Analysts see the possibility of a sizeable capital expenditure (capex) in 2024 by Petroliam Nasional Bhd (Petronas) following the release of its third quarter (3Q) results,

Based on Maybank Investment Bank Bhd’s (Maybank Research) observation annually, Petronas has to decide on how it would strike a balance between three major decisions: capex spending; dividend commitment; and balance sheet preservation.

“Given lower dividend commitments of RM32 billion for 2024 despite a higher average Brent crude oil expectation of US$85 (Petronas’ forecast), we see a possibility that Petronas’ capex will be hearty in 2024.

“As at end-September 2023, Petronas sits on a net cash position of RM96.7 billion.”

This comes as Petronas’s capex spending surged in the first nine months of financial year 2023 (9MFY23), whereby the group spent RM34 billion in 9MFY23 which is 25 per cent higher year on year (y-o-y).

From that, 72 per cent of the capex was allocated to both upstream and gas divisions, while downstream and new energy projects accounted for the rest, commented researchers with Kenanga Investment Bank Bhd (Kenanga Research).

“Out of the total capex, domestic spending was at RM16 billion, 37 per cent higher y-o-y, predominantly driven by the nearshore floating liquefied natural gas project in Sabah, Kasawari Gas Field development, and carbon dioxide 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 RM34b is still far from its target of an average of RM60 billion per annum (spanning from 2023-2027).”

Meanwhile, the group’s net cash remains sizable at RM97 million.

To recap, Petronas announced that it will pay a total of RM40 billion dividends to the government this year (2022: RM50 billion) and Kenanga Research believed that its cash flow would be more than sufficient to cover both dividends and capex (which is likely to be under RM60 billion this year).

“Moving into 2024, we expect dividends to be slightly lower than RM40 billion and this would provide extra room for Petronas to boost its capex closer to RM60 billion.

“As long as Brent crude prices remain above US$75 per barrel, the group is poised to increase its capex to around RM60 billion in 2024. From 2020 to 2022, the group recorded significantly lower capex, averaging RM38 billion.

“We anticipate Petronas will 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.”