PETALING JAYA: Petroliam Nasional Bhd (PETRONAS) is likely to ramp up spending on capital expenditure (capex) on upstream oil and gas (O&G) activities but continue paying lower dividends next year.
Kenanga Research expected the national oil firm to pay a slightly lower dividend next year and this would boost its capex closer to RM60bil.
PETRONAS announced that it will pay a total of RM40bil dividends to the government this year, lower than the RM50bil paid in 2022.
“We believe that its cash flow would be more than sufficient to cover both dividends and capex (which is likely to be under RM60bil this year),” said the research house, adding that the group’s net cash remains sizeable at RM97mil.
The group’s capex rose 25% year-on-year (y-o-y) to RM34bil in the first nine months of this year (9M23). Out of which, 72% of the capex was allocated to upstream and gas divisions, while downstream and new energy projects accounted for the rest.
Out of the total capex, domestic spending was at RM16bil, which was 37% higher y-o-y, mainly driven by the Nearshore Floating LNG project in Sabah, Kasawari Gas Field development, and CO2 sequestration facilities in Sarawak.
“This indicates that PETRONAS is still upstream heavy on its capex and would likely maintain this spending pattern in the coming years.
“Nevertheless, the total capex spent of RM34bil is still far from its target of an average of RM60bil per annum (spanning calendar year 23 (CY23) to CY27),” Kenanga Research added.
It anticipated that PETRONAS would boost its upstream capex in FY24 to counteract the natural decline in oil and gas production due to reduced spending in previous years.
“The increase in PETRONAS’ capital expenditure would benefit upstream service providers, potentially resulting in heightened demand and enhanced margins for their services.
“The group would not increase its capex allocation for downstream in CY24 due to the uncertain demand outlook,” the research house said.
It maintained a “neutral” view of the sector but continued 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,” it said.
PETRONAS posted a lower net profit of RM23.9bil in the third quarter ended Sept 30, 2023, (3Q23) compared with RM30.8bil a year ago while revenue fell to RM82.9bil from RM98.9bil due to lower average realised prices, partially offset by favourable foreign exchange impact.
Its 9M23 revenue experienced an 11% y-o-y decline, driven by weaker realised Brent prices and Japanese Customs Cleared Crude Oil prices (JCC) in its upstream and gas divisions.
The realised Brent price fell by 22% to US$82 per barrel (from US$106 per barrel, and the JCC price dropped 17% y-o-y to US$85 per barrel (from US$103 per barrel), impacting the gas division’s topline.
Profit declined at a slower rate of 5.6% y-o-y, due to reduced administration and distribution costs resulting from cost-saving measures.
Maybank Investment Bank Research, however, maintained its “positive” stance on the sector with its Brent crude oil average selling price assumptions of US$85 and US$80 per barrel for 2023 and 2024.
“As the Energy Information Administration has forecast a record-high demand for oil in 2023 and 2024, we think that the elevated crude oil price environment will stay for the medium-term,” it added.