All eyes on Petronas’ dividend play for the year
ALL eyes are on the dividend payout by Petronas. For 2023, the oil and gas company paid a total of RM40 billion in dividends to the government in 2023 while its National Trust Fund contribution amounted to RM2 billion.
Its total dividend payout in 2022 was RM50 billion.
“Having carefully and rigorously assessed the group’s affordability to continue to fund its operations, service its debts and meet its obligations as well as invest in growth, Petronas last year made the scheduled dividend payment of RM40 billion to the government,” Taufik said.
The national oil company also held its commitment to the National Trust Fund with a contribution of RM2 billion in 2023.
Executive vice-president and group chief financial officer Liza Mustapha said Petronas will pay a total of RM32 billion in dividends to the government in 2024.
“The board has approved the dividend payment of RM32 billion which will be paid from March to December. It had just been approved,” she said.
Anticipated ramp up in capex
The lesser dividend contribution moving forward is supportive of a ramp-up in capital expenditure (capex), said analysts with AmInvestment Bank Bhd (AmInvestment Bank).
“We believe this is broadly supportive of a potential rampup in capex spend moving forward,” it said in its analysis on Petronas’ results.
The supportive domestic capex by Petronas a boon for local oil and gas players.
“Premised on this and guided by the three-year Petronas Activity Outlook (2023 to 2025), we see potential beneficiaries arising from a broad spectrum.”
AmInvestment Bank believed there would be a rise in planned upstream activities, particularly for re-activation of idle wells and offshore platform fabrication that could benefit the likes of Velesto Energy Bhd, Malaysia Marine & Heavy Engineering Bhd and Sapura Energy Bhd (Sapura Energy).
It also anticipated for stable provision of offshore support vessels (OSV) to support well drilling and projects to the boon of beneficiaries like Dayang Enterprise Holdings Bhd (Dayang), Icon Offshore Bhd (Icon Offshore), Perdana Petroleum Bhd, Alam Maritim Resources Bhd and Coastal Contracts Bhd.
Meanwhile, a catch up in planned offshore maintenance, construction and modification (MCM) works which have been delayed due to the Covid19 pandemic would benefit Deleum Bhd, Dayang Enterprise Holdings Bhd, Sapura Energy and Icon Offshore.
Researchers with Kenanga Investment Bank Bhd (Kenanga Research) saw that while Petronas’ cash flows from operations expected to remain above RM100 billion in 2024, after achieving RM135 billion to RM114 billion during 20222023, Petronas is well-equipped to meet its RM60 billion capex goal in 2024 without materially affecting its financial health.
“We expect Brent crude prices to average US$84 per barrel in 2024, a level that should enable Petronas to increase its upstream spending significantly to counteract potential long-term declines in natural production,” it said in its own analysis.
“Furthermore, we anticipate that local capex will surpass RM26 billion in 2024, driven by accelerated project development across all Malaysian regions.
“This outlook aligns with our prediction of a sustained upcycle in upstream services activities. Drilling activities have already shown signs of acceleration since early 2024, and we foresee the offshore support vessel (OSV) subsegment reaping benefits in the near future.
“Additionally, brownfield well services have been increasing, and this trend is expected to continue into 2024, especially with a rise in plug and abandonment jobs for wells in Malaysia, supporting sustained momentum in the sector.”
“We maintain our overweight view of the sector. In essence, we continue to be positive on upstream service providers due to the expected uptick in upstream capex in 2024.
“Nevertheless, we are less excited about the downstream sector outlook amid uncertainties in global demand coupled with an anticipated increase in global capacities.”
Given its lower dividend commitment notwithstanding expectations of a stable average Brent crude oil price expectation of US$80 per barrel for the year, Maybank Investment Bank Bhd (Maybank Research) also sees a possibility that Petronas’ capex will be higher in 2024.
“As at end-December 2023, Petronas sat on a net cash position of RM96.9 billion. Our general thesis on the Malaysian O&G sector has not changed significantly since our previous report.
“As EIA has forecasted a record-high demand for crude oil in 2024-2025, we think that the elevated crude oil price environment will stay for the medium term.
“We maintain our positive stance on the sector with an inhouse Brent ASP assumption of US$80 per barrel for 2024.