Ongoing tussle over O&G rights seen as a dampener
PETALING JAYA: The ongoing tussle between national oil company Petroliam Nasional Bhd (Petronas) and the Sarawak government could possibly lead to delays in the awarding of the production sharing contracts (PSCs) in the state, according to Kenanga Research.
The research house said Petronas had opened up nine exploration blocks for bidding earlier this year, of which four fields are located within Sarawak’s boundaries.
“We anticipate Petronas to continue pursuing the case and the ongoing tussle to persist, possibly delaying awards of
Sarawak-based PSCs,” it said in a report yesterday.
In May, Petronas has challenged the Sarawak government in the Federal Court on its sole authority of the upstream oil and gas activities in the country.
However, the Federal Court had dismissed Petronas’ application to commence proceedings.
On July 1, the Sarawak government said in a statement that it had begun exercising its power under the relevant state laws, and that regulations made under the ordinance on licensing had been approved by the state government and the process of implementing it would commence immediately
In response, Petronas said in a statement that it maintained its stance that it has exclusive ownership of the petroleum resources in Malaysia and is the sole regulator of the upstream sector in the country.
“Moving forward, Petronas will closely monitor the situation, including seeking views and guidance from the federal government, being the sole shareholder of Petronas, in carrying out our duties,” Petronas said.
Meanwhile, Kenanga said that an increase in oil royalties for the state might limit Petronas’ capital expenditure.
“With the recent switch in the government, we believe oil royalties would increase to 20%, which was promised in the Pakatan Harapan’s manifesto,” it said.
Presently, Petronas provides 5% of oil royalties for states that have oil and gas (O&G) resources, namely, Sarawak, Sabah and Terengganu.
Nonetheless, Kenanga reckoned that Petronas’ 2018 capex allocation of RM55bil would continue as it was a long-term plan.
“Once the royalties hike is implemented, we think Petronas’ future capex might be exercised with greater prudence due to lower revenue,” it said.
Despite the oil price increase, Kenanga expected the O&G sector to see modest and volatile earnings.
“We believe the sector is currently at an inflection point whereby contract flows are picking up but earnings, which have been depressed, have not caught up as projects are still in infancy stages,” it said.
Kenanga said crude oil prices would remain stable this year, buoyed by collaborative production cuts among Organisation of the Petroleum Exporting Countries (Opec) and non-Opec members.
It has maintained its oil price forecast at US$65 per barrel and expects activities in the local O&G sector to be focused on maintenance works.