KUALA LUMPUR: Malaysia's upstream oil and gas sector is gathering momentum, with new production sharing contracts (PSCs) providing the impetus for investments in offshore exploration and production, analysts said.
Additionally, increased capital expenditure (capex) by Petroliam Nasional Bhd (Petronas) will result in rosy upstream prospects for local players, they added.
BMI, a Fitch Solutions company, said Petronas had signed PSCs for nine out of 14 blocks and three out of six discovered resource opportunities (DRO) offered under the Malaysia Bidding Round (MBR) 2022. This represents the highest number of awards since 2009.
The MBR 2023 is offering 10 exploration blocks and two DROs.
More than 50 oil and gas companies are reported to have participated in MBR 2023.
The awards for the MBR 2023 blocks are expected to be announced in 2024.
In total, Malaysia has awarded 17 PSCs during MBR 2021 and MBR 2022, excluding other PSCs separately signed with TotalEnergies and Shell.
International and regional oil companies including Shell, Inpex Corp and PTT Exploration and Production (PTTEP), are reinforcing their commitment to investing in Malaysia's upstream sector.
This follows the government's launch of successive petroleum bidding rounds in 2021, 2022, and 2023.
"Currently, more than 30 foreign companies, including oil and gas majors and independent players, are currently operating in Malaysia's upstream business," said BMI.
In 2023, Petronas reportedly had spent RM10.5 billion in the upstream segment, not including RM2.6 billion in the natural gas business.
"Apart from Petronas, a significant portion of investments comes from Shell, which announced a final investment decision on the Rosmari and Marjoram sour gas project in September 2022.
"Shell also signed three new PSCs for exploration blocks offered in both the MBR 2021 and MBR 2022."Additionally, Shell has signed two new PSCs for the SB2K and SB2V blocks in Sabah," it said.
Thailand's PTTEP is emerging as one of the largest foreign investors, followed by Japan's Inpex, which signed two PSCs for exploration in MBR 2022.
BMI said other foreign companies, including Skye UMDP Exploration, SapuraOMV Upstream, Topaz Number One, and Longboat Energy, are expanding their presence in Malaysia by investing in exploration blocks offered in MBR 2021 and MBR 2022.
"These developments all indicate a renewed interest and long-term commitment from foreign investors in Malaysia's upstream oil and gas exploration," it added.
Affin Hwang Capital said Petronas' capex spending came in at RM34 billion in the first nine months, up a staggering 25 per cent year-on-year YoY, even despite the weaker earnings and operating cash flows.
Eighty-four per cent of its capex is still being spent on its core business (i.e., decarbonisation activities and new activities took up 16 per cent of total capex) with the largest area of investment (52 per cent) still in upstream.
More specifically, domestic capex has shot up 37 per cent YoY to RM16 billion, in tandem with efforts to safeguard Malaysia's energy security.
Petronas had guided a total capex of RM300 billion over the next five years, representing a 43 per cent increase from its previous five-year period.
"We believe this guidance remains intact, also taking into consideration that Petronas typically backloads towards 4Q of the year (as a reference, 4Q22 made up 45 per cent of its 2022 full-year capex)," Affin Hwang said.
Petronas' net-cash pile still stands at a healthy RM108 billion, down slightly from the previous few quarters, but improved remarkably since end-2020 of RM52 billion.
Affin Hwang said the beneficiaries of higher Petronas capex would include Velesto Energy Bhd and Dayang Enterprise Holdings Bhd.
Velesto, being the largest drilling rig provider in the country, is expected to see a higher demand of jack-up drilling rigs in Malaysia.
Petronas under its latest Activity Outlook report guides that it would require 12/14 jack-up drilling rigs for 2023/2024 (up from nine in 2022).
Meanwhile, Dayang potentially may benefit from both Petronas' increased demand for offshore maintenance, construction and modification, and hook-up and commissioning.