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As the energy landscape in Malaysia evolves, Borneo’s state-owned companies such as Sabah’s SMJ Energy and Petroleum Sarawak Berhad (PETROS) provide new opportunities to the development of Sabah and Sarawak.
The creation of state-owned entities like Sabah’s SMJ Energy and Sarawak’s PETROS to manage the states’ oil and gas resources is seen by some as a bold assertion of state rights under the Malaysia Agreement 1963 (MA63).
Recent financial performance of these entities presents new opportunities amidst emerging challenges, risks and headwinds.
Financial Performance: Sabah SMJ Energy
SMJ Energy Sdn. Bhd established by the Sabah state demonstrated a remarkable financial recovery in 2023, highlighted by significant improvements in its income statement, a year after its debt restructuring exercise to repay Sabah Development Bank (SDB) through the acquisition of Sabah International Petroleum (SIP)
The company reported a substantial revenue of MYR 944 million reflecting greater operational performance after acquiring PETRONAS’ assets and equities at discounted prices after months of negotiations.
This revenue growth translated into a profit before tax of MYR 117 million, a significant turnaround from the previous year’s loss of MYR 7 million. SMJ Energy secured its first profit after tax of MYR 100 million highlighting its potential recovery after its acquisition of debt-ridden Sabah International Petroleum (SIP) by raising RM 1.2 billion sukuk in 2023.
However, SMJ Energy is shouldering higher liabilities each. Its total liabilities for 2023 amount to MYR 3.7 billion, against its total assets of MYR 5.1 billion resulting in a high debt ratio of approximately 0.73.
Such high debt ratio indicates a substantial reliance on debt financing can pose significant risks, especially if the company experiences a decline in revenues or an increase in costs, which could strain its ability to service its debt obligations.
Further analysis showed SMJ Energy is exposed to high liquidity risks. Its current assets for 2023 stand at MYR 542 million while its current liabilities stood at MYR 827 million resulting in a current ratio of approximately 0.66.
Consequently, at net operating margin of 10%, SMJ Energy may face challenges in meeting its immediate financial obligations without resorting to external financing or the liquidation of assets.
Financial Performance: Petroleum Sarawak (PETROS)
Petroleum Sarawak Berhad (PETROS) has demonstrated strong financial performance in its income statement, showcasing robust growth across key metrics. For the year ending 2022, PETROS reported a substantial revenue of MYR 1.79 billion, a significant increase from MYR 1.36 billion in 2021.
This surge in revenue reflects the company’s successful expansion after increasing their stakes in upstream oil and gas activities.
The growth in revenue translated effectively into the bottom line, with the company recording a profit before tax of MYR 833 million up from MYR 516 million the previous year. This remarkable improvement of margin underscores PETROS’s operational efficiency and its ability to capitalize on favorable market conditions.
Most of the revenue however comes from its equity stakes in the production sharing contracts (PSC) and other assets that were sold by PETRONAS, mostly at discounted prices and may not reflect the true value.
PETROS has significantly bolstered its current assets, which more than cover its current liabilities. This robust liquidity position allows the company to manage its short-term obligations comfortably and invest in growth opportunities without immediate financial strain. The increase in current assets, paired with a decrease in current liabilities, indicates improved cash flow management and operational efficiency.
Borneo explores new opportunities and control
Recent developments in the management of oil and gas resources and demands by Borneo states have raised critical questions about whether Sabah and Sarawak are still committed to this spirit of shared prosperity.
According to RHB Investment Bank, the move for Sarawak to control the gas distribution via DGO 2016 Act will benefit PETROS significantly and the national oil company PETRONAS stands to lose RM 20 billion of revenue from its natural gas revenue.
As both PETROS and SMJ Energy are operating at high debt, it faces huge risk to ensure the current oil and gas assets are generating sufficient income and profit to deliver a consistent dividend to the states.
But from another perspective, these moves such as controlling the gas distribution appear selfish, counterproductive and potentially threatening the federal unity that Malaysia’s founders envisioned. The implications of these state-led initiatives may be undermining the national development given the natural resources are meant to be share equally across the states of Malaysia.
Conclusion:
The establishment of state-owned entities like SMJ Energy and PETROS represents a significant shift in Malaysia’s oil and gas resources landscape, offering new opportunities to assist the development of oil-producing states such as Sabah and Sarawak.
While these moves are often framed as necessary for ensuring that Sabah and Sarawak benefit more directly from their resources, they risk fragmenting the nation’s economic strategy and potentially exacerbating regional inequalities given their current financial performance and benefit to the state.
State-owned companies must work with national entities to ensure that the wealth generated from the nation’s natural resources benefits all Malaysians, not just a select few.
