Possible E&P refocus for Petronas under new government

KUCHING: Analysts note that there could be a refocusing towards exploration and production (E&P) for Petroliam Nasional Bhd (Petronas) under the new Pakatan Harapan government.

AmInvestment Bank Bhd (AmInvestment Bank) in a sector outlook said following the revelation of the nation’s debt at RM1 trillion, it viewed that one of the new Pakatan government’s options to raise revenue will be to ramp up Petronas’ production against the backdrop of improved crude prices.

This will mean a substantive refocus in spending for E&P activities, even though Petronas’ president and chief executive officer Tan Sri Wan Zulkiflee Wan Ariffin had earlier said that the group will be investing in further downstream operations such as speciality chemicals and renewable energy solutions.

“As such, we expect the asset utilisation rates for local service companies to improve significantly in the medium to longer term, even though charter rates could remain unexciting in the light of excess capacity globally,” it said in a report.

Other sector updates include Malaysia’s contract awards in the first quarter of 2018 (1Q18) jumped 68 per cent quarter on quarter and 36 per cent year on year to RM2.7 billion.

“While 1Q’s capital expenditure (capex) spending does not reflect the full-year programme, it is still in line with Petronas’ plan to increase by 24 per cent y-o-y to RM55 billion for 2018 amid higher crude oil prices and cost reduction initiatives.

“However, we expect a re-intensification of spending on RAPID, which remains Petronas’ priority at a progress stage of 89 per cent as at March 31, 2018, and is scheduled for completion in 2019.”

On the overall sector outlook, Kenanga Investment Bank Bhd (Kenanga Research) said it was likely to see deteriorating performance in its results round-up for 1Q18.

“Meanwhile, the disappointment ratio was also higher at 31 per cent versus 13 per cent in 4Q17 even with the anticipation of 1Q18 being a seasonally weak quarter.

Upstream services players such as Alam Maritim Resources Bhd, Coastal Contracts Bhd and Dayang Enterprise Holdings Bhd missed expectations due to stubborn fixed costs amidst unsatisfactory vessel utilisation. GASMSIA and PETDAG also had a soft start dragged by higher product costs and sliding sales volume.

The recent oil price retracement from US$80 per barrel to US$76 per cent was not surprising on the expectations that OPEC, Russia and other producers may uplift production cap in the upcoming OPEC meeting in Vienna end of next month.