In a note today, the investment bank said there have been increasing talks about Petronas facing a potential capital expenditure (capex) cut following news of Petroleum Sarawak Bhd (Petros) taking over the buying and selling of Sarawak’s natural gas from Petronas.
RHB IB said the transition will start in the second half of 2024.
“We may see some potential operational disruption in the near-term before much clarity or a clear resolution is achieved between Petros and Petronas.
“However, we believe that ultimately, both parties would want to maximise production, especially when oil prices are expected to remain stable,” it said.
RHB IB opined that a drastic domestic capex cut by one party is not sustainable in the long run as it would eventually imperil Malaysia’s oil and gas (O&G) position in the region.
Previously, Petronas allocated a capex of RM300 billion between 2023 and 2027 (RM50 billion per annum), which includes a domestic average capex spending of RM22.6 billion per annum (five-year capex of RM113 billion).
RHB IB said Petronas spent RM52.8 billion in capex for the financial year 2023, with an almost equal split between its domestic and international portfolio.
“The upstream and gas segments accounted for 52% and 22% of the domestic capex, respectively, and the transfer of the sole gas aggregator role to Petros may lead to a more prominent capex cut in the gas segment.
“While we may see some potential operational disruption in the near term, we still assume a resolution to be achieved between these two involved parties without jeopardising existing productions and future domestic investments to capture the rising global gas demand,” it said.
The investment bank said the earnings impact on Petronas remains uncertain, but the move may affect its ability to spend.
Overall, it said, despite the rising uncertainties over Petronas’s direction and strategy, RHB IB has maintained its ‘overweight’ call on the O&G sector.
For now, the investment bank said it continues to favour the upstream services players with greater exposure in the maintenance-related space, as they provide greater earnings resilience.
“This includes corporations with international diversification, such as Yinson, MISC and Bumi Armada,” RHB IB said.