s reserve life outside its U.S. BPX business has fallen behind peers after the company’s heavy investment in a pivot toward renewable forms of energy that “dented its valuation.” BP shares rose 0.8% to 550 pence on the note.

On Santos, Citi analyst Tom Wallington said the company’s purchase of an additional 3.3% stake in Papua LNG from TotalEnergies comes at a 50% discount to the bank’s valuation. Santos will hold a 21% stake in Papua LNG once Papua New Guinea buys into the project. The transaction increases Santos’s Papua LNG equity contribution by US$300 million, but Citi said it views the deal favorably, citing the project’s internal rate of return of 15% assuming long-term oil prices average $65 per barrel.

Wallington said the transaction hinges on regulatory approvals and a final investment decision, which Citi expects later this year. Citi also called Papua LNG a “good strategic fit” and noted the potential for further operating savings under a simplified ownership and operatorship structure.

In a third note, Affin Hwang Investment Bank analyst Ong Tze Hern said Malaysia’s oil and gas sector is trading at 10 times forward price-to-earnings, below historical valuation levels. Ong said a broad-based re-rating is likely to remain limited until domestic job flows improve.

Ong raised his 2026 Brent crude forecast to $85 per barrel from $81, citing prolonged Middle East disruptions as near-term support for prices. But he said the current oil price strength is unlikely to mark a structural upcycle, with Brent expected at $70 per barrel in 2027 as Middle East supply normalizes.

Resolving the Petronas-Petros issue and recovering Petronas capital expenditure could be more meaningful catalysts for domestic oil and gas services, Ong said. Affin Hwang maintained its neutral rating on the sector, naming Dialog and Bumi Armada as top picks.