UOB Kay Hian
Date of Report: September 8, 2025
Petronas Faces Polycrisis: Malaysia Oil & Gas Outlook, Key Companies, and Sector Trends for 2025

Introduction: Navigating the Polycrisis in Malaysia’s Oil & Gas Sector

Malaysia’s oil & gas sector, spearheaded by Petronas, is undergoing a significant recalibration in 2025. Amid volatile oil prices, energy transition costs, geopolitical risks, and shifting local landscapes, Petronas’ financial and operational resilience are being tested. This comprehensive analysis covers Petronas’ performance, major sector developments, and outlook on leading companies including Yinson Holdings, MISC, Dialog Group, and Velesto Energy.

Petronas: Financial Performance Under Pressure

Petronas extended its declining trend from 2024, with first half 2025 (1H25) profit and EBITDA falling 19% and 15% year-on-year (YoY), respectively. The drop was driven by lower realized prices and volumes, but the group remains committed to its RM32 billion dividend obligation. CEO Tengku Taufik highlighted the challenges of cash flow generation in a “polycrisis” era, citing energy transition costs, oil price deflation, unwinding OPEC+ cuts, protectionism, and local structural shifts.

Capex and Cash Flow Trends

– Group capex dropped substantially to RM17.7 billion in 1H25 (vs RM26 billion in 1H24), mainly due to upstream segment cuts. – No detailed breakdown of domestic vs. overseas or energy transition-related capex was provided, but previous guidance expected 20-25% dedicated to non-O&G/energy transition. – Free cash flow (FCF) for 1H25 reached RM30 billion, nearly matching the dividend obligation, but has not accounted for right-sizing exercises. – Petronas’ workforce expanded post-pandemic, peaking at 54,105 staff in 2023.

Energy Security: Three Strategic Pillars

1. Strengthening Domestic Oil & Gas Production

– Target: Ramp up domestic O&G production to 2 million barrels of oil equivalent per day (boepd). – 2023/2024 output: 1.7m boepd (gas: 1m-1.2m boepd). – Notable decline in crude oil and LNG exports in 1H25, with severe qoq drop in LNG exports in May 2025 due to major shutdowns at MLNG Satu and Dua terminals. – Capex prioritization is shifting toward maintenance of upstream assets and key downstream facilities (MLNG, Pengerang).

2. Expanding High-Quality Overseas Upstream Assets

– Petronas aims to increase overseas upstream portfolio from current 40-50% Net Present Value (NPV) mix to 60% by 2030. – Focus regions: Suriname, Indonesia, Angola, Brazil, Canada. – New project NPV targets: Profitable at US\$50/bbl oil price (previously >US\$60/bbl).

3. Maturing Exploration-Stage Reservoirs with Technology

– Activating five Malaysian frontier basins to expand 3D seismic coverage from below 15% to 50% by 2030 (mapping 50,000 sq km). – Annual investment: RM0.5 billion. – Enhanced 3D data coverage reduces exploration risks; Uzma is the sole local contractor for these projects, with mobilization beginning August 2025.

LNG Export Trends and Market Data

Malaysia’s LNG exports have been volatile, reflecting both global price movements and domestic operational challenges.

Structural and Geopolitical Risks: The Sarawak Gas Challenge

Petronas faces local geopolitical risk of losing control over part of its upstream portfolio: – Petros is now Sarawak’s sole gas aggregator, requiring Petronas to rechannel 30% of Sarawak gas supply for domestic use (down from 90-95% exports). – The deal is expected to generate RM10-20 billion for Petros. – 30% supply equates to 1.2 million scf/day or about 9 MTPA, compared to MLNG’s 30 MTPA capacity. – Rising Peninsular Malaysia gas demand has prompted Petronas to build a third regasification terminal. – Key legal and operational uncertainty persists, notably with Shell Middle Distillate Synthesis (MDS) facing double invoicing for gas supply, resulting in court-led injunctions.

Key Sector Picks and Company Analysis

Yinson Holdings: FPSO Champion

– Yinson’s stellar project execution supports its rerating, notably delivering FPSO Agogo four months ahead of schedule with first oil in August 2025. – Final acceptance recently concluded. – Investment entry recommended in 6-12 months, pending clarity on non-O&G business reoptimization.

MISC: LNG and FPSO Growth, Short-Term Earnings Pressure

– 2025 earnings may be weak due to timing of LNG replenishments and FPSO Mero-3 stabilization. – Investment entry advised in 6-12 months, as LNG downside risks and impairments may persist until 4Q25. – Positives: Early delivery of new LNG tankers for QatarEnergy, ongoing bids for new FPSO contracts.

Dialog Group and Velesto Energy: Attractive Picks

– Dialog and Velesto Energy also favored for sector exposure.

ESG Developments: Petronas’ GHG Emissions Assurance

– Petronas’ GHG emission inventory for 2019-2023 attained “reasonable level of assurance” from LRQA Inspection Malaysia SB. – Recommendations include transitioning to online fuel composition monitoring and considering emissions from exported electricity. – 2024 data met “reasonable assurance at 5% materiality,” marking an improvement over previous limited assurance.

Operational Trends: Manpower, Capex, and Logistics

– Petronas’ right-sizing and portfolio re-optimization are expected after a manpower peak in 2023. – Manpower attrition rose to 12.3% in 2024, with 4,079 new hires. – OSV (Offshore Support Vessel) market faces uncertainty, with production-related OSVs stable at 118 vessels but drilling-related OSVs dropping to 220 in 2025. – Petronas’ logistics “Uberisation” eliminated 95 redundant OSVs, improving efficiency but complicating business planning for local OSV players (Dayang Enterprise, Perdana Petroleum, Liannex, Alam Maritim, Nam Cheong).

Sector Catalysts and Risks Ahead

– High Court has granted Petronas and Petros until end-September 2025 to resolve Sarawak gas rights. – September 22, 2025 may see a key decision on Shell MDS’s injunction order, potentially impacting RM600m in outstanding gas payments and delaying Sarawak O&G projects. – More transparency is needed on resource sharing and offshore vessel utilization.

Conclusion: Outlook and Investment Strategy

– Sector rating: MARKET WEIGHT, with no expected valuation recovery on Petronas-Petros resolution. – FPSO players like Yinson and MISC are favored for rerating potential, but entry is advised in 6-12 months pending non-O&G business progress and LNG earnings clarity. – Dialog Group and Velesto Energy also present attractive investment opportunities. – ESG progress and operational right-sizing signal Petronas’ commitment to resilience and transformation amid polycrisis challenges. – Investors should monitor sector catalysts, geopolitical developments, and company-specific execution for portfolio positioning in Malaysia’s oil & gas sector as the landscape evolves through 2025.