Prime Minister Datuk Seri Anwar Ibrahim announced that the issue of gas distribution rights in Sarawak between Petronas and PETROS has been resolved. Following discussions with Premier Tan Sri Abang Johari Openg, the Petroleum Development Act 1974 (PDA) remains the overarching framework governing Malaysia’s oil and gas industry.
The Sarawak Distribution of Gas Ordinance 2016 will not override the PDA, the Federal Constitution, or other federal laws, leaving Petronas’ position intact. Furthermore, no additional licences or procedures will be required for petroleum and gas -related activities by Petronas and its subsidiaries in Sarawak. The Prime Minister acknowledged PETROS’ role in gas exploration and distribution in Sarawak, highlighting the collaborative approach between the entities.
Kenanga said the outcome is largely in line with its expectations, while specific details of the gas aggregation agreement remain undisclosed, the house believes the Prime Minister’s announcement aligns with earlier projection of a potential Petronas capex reduction in the range of RM5b-RM10b. This projected reduction is less severe than what the market may have
anticipated. According to media, the Sarawak state government and PETROS will collaborate with Petronas and the Federal Government to ensure PETROS’ role as the sole gas aggregator does not disrupt supply for consumers, including investors. Sarawak’s control over domestic gas distribution—6% of its production in 2024 as reported by Sarawak Energy—is expected to grow to 30% by 2030 through initiatives in gas-based infrastructure development, supporting hydrogen plants and other downstream projects. However, achieving this target will depend on the successful rollout and adoption of these planned downstream initiatives.
Implications for Petronas’ role and market Sentiment. The Petroleum Development Act (PDA) establishes Petronas as the sole custodian and regulator of Malaysia’s petroleum resources, centralising authority under federal jurisdiction and superseding state-level regulations. Consequently, Petronas will continue its large-scale operations, including LNG exports, which account for approximately 27% of its topline. PETROS retains the right to explore Sarawak’s oil and gas resources but the house expects it to collaborate closely with Petronas. This development Kenanga said is positive for upstream service providers, particularly maintenance-focused players, as Petronas’ upstream activities in Sarawak are likely to remain unaffected by the gas aggregation agreement.
Notably, the KL Energy Index remains down by 17.7% from its August 2024 peak, even among resilient names like YINSON and DIALOG. The resolution of this issue could bolster investor sentiment while analysts await the Petronas Activity Outlook .
The house maintains its overweight call on the sector with bias held on upstream services and downstream names. Kenanga maintains its generally bullish view on the upstream service segment within the oil and gas space particularly DAYANG and KEYFIELD as upstream maintenance activites would likely be the earliest to be ramped up as most of the activites stem from brownfield projects.
There could improving sentiment in higher beta names like VELESTO as Petronas might ramp up its drilling activites in Sarawak and the overhang clears up albeit the upside the DCRs of the jack-up rigs could be capped due to the incoming rig supply from the Middle East (due to temporary suspension of drilling for some rigs by Saudi Aramco. PCHEM remains as our big cap top pick due to the potential pick up in global industrial demand. On the other hand, the mid-to-small cap top picks remains as DAYANG and KEYFIELD.
