KUCHING: There is a possibility of lower Petronas equity stakes in East Malaysian production sharing contracts (PSCs).
AmInvestment Bank Bhd (AmInvestment Bank) yesterday said that as the aim of these new regulatory regime is to ensure a higher share of the state’s hydrocarbon revenues to be deployed to Sarawak, there was a possibility that the state may assume half of Petronas’ equity share in the production sharing contracts (PSC) in the state, besides novating the federal government’s royalty of five per cent.
“As Sabah may follow suit, these new considerations which will entail another bureaucratic layer of approvals may weigh down Petronas’ final investment decisions in East Malaysia – notwithstanding closely-guarded negotiations currently between these concerned parties,” it forewarned in a report follwing the Offshore Technology Conference Asia (OTCA) held last week.
This came as AmInvestment Bank believed there were other rising risks from East Malaysia after meeting up with some key personnel from Sarawak Chief Minister’s Office, who affirmed that Petroliam Sarawak (Petros) “is definitely aiming to collaborate with Petronas in developing the state’s hydrocarbon reserves.”
To recall, Sarawak Chief Minister Datuk Patinggi Abang Johari Tun Openg recently announced that the state would assume full regulatory authority over the upstream and downstream aspects of the oil and gas industry by July this year.
This involves the issuance of necessary licences, permits, leases and approvals required under either the Oil Mining Ordinance or the Gas Distribution Ordinance.
On other oil and gas pointers, AmInvestment Bank placed its focus on fiscal prudence.
“While activities in the upstream sector are starting to pick up, cost-push inflationary pressures are unlikely to materialise given the focus on fiscal discipline by oil majors,” it said.
“This is underscored by Petronas executive vice president and upstream chief executive officer Datuk Mohd Anuar Taib, who affirmed the continuation of a tight fiscal discipline emphasis to ensure no ‘sudden spikes’ in capital and operating expenditures within the group’s role in providing energy in the most reliable, affordable and sustainable manner to consumers.”
The research firm also expected more integrated tenders to contain cost pressures.
This came after Petronas senior vice president, corporate strategy Mohd Firouz Asnan, highlighted that Petronas was still looking for the domestic sector to consolidate given Malaysia’s 3,500 vendors compared to 700 for Norway, which has a comparable hydro-carbon production.
“Pragmatically, local service providers need to scale up to provide the needed depth of capability, skill sets and integrated model solutions to contain cost pressures and optimise delivery lead time,” it added.
“As such, Petronas’ contracting structures will involve more integrated packages vs. piece-meal tenders, which will drive operators to further invest in new technologies or expertise.”
A key emphasis by the operators, AmInvestment Bank said, was a need to maximise digitalisation solutions and big data to integrate production from the well to finished products while ensuring safety and security.
In its view, a large part of the sessions felt more like a technology conference instead amid players bracing for a “lower for longer” oil price scenario.
All these pointers led the firm to maintain an overweight view on the sector given the stabilising crude oil prices above US$60 per barrel notwithstanding Petronas’ cautious capex strategy amidst its unchanged 2018-2019 Brent crude oil projection of US$60 to US$65 per barrel.2018.