KUALA LUMPUR (July 22): Malaysia’s national oil-and-gas company Petroliam Nasional Bhd, or Petronas, may lose a portion of revenue following the appointment of Petroleum Sarawak Bhd (Petros) as a sole gas aggregator in Sarawak, said RHB Investment Bank (RHB IB).  

The earnings impact to Petronas remains uncertain, the research house flagged. Depending on the loss, the shift could affect its ability to keep up capital spending in the long term, though its current balance sheet remains solid, even with dividend commitment to the federal government, RHB IB noted.

“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.”

The gas segment contributed about RM101 billion, or 30% to Petronas’ revenue in 2023. Petronas also delivered 403 liquefied natural gas (LNG) cargoes from its LNG complex and 38 LNG cargoes from two floating LNGs (FLNG) and 2.2 billion standard cubic feet per day of average sales gas volume in Peninsular Malaysia.

On May 13, Sarawak announced that Petros will take over Petronas' role in all natural gas trading activities in the state effective July 1. Petros and Petronas also agreed to sign a definitive agreement where Petronas will acknowledge Petros as the sole gas aggregator.

The agreement allows Petros to conclude gas purchase agreements with all upstream producers involved in the production of natural gas in Sarawak and gas sales agreements with all downstream buyers, foreign or domestic.

Consequently, Petronas will cease all buying and selling activities of the product in the state and hand over its natural gas distribution network and system to Petros.

The gas business took up 22% of Petronas’ domestic capital expenditure, and the transfer to Petros may lead to a “more prominent” cut in the segment, RHB IB warned.

If Petronas decides to scale back substantially, exploration and green field projects are likely to take a bigger hit, it said. Domestic drilling activities, offshore fabrication works, hook-up and commissioning and offshore support vessel demand supporting drilling projects will be reduced accordingly.

“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.

For stock strategy, RHB IB prefers upstream services firms with greater exposure related to maintenance, amid the uncertainties with Dayang Enterprise Holdings Bhd (KL:DAYANG) as its top pick for the space. RHB IB also likes Dialog Group Bhd (KL:DIALOG) and Yinson Holdings Bhd (KL:YINSON).

Overall, the research house maintained the sector rating on “overweight”.

https://www.theedgemarkets.com/node/719790