Higher Petronas capex may benefit O&G service providers, says Kenanga

Petroliam Nasional Bhd’s (Petronas) higher capital expenditure (capex) may benefit local oil and gas service providers, said Kenanga Research.

These include fabricators as well as floating production storage and offloading players bidding for contracts.

Kenanga Research said the capex would largely be targeted at the upstream segment, including green fields and recent discoveries.

Petronas has guided capex of more than RM50 billion this year, higher than the RM46.8 billion last year.

The oil and gas (O&G) giant said it would spend roughly RM30 billion for upstream activities this year, of which half would be spent domestically.

The capex over the last few years were mostly spent on the development of the Pengerang Integrated Complex in Johor.

“However, we feel that cost optimisation would be a key concern, as we expect to see competitively low margins for upcoming job awards,” Kenanga said.

The research house believes the Brent oil price of between US$60 and US$70 (RM245 and RM286) a barrel is “sensible”.

“In fact, we expect to see increased final investment decisions globally in the coming one to two years, spurred by massive new fields in the Middle East and Africa.

“From here, we look towards Organisation of the Petroleum Exporting Countries’ meeting next month for indications of continued output cut commitments.”

Meanwhile, Petronas is committed to a higher dividend payout, having declared a total dividend of RM54 billion, of which RM30 billion is a special dividend to be paid out this year.

Kenanga Research said the increased dividend should not overly burden the group as its net cash pile had jumped 64 per cent to RM105 billion from a year ago.

This came on the back of an improved cash flow following the better financial results, it added.