PETALING JAYA: Petroliam Nasional Bhd (Petronas) has painted a sombre picture of the oil and gas (O&G) industry, stating that the requirement for assets such as rigs would be halved from three years ago.

The report, which was made public for the first time to instil reality into the industry, outlined the requirements from the companies servicing Petronas for the next two years until 2020.

Among the highlights of the report is that the need for jack-up rigs, used in exploration activities, has been reduced by half to about 10 rigs for the period 2018-2020, compared to 2013-2014.

Petronas’ demand for tender assisted drilling rigs (TADRs) is also down significantly by about 60% for the next two years compared to the peak period of oil between 2013 and 2014. Among the companies providing jack-up rigs and TADRs are UMW Oil & Gas Corp Bhd and Sapura Energy Bhd .

The lower requirements are in tandem with the marginally lower output by Petronas. The national O&G company will produce 100,000 fewer barrels to 1.7 million barrels of oil equivalent per day (m/boe) in the next five years.

In the report, called Petronas Activity Outlook (PAO) 2018-2020, the national oil company said the forecast activities were based on crude oil prices of between US$50 and US$60 per barrel.

“Oil at US$100 a barrel is a thing of the past,” said Petronas in the PAO report yesterday.

It added that Petronas would continue to adopt lower prices for the longer approach until it is confident that the current uptrend is sustainable.

Benchmark Brent crude oil yesterday traded at US$63.20 a barrel, still less than mid-2014 levels of more than US$100 a barrel.

The objective of Petronas making available the report is to enhance transparency on its future capital expenditure and help shape the industry into fewer but bigger players.

Another reason for the transparency is to push further consolidation in the industry.

“We need to reshape the Malaysian O&G ecosystem so that the companies that operate here will be more efficient, with the size and economies of scale that will also make them more resilient and competitive globally,” said Petronas president and group chief executive officer Tan Sri Wan Zulkiflee Wan Ariffin in the report.

Even before the downturn in oil prices that started in June 2014, Petronas had advocated for the industry players to scale down and consolidate.

There are about 4,000 O&G companies that are registered with Petronas. Norway, which has similar-sized O&G deposits as Malaysia, has just around 700 players in this sector.

Other areas highlighted by Petronas are in the supply of various kinds of marine vessels for offshore exploration and drilling activities. The vessels are generally anchor-handling tug supply boats, platform supply vessels, straight supply vessels and fast crew boats.

Petronas stated that in recent years, the marine vessel category has been faced with a critical oversupply situation and is unlikely to reach the historical high levels seen in 2013 and 2014.

“Market self-correction is gradually driving towards supply-demand balance,” it said.

Petronas will continue to open up greenfield projects at a rate of more than 20 for the next three years. It is the same as the number of new fields it opened up between 2014 and 2016 and higher than the number of greenfield exploration projects the national oil company has planned for 2017 to 2019.

Petronas stated it would require new facilities to cater for more than 20 greenfield O&G projects between 2019 and 2020, compared to 10-15 previously.

However, UOB Kay Hian analyst Kong Ho Meng said the new numbers for the greenfield project have been partly affected by delays in new project roll outs in the past few years.

“Overall, the outlook for the local O&G sector is almost the same compared to the first report.

“With Petronas’ global liquefied natural gas projects at risk, there is unlikely to be a significant upside in additional capital expenditure allocation for the domestic upstream projects in the coming years,” he told StarBiz.

He said based on the latest PAO report, Barakah Offshore Petroleum Bhd was among the losers, whereas big fabricator players such as Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE) and Sapura Energy were among the beneficiaries.

Barakah Offshore is mainly involved in the offshore pipeline service provider segment. According to the PAO report, there are about two pipelay barge projects in 2018 and six in 2019.

“But it should be noted that the biggest issue is that there is overcapacity in O&G assets such as fabricators and marine support vessels in Malaysia,” Kong pointed out.

At present, there are eight domestic fabricators licensed with Petronas, out of which six are listed on Bursa Malaysia.

The listed fabricators are MMHE, Sapura Energy, TH Heavy Engineering Bhd , Boustead Heavy Industries Corp Bhd, KKB Engineering Bhd and Muhibbah Engineering (M) Bhd.

The two non-listed fabricators are Labuan Shipyard & Engineering Sdn Bhd and Brooke Dockyard and Engineering Works Corp.

This is the first time Petronas is making available its requirements on assets such as jack-up rigs, fabrication work and offshore service vessels.

Petronas’ spending for upstream activities in Malaysia peaked in 2014, where it had set aside 71% of the RM39bil in capital expenditure. Last year, it was down to less than 30% of the total RM41bil, and it will be even lower over the next few years.