About 4,000 oil service providers in Malaysia are set to face fiercer competition this year as low energy prices and the global economic turmoil prompt national oil company Petroliam Nasional Bhd (Petronas) to reduce its capital expenditure (capex) and operating expenditure (opex). This means that those service providers will have to compete for fewer jobs and contracts.
Petronas announced plans to lower its capex by 21% and opex by 12% this year. Petronas allocated MYR50 billion ($11.45 billion) for capex this year, out of which MYR26-28 billion ($5.95-6.41 billion) is for domestic activities. While the company did not disclose guidance for its opex, it is expected to hover around last year’s MYR22.66 billion ($5.18 billion).
Analysts predict that weaker companies which are unable to secure a share of the cake will go under, while companies able to win contracts will generate mediocre earnings. Analysts also expect consolidation among oil & gas service providers, especially offshore support vessel (OSV) players which are expected to take the heaviest blow from Petronas’ capex cut.
Petronas on Friday reported a 68% year-on-year plunge in its profit for the first quarter of 2020 at MYR4.52 billion ($1.04 billion). Meanwhile, revenues fell 3.87% year-on-year to MYR59.59 billion ($13.65 billion). The company attributed lower profit and revenue to the falling prices of LNG, petroleum products, condensates, and crude oil.
The collapsing oil prices not only force Petronas to cut its spending but also other major oil companies such as Saudi Aramco, ExxonMobil, and Royal Dutch Shell, which have slashed their combined spending by $38 billion, or about 22% of their initial expenditure plans.
