RAM Ratings has reaffirmed the AAA/Stable/P1 corporate credit ratings (CCRs) of state-owned Petroleum Sarawak Berhad (PETROS or the Group). Concurrently, we have reaffirmed the AAA/Stable rating of the Multi-Currency Islamic Medium-Term Notes of up to RM15 billion (2021/2051) issued by Petroleum Sarawak Exploration & Production Sdn Bhd (PSEP), a wholly owned subsidiary of PETROS.

The CCRs and sukuk rating mirror Sarawak's State Implicit Strength in view of the Group's strategic importance in spearheading the development of the state's sizeable oil & gas (O&G) reserves. We expect PETROS to derive ready financial assistance if required as well as regulatory support from the Sarawak state government (SSG). 

Although a newly established O&G company, PETROS's planned investments into upstream mature assets make operating risk manageable. As such, PETROS is not exposed to the high-risk exploration and greenfield development phases of the upstream business. Mature assets will generate cashflow from the outset, unlike greenfield ventures. 

PETROS, through PSEP, completed the acquisition of respective 50% and 20% participating interests in two separate production sharing contracts on 1 January 2021. For 1H FY Dec 2021, the Group registered revenue and pre-tax profit of RM569.3 mil and RM168.2 mil, 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 bil and RM1.5 bil, respectively.

The remaining earmarked investments will be spaced out for now, owing to high crude oil prices. In tandem with funding needs for upstream investments and capital expenditure (capex), PETROS's debts are anticipated to rise significantly in the coming years. We expect gearing to be around 2.2 times before easing in FY Dec 2025. On the back of healthy operating profits, we expect PETROS's debt to OPBDIT ratio to stay fairly healt