PETALING JAYA: Industry players believe that the turf war of sorts between Petroliam Nasional Bhd (Petronas) and the Sarawak state government is likely to affect new investments into the state's oil and gas sector more than existing players in the market. A senior analyst who spoke to SunBiz on condition of anonymity said those who are already operating in the state might not see much of an impact at this juncture, but it is best for fresh entrants to take on a wait-and-see approach as the matter unfolds. Kenanga Research in its note to investors last Thursday said it expects the ongoing tussle between Petronas and state-owned Petroleum Sarawak Bhd (Petros) to continue with anticipation of Petronas pursuing a court case, although this might delay the awards of Production Sharing Contracts (PSC) in the state. According to Datuk Mohd Abdul Karim Abdullah, managing director and CEO of Serba Dinamik Holdings Bhd, which has substantial operations in Sarawak, the state government has been prompt in updating industry players in terms of applications and approval of licences, permits and leases which Petronas and PSC holders will have to adhere to, but is yet to provide a clearer direction for contractors and suppliers. He asserted, however, that Serba Dinamik is gearing itself towards fulfilling and complying with the requirements. When contacted by SunBiz for more details, a Petros board member declined to comment, saying any statements made will have to be from the state government. The Sarawak chief minister's office responded to SunBiz by saying that Datuk Patinggi Abang Johari Tun Openg will be touching on the matter in the State Legislative Assembly seating which starts tomorrow. The analyst said while Sarawak has claimed ownership and has started exercising regulatory authority since July 1 with a focus on revenue generation, more needs to be done on the capital injection front. "At the end of the day the state government wants more revenue for its oil and gas assets. How are they going to do it? Is it (through) additional taxation or is it through an equity stake in oil and gas assets?" he asked. One issue with that, he pointed out, would be the fact that current projects have all seen capital injection and development by Petronas, thereby making it difficult for the state to stake a claim. "Oil is just out in the sea under the seabed … you cannot get this unless you have the management, and the capital to put in (for) the necessary equipment and assets to extract it from the ground or else it will just be a resource that is untapped," he added. Alternately, if Sarawak chooses to increase royalties, this too could have its own repercussions as it might affect the inflow of investments from industry players and reduce the rate of returns from oil and gas assets, creating an environment shrouded in uncertainties. These uncertainties will in turn affect companies' ability to secure lending from financial institutions. Petronas currently pays a 5% royalty to oil and gas-producing states, but the Pakatan Harapan government promised in its election manifesto to increase the royalty to 20%. Meanwhile, Kenanga Research opined that the timeline of the 20% royalty payment promised by the Pakatan government remains vague given the ongoing tussle over regulatory rights, thus the move to increase royalties is unlikely to affect Petronas' FY18 capital expenditure(capex) allocation of US$55 billion (RM242 billion) as these are typically long-term plans which are subject to little change once finalised. However, once the increase in royalty is implemented, Petronas' capex headroom might see a strain as there could be greater reliance on its dividends to finance government plans, especially with the zero rating of the Goods and Services Tax.