Outlook report offers clues to PETRONAS plans

WITH more clarity emerging on the aggregator role that Sarawak will be playing vis-a-vis the oil and gas resources of the state, the good news is that Petroliam Nasional Bhd (PETRONAS) does not risk jeopardising its long- term liquefied natural gas (LNG) contracts.

On the other hand, there are still some uncertainties over the future, when more gas resources may be diverted for Sarawak’s needs.

Meanwhile, PETRONAS is putting more attention into its other oil and gas locations including Peninsular Malaysia, but there could be some challenges here as well.

The fields recent exploration activity appears to have mixed results with some yielding finds of little commercial value while others like the Bekok Deep-1 oil and gas exploration in the Malay basin, which took place in May 2024, yielding promising results.

PETRONAS Activity Outlook (PAO) 2025 to 2027 provides some insight into what the national oil company (NOC) plans to undertake over the period.

The report shows that it intends to drill five exploration/appraisal wells in the Peninsula this year and increase that to seven in 2026.

While the activities will support the oil and gas ecosystem, the scope of activities in the latest PAO comes as a relief to analysts and industry players.

They had been concerned that the dispute between the NOC and Sarawak state-owned Petroleum Sarawak Bhd (Petros) could lead to a reduction in capital expenditures should PETRONAS be disadvantaged by the outcome of the dispute.

However, the move by PETRONAS to recognise Petros as the sole gas aggregator in the state excluding the LNG business is seen as a “win-win” solution under the circumstances with little impact to the NOC’s financials as its core LNG export business remains intact.

CreditSights, a Fitch Group unit, noted the absence of additional licences to operate in Sarawak and the honouring of all existing third-party contracts would reduce any additional operating, contractual and administrative hurdles for PETRONAS. It’s business as usual for now.

The “Gas and New Energy” business accounted for 33% of PETRONAS’ total revenue in financial year 2023 (FY23), with 22% of the amount derived from LNG exports and the remaining 11% from natural and processed gas.

The financial research house does not expect the PETRONAS-Sarawak issue to impact PETRONAS’ FY24 results, given the resolution was reached after the financial year which ended on Dec 31.

“We anticipate PETRONAS’ FY24 revenue and earnings before interest, tax, depreciation and amortisation to post flat-to-low single-digit year-on-year decline, led by flattish or tepid upstream oil and gas price realisations though partially mitigated by resilient domestic demand,” it states in a report.

With the LNG business secure also means PETRONAS will continue to invest in the state to monetise the gas reserves.

While the final details are still being ironed out between PETRONAS and Petros, drilling down into the PAO 2025 to 2027 does suggest the former may be taking a more cautious approach to upstream activities in the state, at least in 2025 pending a final resolution.

This is against a backdrop where PETRONAS is scaling down exploration/appraisal wells in PAO 2025 to 2027 in favour of development activities.

It’s only planning to do seven exploration wells offshore Sarawak in 2025, compared to 17 last year.

“The Sarawak basin is a very resource rich area and much of the over one billion barrels of oil equivalent (boe) of reserves discovered in 2023 were from there. What was the size of discoveries made in 2024 has not been announced.

“The dispute with Sarawak may be leading PETRONAS to manage its risks there.

“The PAO numbers are not final and can change if PETRONAS feels a need to up or lower the activities and the final resolution with Petros could play a major role,” an industry player tells StarBiz 7.PETRONAS has decided to double the development wells in the Peninsula this year to 39 (2024:17) to partly help raise its production to two million boe per by 2027 from 1.7 million boe/day in 2024.

It is seeking to do that in the Peninsula and Sabah via the Gumusut-Kakap Redevelopment, Bekok Oil Redevelopment, Tabu Redevelopment and Seligi Redevelopment. In Sarawak, it will do that via the Kasawari gas field.

That said the total number of exploration and appraisal wells are on a downtrend under the new PAO, falling to 15 in 2025 from 24 in 2024 and then to 10 in 2026 and eight in 2027 as PETRONAS focuses more on development wells and plug and abandonment works over the period.

The higher production based activities in PAO 2025 to 2027 in Sarawak could also be partly in response to the state’s aim to increase its domestic gas utilisation from 6% to 30% by 2030 to support industrial growth drive.

Hence, CreditSights noted one of the risks to PETRONAS’ outlook is from Sarawak contesting for additional rights to its oil and gas reserves beyond gas distribution which could threaten the NOC’s monopoly in Malaysia’s oil and gas sector.

The PAO report, nevertheless, signals plenty of opportunities for oil and gas services and equipment companies especially in the well services, plant turnarounds and the decommissioning space.

The report, for instance, indicates upstream projects in local waters over the three years will require four floating production, storage and offloading vessels and one floating storage and offloading vessel.

This could benefit companies like MISC Bhd, Bumi Armada Bhd and Yinson Holdings Bhd, according to CIMB Securities.

The POA 2025 to 2027 also indicates the outlook for rig activity is negative with the rig count expected to decline by 13% in 2025, primarily owing to a reduction in jack-up rigs, on lower exploration activity.

The outlook, however, remains steady for tender-assisted drilling rigs, which are essential in the development phase which could benefit service providers like Velesto Energy Bhd, Sapura Energy Bhd and Uzma Bhd.

The report notes that over the next three years, about 39 upstream projects are expected to be executed offshore Malaysia.

This includes the construction of three central processing platforms, three onshore facilities and fabrication and the installation of 900km of pipelines with 346.6km of which will be in 2025 alone.

There will be 22 fixed platforms planned for award between 2025 and 2027, comprising two central processing platforms and 20 wellhead platforms of various weights, according to the report. CIMB Securities believes that could benefit companies like Malaysia Marine and Heavy Engineering Holdings Bhd and Sapura Energy Bhd.

Meanwhile, PETRONAS is now undertaking a rightsizing exercise of its multinational workforce in response to changes and dynamics of its global energy sector which demands the firm reinvent itself, according to its president and CEO Tengku Tan Sri Muhammad Taufik. Without this bitter pill, the firm will have a limited shelf life, he says.