Controlled excitement despite soaring profit at Petronas

Profit at the national oil giant rose 311% during the April-June 2017 period to RM7b


Petroliam Nasional Bhd’s (Petronas) profit soared more than 300% for the second-quarter of 2017 (2Q17), but the erratic global oil market, impending provisions for cancel projects and foreign-exchange (forex) risk exposure continue to mar the national energy company’s future.

Profit at the national oil giant rose 311% during the April-June 2017 period to RM7 billion, compared to RM1.7 billion recorded in the corresponding period a year ago.

Besides the higher average realised prices across all its products, lower net impairment on assets helped Petronas to deliver the sterling financial results.

Revenue growth for 2Q17 only rose 10% to RM51.6 billion, from RM46.9 billion in the same period last year.

Higher net forex losses, amortisation of oil and gas (O&G) properties, as well as non-final investment decision (FID) costs for the scrapped liquefied natural gas (LNG) plant in Canada had impacted the bottom line.

CEO Datuk Wan Zulkiflee Wan Ariffin was not overly excited over the 2Q results, as the industry is not yet out of the woods.

“While the price of oil was a significant factor (to the strong financials), I also view this as tangible results of Petronas’ transformation measures taken in response to the industry downturn,” he told a packed media briefing at the Petronas Twin Towers last Friday.

Wan Zulkiflee said despite the higher prices compared to a year ago, the industry remains volatile.

“Despite higher oil prices compared to a year ago and overall stronger financial and operational performance, the industry remains volatile. We are tempering our optimism. We temper our outlook because we are conservative,” he said.

But he assured that the softer outlook does not have an impact on the dividend payout to its sole shareholder, the Malaysian government.

“Petronas will continue to focus on internal transformation initiatives, effective cash management and cost optimisation,” he said.

Petronas’ half-year 2017 net profit also registered growth to RM17.3 billion this year compared to RM6.4 billion in the same period of 2016.

Wan Zulkiflee said the first-half of 2017 (1H17) was a mixed bag for the national oil company as it attempted to deal with the aftermath of the global O&G industry downturn.

“Our capital investments for the first six months this year was RM21 billion, RM4 billion lower than 1H16. This was mainly spent on the Refinery and Petrochemical Integrated Development (Rapid) project as construction activities for the project reaches its peak.

“Our cash position remains strong with a cash balance of RM138 billion, and we kept a low gearing level at 17.1% and maintained our credit ratings,” he said.

The decision to not proceed with its FID for the US$29 billion (RM124.12 billion) Pacific NorthWest LNG project in Canada, had cost Petronas RM1.5 billion in cost after tax, said Wan Zulkiflee.

The RM1.5 bi l l ion includes RM700 million in impairment, while the remaining was the estimated termination costs due to contractor TransCanada Corp — which was set to build a pipeline integral to the Canada LNG project.

“We are looking at options and finalising our strategy on how to monetise our North American gas assets. All options are being looked at,” he said, when asked to comment on Petronas’ assets in the region.

Wan Zulkiflee said the decision not to proceed its FID for the Pacific NorthWest LNG project in Canada was made in the interest of sustaining Petronas’ future business interests.

“We arrived at this decision following a thorough review of the project, taking into account the current market and external environment.

“While we are disappointed with the turn of events, we remain committed to our business in Canada where we own world-class assets. The decision
allows us to ensure optimum value to our business, which we now look to monetise at the time, for the right price.”

Wan Zulkiflee also said Petronas will pay the government RM16 billion this year in dividends, up from its earlier commitment of RM13 billion.

The revised commitment — which would match the firm’s payment of RM16 billion last year — was recently approved by the board due to the company’s financial performance.

“So far, we have paid RM6.8 billion to the government. The remaining RM9.2 billion will be paid in instalments over 2H17,” he added.

Petronas paid the government RM26 billion in 2015. As of last year, Petronas’ dividends accounted for over 7.5% of total federal government’s revenue.

On oil price, Wan Zulkiflee said Petronas expects oil prices at US$49 per barrel at the end of the year and in the “high US$40s” next year.

“The price of oil today, at around US$50 per barrel, this is the level we must take as the norm,” he said.

He also said Petronas has decided to divest its assets in Algeria, and concluded a partnership in Cameroon as part of the company’s portfolio review.

Petronas will also not increase its capital expenditure (capex) for this year, maintaining the earmarked RM60 billion, with Brent crude oil prices pegged at US$45 per barrel.

As at June 30, Petronas has spent RM21.3 billion in capex, of which 59% was in the Rapid project in Pengerang.

Only 20% of its 1H capex was used for exploration and development projects.

“Petronas is focusing on developing its downstream portfolio in the coming years and we see our peers doing the same,” he said, adding that the firm had been “upstream biased” in the past.

“We are moving forward to increase downstream contribution…it would be bigger than what it was 10 years ago. We are also looking at other areas such as renewable energy,” Wan Zulkiflee said.