According to RHB Investment Bank (RHB IB), Petroliam Nasional Bhd, or Petronas, the national oil and gas firm of Malaysia, would lose some of its income as a result of Petros being named the only gas aggregator in Sarawak.
Reported by The Edge, the research firm noted that the impact of Petronas’s earnings is still unknown. Though its current balance sheet is strong despite its dividend pledge to the federal government, RHB IB pointed out that the move could impact its ability to continue capital investment in the long run, depending on the loss.
“We may see some potential operational disruption in the near term, before much clarity or a clear resolution is achieved,” RHB IB said.
“However, we believe [that] ultimately, both parties would want to maximise production, especially when oil prices are expected to remain stable.”
In 2023, the gas segment accounted for approximately RM101 billion, or 30%, of Petronas’ total revenue. Additionally, Petronas supplied 2.2 billion standard cubic feet of average sales gas volume per day in Peninsular Malaysia. Along with 403 LNG cargoes from its LNG complex and 38 LNG cargoes from two floating LNG (FLNG).
On 13 May, Sarawak said that beginning on 1 July, Petros would replace Petronas in all natural gas trading operations within the state. Additionally, Petros and Petronas decided to execute a formal contract stating that Petronas would recognize Petros as the only gas aggregator.
Petros is authorized by the agreement to enter into gas purchase agreements with all upstream producers engaged in Sarawak’s natural gas production and gas sales agreements with any local or foreign downstream buyers.
As a result, Petronas will transfer control of its natural gas distribution system and network to Petros. Petronas also stop purchasing and selling the commodity in the state.
Twenty-two percent of Petronas’ domestic capital expenditures went into the gas business. RHB IB cautioned that the transfer to Petros would result in a “more prominent” drop in the segment.
Exploration and green field projects would probably suffer more if Petronas decided to reduce its operations significantly. Drilling projects supported by domestic drilling operations, offshore fabrication projects, hook-up and commissioning. Offshore support vessel needs will all be scaled back appropriately.
“Brownfield projects and maintenance activities will be of lesser impact, given its importance to maintain current production for current operating cash flow generation purposes,” RHB IB noted.
Given the risks, RHB IB’s preferred stock strategy favors upstream services firms with more exposure to maintenance. Dayang Enterprise Holdings Bhd is the top choice in this sector. Yinson Holdings Bhd and Dialog Group Bhd are also favored by RHB IB.
The research firm kept its “overweight” sector rating overall.
