Periodic/Sector reports
Oil & Gas: Petronas’ 1H26: Clear Legacy “Clots”; Recharge For Energy Security
Highlights
- Petronas’ 1H26 is a story of portfolio restructuring and clearing legacy roadblocks. Like most other global oil majors, Petronas’ upstream and gas & maritime segments benefitted from higher O&G prices by 28%/14% vs 1H25, and about RM7m of disposal gains related to upstream assets restructuring (to Searah JV) in addition to that. These offset a recognition of substantial RM22m accumulated JV losses in PRefChem (which we highlighted in our Jul 26 sector update). We expect Petronas Chemicals will finalise PRefChem ownership soon, which is also crucial for energy security, especially for downstream fuel and the Southern Hub (Johor) with the incoming data centre demand.
- Portfolio restructuring ties to energy security (upstream domestic production of 2m boepd). Petronas reiterated this commitment until 2028 at least, and is made possible via a series of portfolio restructuring including the Searah JV, farm-outs to Enquest and Vestigo, and quicker sanctioning of deepwater projects like Limbayong. Internationally, Brazil and Suriname are expected to see more sanctions. While it remains to be seen if these trends can overcome the hurdles in relation to the Petronas-Petros constitutional issue, near-term risks on workflow disruptions will be apparent for 2H26. Maintain MARKET WEIGHT.
Analysis
- Upstream gains from higher O&G prices and portfolio restructuring. The higher profitability for the upstream and gas & maritime segments reflected 28%/14% higher Brent/LNG prices (based on Japan Crude Cocktail) vs 1H25. Petronas recognised RM5m-7m in disposal gains, representing disposals of five Malaysian upstream assets previously managed by Petronas Carigali, in exchange for 50% of Searah (a 50:50 JV with Eni that consists of 19 assets across Malaysia and Indonesia).
- These more than offset lower upstream volumes, where Petronas’ crude oil production from both Malaysia and international portfolios declined by 3% yoy. Malaysia’s crude exports had halved since 2018 to about 0.2m boepd, in tandem with a structural decline in domestic crude production that fell from the peak of 0.7m boepd more than one decade ago to about 0.4-0.5m boepd. Recent data shows an alarming drop in crude exports for May 26 and Jul 26 at only 0.033m boepd. Malaysia’s refined product exports have weakened slightly since Jan 26 to under 0.7m boepd.
- Upstream and LNG gains anchored Petronas dividend obligations for 1H26. The gas & maritime segment did better in terms of benefitting from higher LNG prices, but also higher LNG volumes generated. While this included higher volumes from LNG Canada, data on Malaysia’s Liquefied Natural Gas (LNG) exports still showing a consistent monthly delivery. Overall, Petronas has paid RM8b dividends in 1H26, and we believe Petronas will not face difficulty to meet its RM20b obligation.
Highlights
- Petronas’ 1H26 is a story of portfolio restructuring and clearing legacy roadblocks. Like most other global oil majors, Petronas’ upstream and gas & maritime segments benefitted from higher O&G prices by 28%/14% vs 1H25, and about RM7m of disposal gains related to upstream assets restructuring (to Searah JV) in addition to that. These offset a recognition of substantial RM22m accumulated JV losses in PRefChem (which we highlighted in our Jul 26 sector update). We expect Petronas Chemicals will finalise PRefChem ownership soon, which is also crucial for energy security, especially for downstream fuel and the Southern Hub (Johor) with the incoming data centre demand.
- Portfolio restructuring ties to energy security (upstream domestic production of 2m boepd). Petronas reiterated this commitment until 2028 at least, and is made possible via a series of portfolio restructuring including the Searah JV, farm-outs to Enquest and Vestigo, and quicker sanctioning of deepwater projects like Limbayong. Internationally, Brazil and Suriname are expected to see more sanctions. While it remains to be seen if these trends can overcome the hurdles in relation to the Petronas-Petros constitutional issue, near-term risks on workflow disruptions will be apparent for 2H26. Maintain MARKET WEIGHT.
Analysis
- Upstream gains from higher O&G prices and portfolio restructuring. The higher profitability for the upstream and gas & maritime segments reflected 28%/14% higher Brent/LNG prices (based on Japan Crude Cocktail) vs 1H25. Petronas recognised RM5m-7m in disposal gains, representing disposals of five Malaysian upstream assets previously managed by Petronas Carigali, in exchange for 50% of Searah (a 50:50 JV with Eni that consists of 19 assets across Malaysia and Indonesia).
- These more than offset lower upstream volumes, where Petronas’ crude oil production from both Malaysia and international portfolios declined by 3% yoy. Malaysia’s crude exports had halved since 2018 to about 0.2m boepd, in tandem with a structural decline in domestic crude production that fell from the peak of 0.7m boepd more than one decade ago to about 0.4-0.5m boepd. Recent data shows an alarming drop in crude exports for May 26 and Jul 26 at only 0.033m boepd. Malaysia’s refined product exports have weakened slightly since Jan 26 to under 0.7m boepd.
- Upstream and LNG gains anchored Petronas dividend obligations for 1H26. The gas & maritime segment did better in terms of benefitting from higher LNG prices, but also higher LNG volumes generated. While this included higher volumes from LNG Canada, data on Malaysia’s Liquefied Natural Gas (LNG) exports still showing a consistent monthly delivery. Overall, Petronas has paid RM8b dividends in 1H26, and we believe Petronas will not face difficulty to meet its RM20b obligation.
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