KUALA LUMPUR (Jan 16): Petroliam Nasional Bhd (Petronas) appears to have retained the lucrative natural gas exports business, while Sarawak will control the domestic gas aggregation in the state, Kenanga Investment Bank said.
The arrangement dispels the uncertainties cast over Petronas' upstream capital expenditure in Sarawak since August 2024, the research house said in a note. Any reduction in spending will not be as severe as previously feared, the house stressed.
“Moving forward, we expect that Petronas will still be the main driver of upstream exploration and development in Sarawak,” Kenanga said. The national company, however, may have to collaborate going forward with its state counterpart Petroleum Sarawak Bhd (Petros), the house said.
Prime Minister Datuk Seri Anwar Ibrahim said on Wednesday that the Petroleum Development Act 1974 will remain as the country's overarching framework for oil and gas industry governance, following a meeting with Sarawak Premier Tan Sri Abang Johari Tun Openg.
Shares of Malaysia’s oil and gas services firms — many which rely on Petronas’ annual spending for a large chunk of their revenue — rose on Thursday. Dayang Enterprise Holdings Bhd (KL:DAYANG) rose 2%, while Keyfield International Bhd (KL:KEYFIELD) was up 1%. The Bursa Malaysia Energy Index, which tracks 31 stocks in the sector, was up 0.8% amid a subdued broader market.
The sector has been under pressure amid fears of drastic spending cuts by Petronas, following the loss of the gas aggregation business in Sarawak. Liquefied natural gas exports account for about 27% of Petronas' revenue.
The Petroleum Development Act establishes Petronas as the sole custodian and regulator of Malaysia’s petroleum resources, placing the industry under federal jurisdiction and above state-level regulations.
The latest development is “positive for upstream service providers, particularly maintenance-focused players, as Petronas' upstream activities in Sarawak are likely to remain unaffected by the gas aggregation agreement”, Kenanga said.
The house maintained its 'overweight' call on the sector, and is bullish on the upstream services segment, particularly Dayang and Keyfield, noting that upstream maintenance activities would likely be the earliest to be ramped up.
“In the coming months, we might also see improving sentiment in higher beta names” like Velesto Energy Bhd (KL:VELESTO), as Petronas may ramp up its drilling activities in Sarawak with the overhang cleared up, Kenanga added.