KUALA LUMPUR (Dec 30): RAM Ratings has reaffirmed its AAA/Stable/P1 corporate credit ratings (CCRs) of Petroleum Sarawak Bhd (PETROS), while also reaffirming the AAA/Stable rating of the sukuk issued by its subsidiary Petroleum Sarawak Exploration & Production Sdn Bhd’s (PSEP).

The rating agency said the ratings assigned to PETROS and PSEP’s multi-currency Islamic medium-term notes of up to RM15 billion (2021/2051) mirror Sarawak’s state implicit strength in view of the group’ strategic importance to spearhead the development of Sarawak’s sizeable oil and gas reserves.

State-owned PETROS will be able to derive ready financial assistance if required, as well as regulatory support from the Sarawak government, RAM Ratings’ analysts Joel Thum and Thong Mun Wai said in a statement.

They noted that despite being a new oil and gas group, PETROS’ planned investments into mature upstream assets, which generates cash flow from the outset, makes its operating risk manageable and would not be exposed to the high-risk exploration and greenfield development phases of the upstream business.

RAM Ratings noted that PETROS completed the acquisition of participating interests in two separate production sharing contracts of 50% and 20% respectively on Jan 1, 2021, through PSEP. 

For the first half of its financial year ending Dec 31, 202 (FY21), PETROS registered revenue and pre-tax profit of RM569.3 milllion and RM168.2 milllion respectively, with a commendable operating profit before depreciation, interest and tax (OPBDIT) margin of 68%. 

“Upon completion of remaining investments by fiscal 2024, annual revenue and OPBDIT should exceed RM3.5 billion and RM1.5 billion respectively,” said RAM Ratings.

The agency expects PETROS’ remaining earmarked investments to be spaced out for now due to high crude oil prices, and for the group’s debts to rise significantly in the coming years, in line with funding needs for upstream investments and capital expenditure (capex).

“We expect gearing to be around 2.2 times before easing in FY25. On the back of healthy operating profits, we expect PETROS’s debt to OPBDIT ratio to stay fairly healthy at 2.8 times on average throughout fiscal 2022-2025. 

“Anticipated robust earnings and operating cash flow over the same period will keep the group’s projected average OCF debt cover and interest coverage strong at a respective 0.37 times and 10 times,” said RAM Ratings.

The rating agency also said that PETROS is exposed to the volatility of crude oil and natural gas prices, which are expected to soften next year as production regains momentum to meet higher consumption levels.

“Conversely, prolonged periods of feeble prices will adversely affect the group’s business and financial performance, while weakening its ability to service financial obligations and fund capex. 

“Although hefty investments for exploration and development are not required, the group will still need to incur an average of RM800 million in recurring annual capex to sustain oil and gas output, once earmarked investments are completed,” said RAM Ratings.