KUALA LUMPUR (Feb 7): Petroliam Nasional Bhd’s (Petronas) dispute on gas rights in Sarawak turned out “favourably” for the national oil-and-gas company, according to CreditSights, the research arm of Fitch.
The loss of gas distribution rights in Sarawak will probably shave earnings of Petronas by between a single-digit percentage and 11%, which is not an “outsized consequence”, considering the state had fought for the full control of the business, CreditSights said in a note to clients.
“We are also comforted by the Government of Malaysia’s strong continued state support for the national oil company,” CreditSights said.
A meeting between Prime Minister Datuk Seri Anwar Ibrahim and Sarawak Premier Tan Sri Abang Johari Abang Openg resulted in Petronas recognising Petros as the sole gas distributor in Sarawak, except for liquefied natural gas (LNG) that are mainly exported.
Further, Petronas and its subsidiaries will not be required to obtain additional licences for their operations in Sarawak, and all external contracts related to petroleum activities signed by Petronas will be upheld.
CreditSights maintained its “market perform” recommendation on Petronas, with preference for its shorter-dated bonds maturing before 2032.
When compared to Pertamina, Petronas’ longer-dated bonds are trading within fair value range against its Indonesian counterpart, the research house said. Meanwhile, the spread differential of shorter-dated dollar bonds between Petronas and Pertamina have narrowed since August 2024, it noted.
“We see some scope for Petronas’ shorter dated [bonds] to tighten,” CreditSights said.
Fundamentally, Petronas’ operating profit and net cash position are larger than Pertamina’s, while its financial reporting is also more regular and transparent, CreditSights noted and also cited Malaysia’s relative policy stability.
However, there are risks ahead, CreditSights flagged.
Given the precedent of states contesting oil and gas rights, potential risks to Petronas include potential attempts by other states to seek greater control over their oil and gas resources, which could fragment Petronas’ dominance.
Sarawak could also push for additional rights beyond gas distribution, including distribution of LNG, upstream LNG production, oil production, and sales, posing a threat to Petronas’ monopoly in Malaysia, the research house cautioned.
Regulatory uncertainty and instability could deter investors, leading to reduced investment and slower industry development, CreditSights added.