PETRONAS eases off the gas

THE Petroliam Nasional Bhd (PETRONAS) Activity Outlook (PAO) used to be a widely anticipated document that spelled out the future growth potential of listed oil and gas (O&G) service providers in Malaysia.

Today, however, it offers a more sobering reflection of the industry’s realities.

In the latest PAO, the message is clear.

It does not feature the bullish capital expenditure guidance seen in prior years – something that was widely expected after PETRONAS reined in spending last year.

This year’s report shows the national oil company continuing its pivot towards maintenance of brownfield assets, namely mature O&G fields, while seeking to improve operational efficiency.

PETRONAS also notes that it is moving away from pursuing large new projects, although it is advancing a handful of greenfield ventures.

For many analysts, the PAO paints a sombre outlook for the industry.

“This makes the outlook look less exciting on the surface,” notes AmInvestment Bank Research in a recent report.

That said, the analysts point out that this is not unexpected.

PETRONAS’ outlook is consistent with a lower oil price environment and tighter capital discipline.

The company also unveiled its Capital Project Investment Destination (Cape) Masterplan 2030, which aims to deliver faster project execution, quicker cash generation and lower execution risks.

PETRONAS’ intention to strengthen the competitiveness of oil and gas services and equipment (OGSE) players can also be inferred.

Looking ahead, the PAO 2026 to 2028 guides toward higher exploration activity, particularly in seismic acquisition and subsurface studies, alongside a modest increase in the number of wells planned.

Moreover, decommissioning and late-life activities are set to expand as more ageing facilities enter the retirement phase.

However, elsewhere, labour-intensive offshore construction works – such as hook-up and commissioning (HUC) and maintenance, construction and modification (MCM) – are being scaled back, alongside flatter rig demand and weaker offshore support vessel (OSV) utilisation.

This may be indicative of PETRONAS’ focus on improving operational efficiencies.

Fitch Ratings Asia Pacific corporates director Mohit Soni opines that the PAO continues to focus on overarching core themes such as operational excellence and energy transition.

Hence, it appears that “the high level focus areas remain unchanged”.

One of the salient points highlighted in Cape Masterplan 2030 is PETRONAS’ intention to strengthen OGSE performance through a productivity transformation roadmap by 2030.

Nonetheless, questions remain over how such productivity gains can be achieved, given the large number of licensed OGSE players competing for jobs.

It does seem that PETRONAS’ earlier call for industry consolidation has yet to be heeded.

“A meaningful consolidation has yet to materialise, and this remains a key concern,” notes an industry veteran, adding that localisation requirements at the state level complicate matters, as Sabah, Sarawak and Peninsular Malaysia each prioritise their own contractors.

He says the PAO states that there are around 100 HUC-MCM contractors, making this the largest segment by activity.

However, it is not necessarily the largest area of work, as bidding becomes extremely competitive and pricing suffers.

“At 100, I think there are too many HUC-MCM contractors not just for Malaysia, but even on a global scale,” he quips.

Meanwhile, industry players reckon that PETRONAS’ pivot towards mature assets may be driven less by efficiency ambitions and more by limited greenfield options, particularly amid ongoing uncertainties in Sarawak.

They say that while late-life assets still offer value, talent shortages and declining service quality are becoming increasingly binding constraints.

“Brownfield work should be for smaller players, not for a national oil company, but they have no choice given as greenfields are mostly in Sarawak.

“Moreover, PETRONAS’ biggest projects are not brownfield,” one industry player points out.

Indeed, the protracted PETRONAS-Petroleum Sarawak Bhd (Petros) dispute, coupled with softer oil price expectations, may set the narrative for the sector, at least for the first half of financial year 2026 (1H26).

PETRONAS’ flagship domestic asset, the Bintulu liquefied natural gas (LNG) complex, together with Petronas Carigali Sdn Bhd, has applied for judicial relief against RM120mil in fines imposed by Sarawak authorities for failing to obtain state operating licences for its gas facilities.

UOB Kay Hian (UOBKH) Research flags this as a “material earnings risk for 1H26”, citing the potential for LNG supply disruption.

Notably, PETRONAS has named the Belud field off Sabah, along with the Kurma Manis and Sepat fields off Peninsular Malaysia, as key assets supporting its two million barrels of oil equivalent per day production base.

This sharply contrasts with PAO 2025 to 2027, where several Sarawak fields were named as key projects including Kasawari, Rosmary Marjoram and Gumusut-Kakap.

Tradeview Capital fund manager Neoh Jia Man says the PAO 2026 to 2028 is broadly negative, driven more by global oil prices than by the Sarawak gas licensing standoff.

“I believe a resolution will come soon, possibly by this year.

“In the meantime, it is likely that PETRONAS is holding back activities in Sarawak for now, pending clarification from the court on the legal structure of its operations there and also its ongoing negotiations with Petros,” he says.

Sarawak’s reserves remain irreplaceable and cannot be substituted on a one-for-one basis by assets in Peninsular Malaysia, Neoh adds.

Looking at PAO 2026 to 2028, Neoh says the upstream segment appears to be the most bearish.

This includes companies like Dayang Enterprise Holdings Bhd, Carimin Petroleum Bhd, Perdana Petroleum Bhd, Keyfield International Bhd, Velesto Energy Bhd, Lianson Fleet Group Bhd and Vantris Energy Bhd, which are involved in jack-up drilling, OSVs, and labour-intensive services such as MCM and HUC.

“On a year-on-year basis, some sub-segments will see a big gap between actual demand in 2025 and 2026, mainly because work that was scheduled for last year was deferred to this year.

“However, overall, PETRONAS has scaled down its production plans over the next three years compared with the previous PAO,” Neoh says.

Escalating US‑Iran tensions and associated geopolitical risk premiums, supply uncertainties stemming from Venezuela’s exports, and production disruptions caused by severe winter weather in the United States have led to a nearly 12% increase in Brent crude oil prices year-to-date to US$67.27 per barrel.

Nonetheless, the recent gains are less of a demand renaissance than a near-term repricing of geopolitical risk.

Neoh says crude oil prices in the US$60 to US$70 per barrel range represent a “sweet spot”.

“Anything higher will spur more output from the US shale oil industry, exacerbating oversupply concerns.

“Crude oil prices between US$60 and US$70 per barrel still makes sense for many of the conventional reserves to be developed economically,” he says.

Meanwhile, UOBKH Research notes that at the macro level, the consensus oil price assumption of US$60 per barrel remains bearish for the 1H26.