Petronas cuts bode ill for Malaysian offshore marine players

Local reports said that Petronas’ move has been prompted by the need to maintain profitablity amid the continued fall in oil prices. Sources said that while projects it has committed to from last year and have been budgeted for will likely continue, the first effects of the cuts are already being seen in exploration and production (E&P) activity.

When the price of Brent crude oil was at $70 a barrel in late November, Petronas had already said it would slash its capital expenditure (capex) by up to 15% this year. With prices dropping by almost a third again since then, the cuts are now seen moving to the operational level.

“We are expecting operating and capital expenditure cuts by Petronas and are starting to make adjustments,” said one oil services company source. Figures from the recent third quarter show that contract awards to Malaysian O&G players plunged to MYR711m ($200m) from MYR8bn previously.

Development of projects such as the Petronas-operated Baram Delta Gas Gathering Project 2 (Bardegg 2) and Baronia enhanced oil recovery development offshore Sarawak seem to have slowed with contract awards such as for the much anticipated central processing platforms (CPP) yet to be finalized.

As the local behemoth, Petronas has much influence and industry players fear it will flex its muscles to ensure cuts are carried out should it deem necessary. It usually has favourable terms in contracts and has leeway to make changes in the terms of service. “Development projects that Petronas has committed to are expected to continue but there will be changes in how they consume services. And there will not be many companies that are going to challenge Petronas even as it makes changes to the services it uses,” said one oil company executive.

It is expected that the more globally-focussed companies such as Bumi Armada and SapuraKencana Petroleum may be more insulated from these uncertainties than smaller domestic market-centric firms such as Perisai Petroleum, Alam Maritim Resources, Coastal Contracts and Silk Holdings.