Sarawak’s O&G players yet to gain from oil rights

Petronas is still holding back from making final investment decisions on any development projects in Sarawak, says analyst


SARAWAK’S success in securing rights to its oil resources from Petroliam Nasional Bhd (Petronas) in August has yet to benefit the state’s oil and gas (O&G) companies as crude oil prices remain depressed.

The companies were poised for gains following an end to Sarawak’s prolonged legal battle with Petronas over the state’s sales tax demand. The deal was supposed to serve as a turning point for oil-producing states like Sarawak, giving state governments a bigger share of oil revenue.

Petronas had also expressed its interest to help increase Sarawak’s involvement in the industry supply chain through collaboration with the state government’s oil company Petroleum Sarawak Bhd.

However, BIMB Securities Sdn Bhd analyst Azim Faris Ab Rahim said the current trembly state of the industry outstripped the benefits intended through new partnerships between Petronas and the state.

“If we look at the bigger picture, the collapse of crude oil prices has been affecting Sarawak’s petroleum companies, and we have yet to see any tangible benefit to these companies since the state secured its rights.

“We think Petronas is still reviewing its planned projects and may decide to proceed when the oil price is more stable,” he told The Malaysian Reserve.

The dim industry outlook has forced Petronas to reduce its capital expenditure by up to 21% for its financial year 2020 due to ongoing challenges from the pandemic, which is expected to drag other O&G players along the supply chain.

Azim Faris said the slashing of Petronas’ investments and the downward pressure on oil prices would result in a lack of catalyst in the industry in the immediate term.

“We don’t see any immediate catalyst to Sarawak players as Petronas is still holding back from making final investment decisions on any development projects in Sarawak,” he said.

However, Azim Faris believes that Sarawak’s industry players could reap benefits in the longer term from the collaboration between Petronas and the state as more jobs and a higher allocation for state expenses are expected to be derived from Sarawak’s petroleum revenue.

Brent prices started the year at above US$65 (RM270) per barrel before plunging to US$19 per barrel in April due to low demands from global lockdowns and the market-share battle among key producers.

Crude oil prices also crashed below zero in April as rising stockpiles overwhelmed storage facilities and forced producers to pay buyers to take the barrels they could not store.

A check on Bloomberg showed that Sarawak-listed companies Dayang Enterprise Holdings Bhd, Petra Energy Bhd and KKB Engineering Bhd lost about RM2.06 billion in value as of Oct 21.

Dayang Enterprise, which suffered a net loss of RM985,000 in its second quarter ended June 30, 2020 (2Q20), saw its share price plummeting more than 60% since early this year, losing about RM1.81 billion in market capitalisation.

The group was hit with lower vessel utilisation caused by delayed work orders during the Movement Control Order (MCO) coupled with higher costs incurred during the pandemic.

As of August, its orderbook amounted to RM3.8 billion, including contracts awarded by Sarawak Shell Bhd and Sabah Shell Petroleum Company Ltd, against RM4 billion in June. The August orderbook is expected to last until 2025.

Meanwhile, Petra Energy has lost about RM240.7 million of its market value and 56.7% of its share price since January.

In June, its wholly owned unit Petra Energy Development Sdn Bhd was awarded a US$40 million contract from Petronas for the continuation of the latter’s operation at the Banang oilfield.

Petra Energy made a net profit of RM14.12 million in 2Q20 compared to a net loss of RM15.93 million recorded last year. It posted a 56% jump in revenue to RM137.66 million during the period from RM88.35 million and announced an interim dividend of two sen per share.

KKB Engineering has lost about RM7.74 million in value since the start of the year. Its latest quarterly filing showed the company posted a 21% drop in net profit in 2Q20 to RM4.36 million and a 26% decline in revenue to RM89.2 million attributed to the MCO.