PETALING JAYA: Crude oil prices are expected to remain high in the medium term, while national oil company Petroliam Nasional Bhd (PETRONAS) is anticipated to continue driving its domestic investments.
Citing the US Energy Information Administration (EIA) forecasts of record-high demand for crude oil in 2024 and 2025, Maybank Investment Bank Research (Maybank IB Research) expects a sustained elevated crude oil price environment.
The research house maintained a positive outlook on the Malaysian oil and gas sector, expecting Brent crude to average about US$82 a barrel for 2024.
Year-to-date, Brent crude has averaged US$83.5 per barrel.
Meanwhile, the research house expects PETRONAS to continue increasing its domestic investments as indicated by its recent activity outlook report released in December 2023.
“The PETRONAS Activity Outlook 7th Edition: 2024-2026 document is pointing towards a robust outlook for the year as most oil and gas services and equipment (OGSE) sub-segments are expected to see step-ups in investments and activities,” it noted.
Notably, in 2023, domestic capital expenditure (capex) amounted to RM26.2bil out of the total capex of RM52.8bil, while in 2022, it was RM18.6bil out of RM50.1bil. In 2018, it was RM25.3bil out of RM46.9bil.
The anticipated growth is on track as 2024 first quarter’s (1Q24) domestic capex rose to RM5.5bil, marking a 20% increase compared with the previous corresponding quarter.
“This shows that PETRONAS is committed to fostering a robust local OGSE ecosystem in times of a healthy and elevated crude oil price environment,” it pointed out.
For 1Q24, total capex was RM10.7bil, reflecting a 2% increase year-on-year (y-o-y), with about 10% of the expenditure was allocated to cleaner energy solutions and decarbonisation projects.
The proportion of capex allocated towards upstream investments significantly increased to 64% in 1Q24, up from 46% in 1Q23.
“Given a lower targeted dividend commitment of RM32bil for 2024, coupled with our expectation of a stable average Brent crude oil price of US$82 a barrel for the year, we think that PETRONAS’ domestic capex will likely be higher in 2024,” Maybank IB Research said.
Notably, PETRONAS had paid the government RM40bil in dividends in 2023 and RM50bil in the year before.
As at end-March 2024, PETRONAS sat on a net cash position of RM98.2bil from RM96.9bil a year ago.
For 1Q24, PETRONAS saw its core net profit decline by 14% y-o-y RM18.3bil, despite the relatively similar Brent average price of US$82 a barrel in 1Q24 with 1Q23.
Maybank IB Research said the lower bottom line was due to higher costs and operating expenditure and a higher tax rate.
“Earnings before interest and tax margin shrunk 2.7 percentage points y-o-y and we are now seeing signs of margin crimps.
“We believe that this may be attributed to cost inflation seen in the oil and gas sector namely the higher OGSE service providing rates,” it said.
Overall, Maybank IB Research maintained a “positive” stance on the local oil and gas sector, naming Velesto Energy Bhd
and Dialog Group Bhd as its top “buys” in the sector.
